Fiscal policy monitoring report 2019

It is a statutory task of the National Audit Office of Finland (NAOF), as part of the auditing of central government finances, to supervise compliance with the Fiscal Policy Act and the provisions issued under it. In order to carry out its supervisory task, the NAOF has assessed the draft budgetary plan and the materials on which it is based, including the Government’s budget proposal for 2020, the General Government Fiscal Plan for 2020–2023, and the economic forecast by the Ministry of Finance on which the Plan is based.

According to the assessment published by the NAOF in November, Finland risks violating those rules of the preventive arm of the EU Stability and Growth Pact which aim at ensuring stable general government finances. The fiscal policy monitoring report includes more detailed analyses than the November assessment for instance of Finland’s compliance with the EU fiscal policy rules.

A significant deviation from the limits defined in the preventive arm of the EU Stability and Growth Pact may arise in the development of general government expenditure and general government structural deficit. The general government expenditure in Finland will grow faster in 2020 than specified in the EU rules. Moreover, based on forecasts, general government structural deficit will not decrease in line with the recommendation of the Council of the European Union. However, in light of the information presently available, the limit of a significant deviation would be exceeded by only a small degree in the case of structural balance.

According to the NAOF, the spending limits rule of central government has been complied with in the preparation of the budget for 2020 and the supplementary budgets for 2019. The spending limits system for the parliamentary term 2019–2023 has been supplemented with a mechanism for exceptional circumstances, which makes it possible to increase expenditure in the event of a severe recession. According to the NAOF’s assessment, the new mechanism will not jeopardise the credibility of the spending limits system.