State budget expenditure increases during the COVID-19 pandemic
Fiscal rules, which constrain central government budgeting, were suspended in Finland and elsewhere in the EU in 2020 due to the COVID-19 pandemic. This led to a strong increase in the expenditure level in Finland’s state budget, permanent expenditure increases for items not related to the COVID-19 crisis, and an unnecessarily high level of appropriations, which was reflected in the growth of unused and carry-over appropriations.
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The NAOF’s fiscal policy monitoring function examined
- how much the level of appropriations rose in relation to the previous trend and the Government’s plans
- where the expenditure increases made during the COVID-19 pandemic were allocated to
- whether the suspension of fiscal rules accelerated expenditure increases for items unrelated to the COVID-19 crisis
- whether the determination of the level of appropriations changed in relation to the actual use of the appropriations.
Key findings
- Between 2020 and 2023, the expenditure level in the state budget was on average EUR 10 billion higher than planned by the Rinne–Marin Government before the pandemic.
- The Government allocated a total of EUR 18.2 billion of temporary expenditure increases to managing the COVID-19 crisis.
- The Government made permanent increases to items not related to the COVID-19 crisis, such as central government operating expenses, local government finances, and defence expenditure.
- In 2020–2023, the level of appropriations was overestimated, i.e. more appropriations were budgeted than was necessary.
- Unused and carry-over appropriations increased by 4 percentage points at the beginning of the COVID-19 crisis, and the higher level of appropriations then continued in the following years.
Briefly
Finland responded to the COVID-19 pandemic mainly by increasing the expenditure level in the state budget. However, only limited information has been available on where the expenditure increases were allocated to.
In 2020, almost 70% of the expenditure increases were allocated to managing the COVID-19 crisis, i.e. measures to combat the pandemic, unemployment benefits, transfers to households, and support and recapitalisation of businesses. From 2021 onwards, expenditure increases unrelated to the COVID-19 crisis began to stand out. These included appropriation increases for central government operating expenses, local government finances, and defence. The permanent increase in the level of expenditure is mainly explained by the expenditure increases made after the suspension of fiscal rules.
The suspension of fiscal rules led to permanent increases in appropriations for central government operating expenses, local government finances, and defence.
During the COVID-19 pandemic, the level of appropriations was overestimated, i.e. more appropriations were budgeted than was necessary. This was reflected in a broad-based increase in unused and carry-over appropriations. In 2020–2021, the underlying reasons were the higher than usual expenditure increases, while in 2022–2023, the high appropriations level of the previous years continued.
Any deviation from fiscal rules should be clearly limited to only the necessary crisis-related spending needs. Restricting the use of escape clauses will strengthen the credibility of fiscal rules and support the sustainability of public finances in future crises as well.
Around
€41 billion
cumulative expenditure increases in 2020–2023
Increase in unused and carry-over appropriations in 2020–2021
4
percentage points
Contact persons
Suvi Kangasrääsiö
Senior Economist
Fiscal policy audit