version 2, draft 2

Ministry of Finance budget proposal reinforces central government finances and promotes growth

Ministry of Finance 7.8.2012 16.35

Finance Minister Jutta Urpilaisen’s budget proposal for 2013 is one that strengthens central government finances and fosters economic growth. It draws largely on measures introduced in the spending limits decision reached in April. The full budget proposal will be published on the Ministry’s web pages (www.vm.fi) on Wednesday 8 August 2012 once it is complete. The Government will deliberate it in the government budget session between 29 and 30 August 2012. 


Social guarantee for young people

Action to help young people and new graduates integrate into the labour market include measures such as the social guarantee for young people. All jobless people aged under 25 years and new graduates aged under 30 without employment will be offered either a job, or training or active employment measures within three months of unemployment at the latest.


Active, pro-growth employment and entrepreneurship policies

With a view to reducing long-term unemployment, a municipal trial will be launched whereby municipalities will take on greater responsibility for the long-term unemployed. In this connection an employment bonus system will be introduced on a trial basis in 61 municipalities whereby each long-term unemployed person who finds employment is entitled to retain one month’s labour market support after taking up a job.

An action plan for promoting the employability of those who are partially capable of working will be introduced at the beginning of 2013. The integration of immigrants will be stepped up by introducing more training in integration.   

The budget proposal will boost growth by creating opportunities for new business activities and investment and by catering to the skills and labour needs of existing businesses. Service provision will focus especially on helping SMEs grow, develop and expand internationally.

Employment and entrepreneurship services will be revamped from the beginning of 2013. The aim is to better secure competent labour supply, to ensure swift employment of jobseekers and to encourage entrepreneurship. The services provided by the Employment and Economic Development Offices will be streamlined with those on the national level and the service range will be renewed.

In addition, a selection of fixed-term tax incentives will be introduced into the tax regime to boost economic growth. To stimulate product development that fosters growth, a tax incentive for R&D activities will be adopted and depreciation allowances for industry will be doubled to encourage investment. A tax incentive for investors will be adopted in capital income taxation granting investors a depreciation whenever they invest in emerging growth companies. Moreover, the acquisition cost assumption for unlisted emerging growth enterprises will be raised. 

Safeguarding purchasing power for low-income earners

To safeguard the purchasing power of low-income earners, index adjustments for 2014 will be brought forward so that the imputed index adjustment for 2014 will be introduced in part on 1 January 2013. This applies to certain basic social benefits linked to the national pension index and granted by the Social Insurance Institution (KELA) as well as living allowances. The increase applies to 2013 only and is designed to offset the impact of the increases in VAT rates on the purchasing power of low income earners. To improve family welfare, means-testing for labour market support applicable to spouses will be abolished.

Where a jobless person finds a job, the adjustments to housing allowances stemming from higher income brought about by employment will be deferred to six instead of three months. The related legislative amendments are due to enter into force at the beginning of 2013 and will be effective until the end of 2015. 

The system of living allowances will be reorganised by redefining the increments for unemployment security during active life as preferential income. This reform will better encourage the long-term unemployed to participate in active employment measures.

Tax adjustment measures to consolidate government finances

The main tax policy measures adopted in the Ministry f Finance’s budget proposal are to abolish adjustments for inflation and for earnings levels in earned income taxation and to raise all VAT rates by one percentage point. Tax revenue will also grow owing to an increase in the asset transfer tax on shares in housing corporations and real estate companies. Taxes on insurance premiums, vehicle taxes and taxes on waste will also be increased and the taxation of mileage allowances will be tightened.</></>

The overcompensation of tax-exempt mileage allowances will be gradually phased out. From the beginning of 2013 the tax-exempt level will be lowered by 5% across the board from the existing level. This means for example that instead of 45 cents per kilometre, the tax-exempt allowance will be 43 cents per kilometre. In addition, the tax-exempt allowance level will be reduced to 55% from the existing level for mileage exceeding 15,000 kilometres, meaning that for any mileage exceeding 15,000 kilometres, the tax-exempt allowancewill be for instance 25 cents instead of 45 cents per kilometre.

A bank levy will be introduced. In addition, a new public broadcasting tax will also be adopted next year to replace the system of TV licenses, and the revenue will be channelled through the National Television and Radio Fund to the Finnish Broadcasting Company.

Policy measures that are more equitable in terms of taxation will also be instituted. It is proposed that a temporary very high income bracket be introduced into the income tax scales. Moreover, taxes on large inheritances and large pension income will be made tougher while taxes on low income will be eased by raising the earned income deduction and the basic deduction in local taxation.  

Local government and parishes will continue to receive a raised corporate tax apportionment in local government in 2013.

EUR 6.6 billion deficit

The Ministry of Finance’s budget proposal consists of EUR 53.9 billion in appropriations, which is EUR 1.4 billion more than in the ordinary budget for 2012.

The appropriations for the administrative branches include the adjustment measures introduced in the spring spending limits decision. Their net effect in reducing expenditure will amount to around EUR 370 million in 2013. The government’s cuts in spending apply to many administrative branches. For instance the indexing of central government transfers for general education, the university index and index adjustments in child allowances will be frozen for the year 2013. Also, central government transfers to local government for basic public services will be cut by EUR 125 million relative to 2012.

Overall, the adjustment measures adopted this spring by the government (spending cuts and tax increases) will amount to about EUR 2 billion in net terms in 2013.

The budget proposal shows a deficit of EUR 6.6 billion. This means that government debt will increase to a total of EUR 95 billion in 2013.

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