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Finance Minister unveils €62b-euro 2021 budget proposal

Vanhanen's government colleagues will debate and amend his proposal in September.

Matti Vanhanen saapumassa Säätytalolle.
Finance Minister Matti Vanhanen arriving at the House of Estates for a budget briefing on Wednesday, 12 August. Image: Heikki Saukkomaa / Lehtikuva

Finance Minister Matti Vanhanen (CEN) unveiled a 61.6-billion-euro budget for 2021 at a news conference on Wednesday afternoon, noting that the proposal is based on the assumption that the government has already dealt with the worst of the coronavirus crisis.

The spending proposal is based on Finance Ministry June forecasts indicating that the economy will grow by 2.5 percent next year.

Leaders of the five-party government coalition will meet in September to discuss, amend and possibly expand the budget proposal presented by the traditionally frugal ministry.

Presenting his first budget proposal as Finance Minister, Vanhanen said that Finland expects a deficit of about seven billion euros in 2021 and that government debt would amount to 132 billion euros by the end of next year.

The ex-PM said that although Finland will draw down more debt next year, its debt-servicing costs will not rise as interest rates will be low. However he warned that Finland should not become complacent about borrowing.

Vanhanen noted that the original government programme drawn up under ex-premier Antti Rinne (SDP) aimed to balance public finances by 2023. However he said that the coronavirus shock means that government will aim to bring debt under control by 2030 instead.

Tax hikes on cigarettes and alcohol

The minister said that one positive development was that state revenues would rise by 14 percent in 2021 due to economic growth, however higher taxes would not contribute as much.

No changes are planned to income tax levels, and taxes on work-related travel will be relaxed somewhat. Meanwhile planned reforms to property taxes will be deferred, he said. The lower income limit for businesses and entrepreneurs to collect and hand over Value Added Tax will rise to 15,000 euros, while the budget proposes hiking taxes on alcohol, cigarettes and heating oil.

Higher sin taxes (on alcohol and cigarettes) are expected to bring in an additional 50 million euros, while 100 million euros should accrue from increased taxation on heating oil.

Taxes on electricity for industrial use will be cut to the minimum EU level, reducing the government’s tax take from this source by about 245 million euros.

Vanhanen said that the government’s reconstruction programme, EU coronavirus recovery funds and future investments will all be combined into one package and that investment projects will be scrutinised for their cost-effectiveness.

He said that a central principle of the budget proposal is that Finland will return to its previous spending framework next year. He added that this would send a signal to credit agencies that its actions are predictable.

Vanhanen added that structural reforms such as social and health care reform and employment measures are also important in this regard. The Finance Ministry is expected to separately publish measures to raise the employment rate on Friday.

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