Finland's Budget Proposals Unveiled, Income Tax To Be Reduced

by Ulrika Lomas, Tax-News.com, Brussels

05 September 2001

The Finnish government presented its 2002 budget proposals last month which included a modest reduction in income taxes of around 0.5 - 0.7 percentage points. The budget, states the government, was prepared in an 'exceptionally uncertain economic situation,' as economic growth in Finland has slowed down dramatically after a long period of expansion. This has forced the government to downgrade the growth forecast for the Finnish economy from 3.7 to 2.7 per cent for this year and from 3 to 2.5 per cent for 2002.

The government has also failed to maintain its target of expenditure as it was forecast two years ago - but only marginally. Central government expenditures amount to 34.6 billion euros. The surplus amounts to 0.5 per cent of GDP which compares to 1.9 per cent this year. Correspondingly, the general government surplus is expected to fall from 4.4 per cent in 2001 to 2.5 per cent in 2002.

The budget also took into account the fact that Finland's age structure will experience a major change over the next twenty years. The rapid ageing of the population will create huge demands on economic policy already in the medium term. 'It is therefore necessary,' a government statement explains, 'to prepare for this change which will reduce the growth potential and increase pressures on public expenditures. To meet this challenge, employment has to be increased, e.g., by reducing the heavy tax burden.'

The government says that it expects that proposals to reform the unemployment insurance and pension systems will be revealed in this Autumn which will enable the required legislative changes to be made during Spring 2002.

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