Budget review 2011

January 2011
MINISTRY OF FINANCE
Snellmaninkatu 1 A, Helsinki
PO Box 28, FI-00023 Government
FINLAND
Tel. +358 9 160 01 or +358 9 578 11 (exchange)
Fax +358 9 160 33123
Official e-mail: valtiovarainministerio@vm.fi (documents etc.)
Media and Communications: vm-viestinta@vm.fi
Personal e-mail addresses: firstname.lastname@vm.fi
Internet: www.financeministry.fi
Orders: Ministry of Finance/Budget Department, tel. +358 9 160 33103
Layout: Anitta Heiskanen
ISBN: 978-952-251-135-5 (pdf )
Contents
ECONOMIC OUTLOOK FOR 2011.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Table.. Trends.in.the.national.economy.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
FISCAL POLICY AND SUSTAINABILITY OF PUBLIC FINANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Figure.. Age-related.expenditure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Table.. General.government.fnances.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
A STEP TOwARDS BALANCINg CENTRAL gOvERNMENT FINANCES.. . . . . . . . . . . . . . . . . . . . . . . 12
Figure.. On-budget.expenditure.by.administrative.branch.in.2011.. . . . . . . . . . . . . . . . . . . . . . . . . . 13
Table.. Selected.monthly.benefts.in.2011.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Table.. Average.expenses.of.selected.public.services.in.2008.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Table. Income.tax.scale.in.2011.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Figure.. Income.tax.rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2011 BUDgET IN DEFICIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Figure.. On-budget.expenditure.20082014. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Figure. Central.government.on-budget.revenue... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Figure.. Central.government.debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Figure.. What.tax.euros.are.spent.on.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Figure.. Where.tax.euros.derive.from. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
CENTRAL gOvERNMENT EU REvENUE AND ExPENDITURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Table.. Flow.of.contributions.between.Finland.and.the.EU.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
IMPROvED OUTLOOK FOR LOCAL gOvERNMENT FINANCES, BUT SPENDINg
DISCIPLINE STILL REqUIRED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Figure..... Annual.margins,.depreciation.and.net.investment.of.municipalities.and.joint.
municipal.authorities.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
OThER SELECTIONS FROM ThE 2011 BUDgET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7 Budge t r ev i ew 2011
Trends in the national economy
Forecast, December 2010
2007 2008 2009* 2010** 2011**
GDP at market prices (EUR bn) 179.7 184.6 171.3 180.0 189.1
GDP, change in volume (%) 5.3 0.9 -8.0 3.2 2.9
Unemployment rate (%) 6.9 6.4 8.2 8.4 7.8
Employment rate (%) 69.9 70.6 68.3 68.2 69.0
Consumer price index, change (%) 2.5 4.1 0 1.2 2.4
Interest rate (10 year bonds) (%) 4.3 4.3 3.7 3.0 3.3
Economic outlook for 2011
Te brisk recovery of the world economy will continue, with economic growth
buoyant in 2010 and 2011 at over 4 per cent. Te focus of growth will be in emerging
economies, such as China. Robust support and stimulus measures are contributing
to growth, but private demand is also strong, particularly in emerging economies.
Te demand-led recession adversely afected the Finnish economy rapidly and
strongly due to a decline in exports. In 2009 GDP fell by 8 percent. Recessions resulting
from a lack of demand are generally relatively short-lived and this also seems to be
case on this occasion. In 2010 the Finnish economy returned to a growth track, and
GDP rose on estimate by 3.2 percent. In 2011 economic growth will be driven largely
by strong development of exports and recovered domestic demand, and GDP growth
is forecast at just under 3 percent.
Te resumption of economic growth will have a delayed impact on employment.
Work input measured in working hours started to grow already in 2010 as the number
of lay-ofs will fall. In 2011 the employment situation will improve. At the same time,
however, a change in population age structure will constrain labour supply in the long
run, as from this year forward the number of 1564year-olds is estimated to decline
on average by up to 20,000 people per year. Te employment rate will rise in 2011
to some 69 percent and the unemployment rate will fall to a little under 8 percent.
A marked rise in world market prices and a weakening of the euro resulted in a
sharp pick-up in import and producer prices in early 2010. In 2010 consumer prices
8
Budge t r ev i ew 2011
rose on estimate by 1.2 percent. In 2011 the rise in consumer prices will follow import
and producer prices at an average of 2 percent. Increases in indirect taxes will also
raise domestic prices.
9 Budge t r ev i ew 2011
Fiscal policy and sustainability of public
f inances
Te outlook for general government fnances is overshadowed by rapid growth in
age-related expenditure during the next two decades, when population ageing in
Finland will be the fastest in Europe. In the current decade, pension expenditure
will grow particularly quickly. In the 2020s long-term care expenditure is projected
to grow rapidly as the baby boomer generation enters old age.
Te economic crisis has changed the priorities and bases of fscal policy. As a
result of the crisis, the balance of general government fnances has weakened sharply
owing to a fall in tax revenue, growth in cyclical expenditure, and central government
stimulus measures. General government fnances are therefore in a more vulnerable
position from which to meet expenditure pressures and a narrowing of the tax base
arising from population ageing. Ensuring the sustainability of public fnances now
represents a bigger challenge. Te economic policy to be implemented afer the
economic crisis must take these altered conditions into consideration.
Te restoration of public fnances will require structural reforms as well as fscal
policy tightening. Extending working careers and improving the productivity of public
services will play a key role. Te longer the restoration of public fnances is delayed,
the greater the costs will be.
Age-related expenditure, in ratio to gDP, %
2008
0
10
20
30
2008 2015 2020 2030
%
2008
0
10
20
30
2008 2015 2020 2030
%
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10
Budge t r ev i ew 2011
Eforts to improve public sector productivity
Given.the.position.of.general.government.fnances.and.labour.scarcity,.it.is.essential.
for.service.structures.and.processes.to.be.developed.so.that.in.future.the.central.
government.sectors.personnel.requirement.is.less.than.at.present.and.growth.in.
local.governments.personnel.requirement.is.moderated..Public.sector.productivity.
will.be.enhanced,.for.example,.by.utilising.information.systems.and.improving.their.
interoperability,. and. by. renewing. structures. and. service. concepts.. Safeguarding.
wellbeing.in.work.and.organising.working.tasks.efciently.will.improve.productivity..
Raising. the. productivity. of. welfare. services. is. one. key. factor. in. resolving. the.
sustainability. problem. of. general. government. fnances. overall. as. well. as. local.
government. fnances.. The. emphasis. of. municipal. and. service. structure. reform. in.
future.will.be.on.boosting.productivity.and.improving.operational.efciency..The.
Government.has.supported.the.development.of.municipal.sector.productivity.by.
initiating.productivity.programme.work.in.the.20.largest.cities.
In.terms.of.the.central.government,.the.Government.is.committed.to.reducing.the.
central.governments.labour.requirement.to.an.overall.level.in.2011.of.9,645.man.
working.years.(c.8.percent).lower.than.in.2005..New.productivity.targets.outlined.
in.the.20082011.Spending.Limits.Decision.(a.4,800.man.working.year.decrease.in.
20122015).and.the.measures.they.require.will.be.formulated.into.project.packages.
to.be.monitored.on.an.administrative.branch.basis..Retirement.and.other.personnel.
attrition,.however,.will.be.signifcantly.greater.than.the.agreed.reductions.in.man.
working.years.
11 Budge t r ev i ew 2011
Balancing public fnances the objective
Although the economy picked up in 2010, the defcit in general government
fnances will deepen further, because changes in economic conditions will become
apparent in general government fnances with a delay. In 2010 the defcit in general
government fnances is projected to exceed the 3 per cent defcit limit of the
European Unions Stability and Growth Pact. In 2011 the state of public fnances
will improve, even though it will still remain in defcit to the tune of 1.3 per cent
in ratio to GDP. Te Governments objective is for Finlands public fnances to be
among the best of the euro area countries in 2011.
Te raising of value-added tax rates in July 2010 and the tax increases of the 2011
budget proposal (see page 16) are the frst steps towards balancing central government
fnances and therefore general government fnances, too. Fiscal policy will change
gradually from stimulus to tightening. Public fnances must still be strengthened,
however, to ensure that the sustainability gap is closed. Te Government will prepare
a plan extending over the next two parliamentary terms to stabilise public fnances,
afer receiving the results of the tripartite Programme for Sustainable Economic
Growth and Employment.
general government finances

Key figures measured in terms of national accounting relative to GDP, per cent
Forecast, December 2010
2007 2008 2009* 2010** 2011**
Taxes and social security contributions,
% of gDP 42.9 43.0 43.0 42.4 43.0
general government expenditure, % of gDP 47.2 49.3 56.0 55.4 54.4
Net lending, % of gDP
central government
local government
employment pension schemes
other social security funds
5.2
1.0
-0.2
4.1
0.3
4.2
0.5
-0.4
3.9
0.1
-2.7
-4.9
-0.5
2.9
-0.3
-3.2
-5.9
0.0
2.8
-0.1
-1.3
-4.1
0.0
3.0
-0.1
general government debt, % of gDP 35.2 34.1 43.8 47.9 50.0
Central government debt, % of gDP 31.2 29.5 37.5 42.0 44.4
12
Budge t r ev i ew 2011
A step towards balancing central
government f inances
Te recession that began in autumn 2008 has been addressed by an extensive
package of measures in several stages, starting with the August 2008 Government
budget session. Te scale of central government stimulus measures in terms of
national accounts has been 1.8 per cent in ratio to GDP in 2009 and 1.6 per cent
in 2010. Te one-of stimulus measures and projects decided in 20092010 will
partly continue also in 2011, whereupon the cost impact of the measures in central
government fnances is estimated to be 0.5 percent in ratio to GDP.
However, the impact of the fxedterm stimulus measures will be gradually
removed in the 2011 budget the reduction is around EUR0.5 billion. In addition,
the hole lef in central government fnances by the 2010 abolition of the employers
national pension contribution is flled by net increases in energy taxes totalling around
EUR 730 million. Moreover, the new value-added tax rates that came into force from
the beginning of July 2010 improves the balance of central government fnances by
EUR 430 million on an annual basis. Fiscal policy will be gradually tightened.
Te main aspects of the key expenditure increases of the 2011 budget as well as
tax criteria changes are outlined below.
Eforts to increase renewable energy production
In accordance with European Union targets and the Governments Climate and
Energy Strategy, use of renewable energy will be increased. Te budget allocates a
EUR 55 million production subsidy for renewable energy, the intention of which is
to pay for electricity produced by wind power, biogas, forest chips and wood fuel.
Te energy subsidy funding authorisation is increased to nearly EUR 150 million,
i.e. by around EUR 85 million compared with the ordinary 2010 budget. Tis additional
authorisation will be used to fund, among other things, support for transport biofuel
demonstration plants.
Te shif to renewable energy in electricity- and oil-heated houses will be accelerated
through an additional EUR 30 million in energy grants for buildings.
In addition, a net increase in appropriations totalling EUR 10 million is allocated
to a new energy subsidy for small-sized thinning wood in 2011. It is estimated that the
system can be launched in early April 2011. In the Act on the Financing of Sustainable
Forestry the parts on aid for harvesting of energy wood and chipping of energy wood
will be revoked.
13 Budge t r ev i ew 2011
Progress of studies to be accelerated
In 2011 a package of measures aimed at lengthening working careers at the starting
end is launched. Tere is greater emphasis on study counselling at all levels of
education. To speed up graduation in vocational education, a programme will be
initiated at an annual cost of EUR5 million. Student selection for higher education
establishments and for vocational education will be reformed and a joint electronic
application system for higher education establishments introduced in 2013. Student
grants will be developed to support full-time studying. Te student grants in higher
education studies will be changed to correspond with a two-stage degree, and
calculation of housing supplement months will be linked to the duration of student
grants. Study loans and student transport subsidies will be developed, and the meal
subsidy for higher education students will be increased.
3,3
2,0
2,8
6,6
15,3
2,9
1,3
1,3
0,2
11,6
0,3
0,8
0 5 10 15 20
1,9
3.3
2.1
2.8
6.7
15.3
2.9
1.3
1.3
0.2
11.5
0.3
0.8
0 5 10 15 20
1.9 Interest on central government debt
Ministry of the Environment
Ministry of Social Aairs and Health
Ministry of Employment and the Economy
Ministry of Transport and Communications
Ministry of Agriculture and Forestry
Ministry of Education and Culture
Ministry of Finance
Ministry of Defence
Ministry of the Interior
Ministry of Justice
Ministry for Foreign Aairs
Parliament, President and Prime Ministers Oce
On-budget expenditure by administrative branch in 2011, EUR billion
14
Budge t r ev i ew 2011
More benefts within the sphere of index protection
Te livelihood of those living on the smallest pensions will be safeguarded by
introducing a guaranteed pension as of 1 March 2011. Te full guaranteed pension
is about EUR 688 per month. Te guaranteed pension will raise the pension income
particularly of women on low incomes. Te additional expenditure arising to central
government from the introduction of the guaranteed pension will be around EUR
94 million in 2011.
Basic protection benefts will be linked as of 1 March 2011 to the National Pension
Index, which describes the change in consumer prices. Minimum rehabilitation
allowances, sickness, maternity, paternity and parents allowances as well as special
care allowances, child allowance, home-care allowance and private child care
allowance will be linked to the index. Additional costs arising from the adjustment
of the level of the child allowance and minimum daily allowances, which are the
central governments responsibility to fund, will be over EUR 5 million in 2011.
In addition, a EUR 1.2 million cost item will arise to the central government from
the adjustment of home care and private child care allowances, which are a local
government responsibility.
15 Budge t r ev i ew 2011

Average expenses of selected public
services in 2008
from Jan 1, 2011
EUR/
month
FULL NATIONAL PENSION
- living alone
- married or cohabiting
586.46
520.19
qUARANTEED PENSION
- quaranteed pension as of 1 March 2011 687.74
ChILD BENEFITS
1st child
2nd child
3rd child
4th child
5th child and each child thereafter
- single parent supplement per child
100.40
110.94
141.56
162.15
182.73
46.79
SICKNESS INSURANCE DAILY ALLOwANCES
- minimum level for sickness, maternity,
paternity and parental allowances
553.25
ChILD hOME CARE ALLOwANCE
- allowance per child
- partial child care allowance per child
315.54
90.36
PRIvATE ChILD CARE ALLOwANCE
- allowance per child 160.64
BASIC UNEMPLOYMENT SECURITY
- basic unemployment allowance or
labour market subsidy
553.41
STUDY gRANTS, MAxIMUM AMOUNTS
Student grant
University students
- not living at home, under 18
- not living at home, 18+
145.00
298.00
Other students
- not living at home, under 18
- not living at home, 18+
100.00
246.00
Student housing supplement
- 80% of established housing costs
2)
201.60
State guarantee for study loans
- University students 300.00

Selected monthly
1)
benefits in 2011
1) Benefts granted on a daily basis are estimated on a monthly level.
2) The allowance is not granted for the part of the monthly housing
cost that exceeds EUR 252.
EDUCATION AND CULTURE EUR
- basic education
- upper secondary education
- initial vocational education
- polytechnic education
1)
- university education
1)
- public libraries
6,642
6,007
9,659
7,628
8,262
2.8
/pupil
/student
/student
/student
/student
/loan
SOCIAL SERvICES
2)
- children's day care
- old people's homes
50
107
/day
/day
hEALTh CARE SERvICES
Basic health care
- visit to health centre
- ward treatment
- dental care
71
154
68
/visit
/day
/visit
Special medical treatment
- somatic special medical
treatment 777 /day
1) On the basis of a full-time equivalent student concept in which tho-
se who have completed more than 30 credits/year and frst-year stu-
dents are given a coefcient of 1, post-graduate students and those
who have completed under 30 credits/year are given a coefcient of
0.5 and absent students a coefcient of 0.
2) Net costs.
Sources: National Board of Education, Ministry of Education and Culture,
National Institute for Health and Welfare and Statistics Finland
16
Budge t r ev i ew 2011
Combating the shadow economy
As part of the Governments action programme to reduce fnancial crime and
the shadow economy, funding for prosecutors, courts of law, the Ofce of the
Bankruptcy Ombudsman and debt recovery authorities is increased by a total of
around EUR 4 million. In addition, a further EUR 2 million is allocated to the
police. Within the Tax Administration, a unit to investigate the shadow economy
is established to promote the fght against the shadow economy by producing and
disseminating information. A value-added tax reverse charge for the construction
industry will be introduced on 1 April 2011 and it is expected to increase tax revenue
by EUR 50 million in 2011 and EUR 100 million on an annual basis.
Green tax reform to be continued
Te 2011 budget continues the shif of emphasis of taxation from taxation on work
to taxation on environmental hazards. Net taxation increases by a total of around
EUR 0.9 billion compared with that budgeted for 2010.
Energy taxation shifs to taxation based on energy content and carbon dioxide
emissions, emphasising environmental steering. Te excise duty on diesel fuel will
be increased from the beginning of 2012 and at the same time the vehicle motive
force tax levied on cars and trucks will be reduced. For transport, the changes will
be implemented on a tax neutral basis whenever possible.
Energy taxes on fossil heating and power plant fuels and on electricity are increased
to compensate for tax revenue losses arising from the abolition of the employers
national pension contribution. Te net volume of the increase is around EUR 730
million, bearing in mind the growing energy tax rebates in agriculture and energy-
intensive industry. Te increase also promotes the use of renewable energy and
improves energy efciency. To avoid an excessive rise in the price of wood raw material,
the tax level on peat is lower than other fuels. Te intention is to gradually increase
the tax on peat and natural gas in 2011, 2013 and 2015. Te carbon dioxide tax on
fuels for combined electricity and heat production is halved for competition reasons.
Te tax base of the waste tax is extended to private landfll sites and the tax
increased by EUR 10 per tonne in 2011 and again in 2013 by another EUR 10 per tonne.
Tis is expected to increase tax revenue by EUR 40 million in 2011. Te objective of
the waste tax reform is to promote the utilisation of waste.
Te excise duty on sof drinks is increased and a new tax on sweets, ice cream
and other such products is introduced from the beginning 2011. Te purpose of the
changes is to increase tax revenue by EUR 80 million in 2011.
Income tax criteria is adjusted so that an increase in earnings level and employee
contributions
1
does not lead to higher taxation of earned income and so that taxation of
17 Budge t r ev i ew 2011
pension income is not higher than equivalent taxation of earned income. In addition,
the basic deduction in local government taxation is raised by EUR 50 to EUR 2,250.
Te changes reduce tax revenue on an annual basis by around EUR 450 million,
of which the central governments share is around EUR 300 million. Te EUR 129
million tax revenue losses arising to municipalities is ofset through the system of
central government transfers to local government.
Te reduced value-added tax trial for labour-intensive service sectors, initiated
in 2007, is continued in 2011.
Income tax scale in 2011
Progressive income tax rates
Taxable earned income, EUR Tax at lower limit, EUR Rate within brackets, %
15 600 23 200 8 6.5
23 200 37 800 502 17.5
37800 68 200 3 057 21.5
68200 9 593 30.0

Average local government tax
2
and social security contributions amount to 26.5%, including wage
earners employment pension contributions and unemployment insurance contributions

Tax rate on capital income 28% and on corporate income 26%
1
The changes in wage earner contributions for 2011:
employment pension contribution (under 53 years of age) +0.2% points and employment pension
contribution (over 53 years of age) +0.3% points.
medical care contribution from earned income -0.28 % points and medical care contribution from
beneft income -0.28% points
daily allowance contribution (wage earners) -0.11% points and daily allowance contribution
(entrepreneurs) -0.13% points
unemployment insurance contribution +0.2% points
2
Average local government tax rate rises from 18.97 per cent to 19.17 per cent in 2011.
18
Budge t r ev i ew 2011
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10
15
20
25
30
35
40
45
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Income tax rate, %
Average wage earner, constant income level relative to purchasing power
19 Budge t r ev i ew 2011
2011 budget in def icit
Budgets appropriation level complies with the spending limits
Te appropriations of the 2011 budget total EUR 50.5 billion, which is just about
the same as in the ordinary budget for 2010 decided by Parliament in December
2009, but around EUR1.2 billion less than budgeted for 2010, taking into account
the fourth supplementary budget. Interest expenses on central government debt will
be EUR 1.9 billion, which is in the same range as in 2010. Administrative branch
appropriations are around 2 percent lower in real terms than in the ordinary 2010
budget and around 4 per cent lower than that budgeted for 2010, taking into account
the budgets structural changes. A gradual removal of stimulus spending, among
other things, contributes to the lowering of administrative branch appropriations.
Unemployment security expenditure has also been reduced.
0
10
20
30
40
50
60
2008 2009 2010 2011 2012 2013 2014
EUR billion
Interest on central
governmement debt
Loans and other
nancial investment
Real investment
Other transfers
Transfers to local
governments
Consumption expenditure
43.5
50.5
51.7
46.9
Transfers to households,
Social insurance institution
and non-protmaking
organisations
On-budget expenditure 2008-2014
Expenditure by fnancial type at the prices of the year in question
20
Budge t r ev i ew 2011
To ensure a prudent long-term expenditure policy, the Government Programme
includes a multi-annual spending rule guiding the development of central government
budgetary expenditure during the parliamentary term. Te parliamentary term
spending limits set a ceiling for around 3/4 of the total budgetary expenditure.
Expenditure items excluded from the spending limits consist of expenditure that
varies according to cyclical fuctuations and automatic stabilisers
1)
, interest payable
on central government debt, value-added tax expenditure, fnancial investments, and
expenditure where the central government acts as a technical intermediary.
Te 2011 spending limits level, afer changes in cost and price levels and in the
structure of the budget, is EUR 38.1 billion. To increase room for manoeuvre in budget
expenditure, the Government prepared reallocations totalling just over EUR 50 million
for the various administrative branches. In addition, 2010 savings totalling EUR
46 million in agencies operating expenditure were continued. Actual development
cooperation appropriations for 2011 have been reduced from the previously planned
level. Nevertheless, development cooperation appropriations grows overall by EUR
108 million from 2010. Te 2011 budgets appropriations comply with the spending
limits. Tere is an annual supplementary budget provision of EUR 300 million for
unexpected appropriation needs in 2011.
Economic growth and tax increases will increase revenue
Due to stronger economic growth and an improved employment situation, tax
revenues are projected to grow by EUR 3.5 billion, i.e. by 11 percent, compared with
what is budgeted for 2010. Tax revenues, however, would still be EUR 1.4 billion
below the level of 2008, the last year before the economic crisis.
Te budget includes measures that both increase and decrease tax revenue. Tax
criteria changes overall increase net central government tax revenues by around EUR
0.9 billion compared with 2010. Te largest additions are an increase in taxes on heating
and power station fuels and electricity taxes, and the full impact on an annual basis
of the change in value-added tax rates implemented on 1 July 2010.
Central government on-budget revenue in 2011, excluding net borrowing, will
total around EUR 42.5 billion, which is 9 per cent more than budgeted for 2010.
On-budget revenues other than receipts from taxes consist, among other things, of
EU budget revenue, dividend and interest income, proceeds from betting, pools and
lottery activity, transfers from central government of-budget funds, and profts of
1)
E.g. unemployment security expenditure, housing allowance, transfers resulting from the National
Pensions Act to the Social Insurance Institution of Finland, and the central governments share of living
allowance expenditure. However, expenditure efects generated by changes in the criteria for these
items are included in the spending limits.
21 Budge t r ev i ew 2011
state-owned enterprises entered as income. Dividend income is expected to amount
to EUR 900 million. Net income from equity sales is, as in previous years, expected to
total EUR 400 million. Proceeds from betting, pools and lottery activity is expected
to amount to EUR 516 million. Around EUR 1.7 billion is transferred into the budget
from of-budget funds, of which most comes from the State Pension Fund. Around
EUR 165 million will be entered into the budget from state-owned enterprises.
0
5
10
15
20
25
30
35
40
45
50
2008 2009 2010 2011
0
5
10
15
20
25
30
35
40
45
50
2008 2009 2010 2011
Interest income
and prots
Miscellaneous
revenue
Excise duties
Value-added tax
Corporate
income tax
Earned income
and capital
income tax
Other taxes
EUR billion
Central government on-budget revenue
excl. use of cumulative surplus and borrowing
22
Budge t r ev i ew 2011
Central government debt has grown by EUR 30 billion in recession
Te central government budget for 2011 shows a defcit of EUR 8.1 billion. Total
output remaining at a low level as well as stimulus tax cuts decided in 2009 and 2010
contribute to the size of the defcit. In 2010 the defcit is projected to be around EUR
12.6 billion, if use of the cumulative surplus is not taken into consideration.
In terms of the national accounts, central government fnances include, in addition
to on-budget fnances, ten funds outside the central government budget, of which
one of the most important is the Housing Fund of Finland. Of-budget funds are
projected to record a surplus of around EUR 0.1 billion in 2011. If the State Pension
Fund, which nowadays falls within the employment pension institutions sector in
national accounts, is also taken into consideration in the accounts, of-budget funds
will be around EUR 1.1 billion in surplus.
At the end of 2011, central government debt is projected to be around EUR 84
billion, at which time the debt-to-GDP ratio will rise to around 44 percent. Central
government debt has grown strongly as a result of the economic crisis and the level of
debt is projected to be around EUR 30 billion higher at the end of 2011 than in 2008.
Interest expenses on central government debt will be lower than in 2008, however,
due to the historically low level of interest rates. When the general level of interest
rates returns closer to the long-term average, a substantial growth in interest expenses
can be expected owing to the higher level of debt.

0
20
40
60
80
100
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10*
0
20
40
60
80
%
EUR bn
EUR bn
% of GDP
Central government debt
23 Budge t r ev i ew 2011
Education, 10.9 bn euro
General public services and interest
expenses, 12.2 bn euro
Defence, 2.8 bn euro
Public order and safety, 2.5 bn euro
Infrastructure and subsidies to
economic development, 8.7 bn euro
Enviromental protection,
housing and community amenities,
1.4 bn euro
Health care, 13.0 bn euro
Social security incl.
statutory employee
pensions, 37.7 bn euro
Source: Statistics Finland, National Accounts
What are tax euros spent on?
General government expenditure in 2008: EUR 91bn/49.3% of GDP (2007: EUR 85bn/47.2%)
Recreation, culture and religion, 21.1 bn euro
Other income, 7.9 bn euro
Capital income 9.1 bn euro
Social insurance contributions, 25.5 bn euro
Value-added tax and other indirect
taxes, 23.9 bn euro
Income and wealth
taxes, 32.3 bn euro
Source: Statistics Finland, National Accounts
Where do tax euros derive from?
General government revenue in 2008: EUR 99bn/53.5% of GDP (2007: EUR 94bn/52.4%)
24
Budge t r ev i ew 2011
Central government EU revenue and
expenditure
At central government level, Finland is expected contribute an estimated EUR 1,814
million to the EU budget and the European Development Fund in 2011. Finlands
contributions are EUR 36 million lower than contributions in 2010. Finlands share
of the UKs EUR 3.0 billion budgetary rebate is EUR 74 million.
At central government level, Finland is expected to receive an estimated EUR 1,203
million from the EU budget in 2011, which is EUR 17 million less than estimated
receipts in the 2010 budget. Structural policy support is expected to decrease by
around EUR 15 million and agricultural support and rural development support by
a total of EUR 6 million compared with 2010.
Flow of contributions between Finland and the EU in 2009-2011 (EUR million)
2009
Final
2010
Budget
201
Budget
CENTRAL gOvERNMENT ExPENDITURE
On-budget finances
VAT payment
GNI payment
Finlands share of the UK budgetary rebate
EU PAYMENTS TOTAL
European Development Fund
237
1,276
135
1,648
54
247
1,453
100
1,800
50
242
1,444
74
1,760
54
TOTAL 1,702 1,850 1,814
CENTRAL gOvERNMENT REvENUE
On-budget finances
Agricultural support
Rural development support
Subsidies from the structural funds and
cohesion funds
Custom duties and other levies
Other revenue
1
598
184
199
38
28
566
284
252
46
38
559
285
237
46
35
Off-budget finances
Intervention Fund of Agriculture
Development Fund of Agriculture and Forestry
4
5
15
19
15
26
TOTAL 1,056 1,220 1,203
Customs duties, agricultural payments and
sugar payments collected on behalf of EU 153 137 139
1
Includes e.g. solidarity and management of immigration streams (2011: EUR 13.1 million) and EU TEN revenue
(2011: EUR 7.7 million)
25
Improved outlook for local government
f inances, but spending discipline still
required
Municipalities provide for their inhabitants basic public services, of which the
most important relate to education as well as social services and health care.
Tese services are funded mainly by local government tax revenue, consisting of
municipal taxes, property taxes and a share of corporate tax. Total local government
tax revenue is projected to be around EUR 18.6 billion in 2011. Central government
aid to municipalities to fnance basic public services will total EUR 10.1 billion
in 2011. Municipalities are compensated in full for losses in tax revenue resulting
from changes in tax criteria, by increasing central government transfers to local
government. Central government aid to local government is determined mainly
on an imputed basis. In municipal revenue this aid is universal, namely the
municipalities can use their discretion in allocating the funds.
Budge t r ev i ew 2011
Annual margin, depreciation and net investments of municipalities and joint municipal
authorities, EUR million
0
400
800
1200
1600
2000
2400
2800
3200
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
0
400
800
1200
1600
2000
2400
2800
3200
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Annual margin Net investments Depreciation of xed assets
26
Budge t r ev i ew 2011
Te fnancial equilibrium of local government tasks and obligations are examined
in the Basic Public Services Programme and the related annual basic public services
budget, which are part of the government spending limits and budget proposal
formulation. Te measures included in the budget are expected to weaken the overall
fnancial position of local government by a net amount of EUR 42 million compared
with 2010.
Improving social welfare and health services, among other things, increases central
government transfers to local government by EUR 21.25 million. Tis will fnance,
for example, the implementation of the reform of the Services and Assistance for the
Disabled Act, the provision of school and college health checks, the implementation
of the new Health Care Act, the arrangement of care for intoxicant abuse mothers, the
strengthening of home care for families with children as well as the establishment of
family units in prisons. Index increases increase central government transfers to local
government by EUR 152 million and changes in population structure and numbers
by EUR 56 million. Central government transfers to local government are reduced by,
among other things, the removal of the EUR 30 million temporary central government
transfer implemented in 2010.
It appears that the economic crisis has caused less damage than feared to the
local government sector. Te combined afect of several factors, such as the central
governments substantial measures to strengthen local government fnances, more
favourable development of employment than expected, a slower increase in cost
levels, and municipalities own savings measures to control expenditure growth, was
already evident in clearly better than expected 2009 fnancial statements. When one
also takes into account the municipal and real-estate tax percentage increases made
by the municipalities in 2010, a modest labour market settlement and the impact of
economic recovery on the development of local government tax revenue, the outlook
for local government fnances can be characterised as signifcantly more positive than
forecast earlier.
Although it appears that the gloomiest forecasts will not be realised, strict spending
discipline will be required in future to keep the operational fnances of municipalities
and joint municipal authorities stable. Local government tax revenues are projected to
grow in the next few years on average by around 3 percent, i.e. clearly more slowly
than in the exceptional period that preceded the recession. Te positive development
of local government fnances will be immediately jeopardised if operating expenditure
growth is not adjusted to the limits set by revenue development. Of key signifcance
are control of payroll costs and implementation of measures to improve productivity.
Te recovery of the national economy is still also dependent on uncertainties prevalent
in the international economy, which could, if realised, impact employment rapidly
and thus weaken the development of local government tax revenues.
27 Budge t r ev i ew 2011
Other selections from the 2011 budget
Development cooperation appropriations grow by EUR 108 million compared
with the 2010 budget. Development cooperation appropriations in ratio to GDP
will be 0.58 percent in 2011, which is signifcantly above the international target
level of 0.51 percent.
Petty violence in close relationships is changed from a complainant ofence into
an ofence subject to a public prosecution. Additional funding totalling EUR 1.5
million is allocated for this to the prosecution system and courts of law.
A total of EUR 209 million is allocated to immigration expenditure, of which
EUR 86 million goes to the reception of refugees and asylum seekers and
EUR 102 million to compensation payable to municipalities. An additional
appropriation of EUR 38 million is allocated to reception and compensation
payable to municipalities compared with the level of the ordinary 2010 budget.
Te Border Guard is authorised to start the renewal of its two-engine helicopter
feet. Te total cost of the acquisition will be EUR 62 million and it will be
implemented in 20112014. Te acquisition of patrol boats is continued by
granting funding of EUR 4.2 million for 2011.
A total of EUR 6 million is allocated to the structural reform of the Emergency
Response Centre Administration and for the acquisition of a new information
system.
Agreements can be made for the acquisition of the state administrations joint
administrative and human resources management (Kieku) information system
in 2011 and thereafer with an allocation of EUR 35.4 million. Te introduction
of the system is accelerated by a year, in which case it will be in use in all agencies
at the beginning of 2014. Due to the accelerated timetable, the overall cost of the
system is estimated to be around EUR 2 million lower.
EUR 20 million, mainly in the form of appropriation transfers, is directed to
central and local government joint information system projects. Te objective
is to develop public electronic services and to improve the interoperability of all
public administration systems.
A saving arising from a reduction of age groups, EUR 18 million, is allocated in
accordance with the Government Programme to the POP programme, aimed at
improving the quality of basic education.
28
Budge t r ev i ew 2011
Central government funding of universities grows by EUR 160 million. In
addition, the University of Helsinki and the University of Eastern Finland receive
compensation totalling EUR 26 million for relinquishment of the exemption
from pharmacy sales fees.
A total of EUR 236 million is reserved for the capitalisation of universities. Te
deadline for investments of other resource providers is extended to 30 June 2011.
Mainly due to the 2010 supplementary budgets, the number of student places
in vocational basic education grow by around 3,250 places, in apprenticeship
vocational basic education by 1,000 places and in apprenticeship vocational
further education by 250 places compared with the ordinary 2010 budget. Overall
the number of students in vocational basic education has been increased through
decisions made in 20082010 by more than 10,000 places, and the resulting costs
are apparent in the 2011 budget.
Te unit price which is the basis for the central government transfer for
municipalities youth work payable from betting and lottery revenue is increased
by EUR 0.50.
Government funding for the Turku as the European Capital of Culture 2011
project totals EUR 18 million, of which EUR 8.5 million is allocated from betting
revenue for arts in 2011.
EUR 350,000 is allocated to fund cultural and language nests in the Smi
language in order to consolidate such activities and their funding.
Te position of farms that have made investments is improved by lowering the
minimum share of interest rate paid by farmers on certain loans granted in the
period 20002007 by one percentage point in 20112012. Te cost impact of the
change in 2011 is projected to be around EUR 6 million for interest-subsidy loans
and around EUR2 million for central government loans.
A total of 18,300 hectares of arable land is brought under the scope of
environmental subsidies and compensatory allowances for permanent natural
handicaps.
Around EUR 4 million more than in the 2010 ordinary budget is allocated to
subsidise sustainable wood production. Te new energy subsidy for small-sized
thinning wood is expected to be introduced on 1 April 2011, and EUR 13.5 is
reserved for this purpose in 2011
Provision has been made to allocate a further EUR 360,000 for agreement fees
payable to waterway owners in connection with the protection of the Saimaa
ringed seal.
29 Budge t r ev i ew 2011
An additional EUR 1.5 million compared with the ordinary 2010 budget is
allocated to fund compensation for damage caused by large carnivores. Te game
management fee will be raised from EUR 28 to EUR 30.
An additional EUR 1 million is allocated to new and ongoing water maintenance
works compared to the 2010 ordinary budget.
An additional EUR 1 million is allocated to new and ongoing water maintenance
works compared to the 2010 ordinary budget.
Around EUR 976 million in appropriations and income fnancing is allocated to
basic route infrastructure maintenance expenditure.
A total of around EUR 364 million is allocated to route development investments
and will be used mainly to continue construction work on 27 transport projects
initiated in previous years.
Six new transport projects will be launched in 2011: the E18 Hamina by-pass
(budget authority EUR 180 million), the main road 8 Sepnkyl by-pass in Vaasa
(EUR 55 million), the main road 19 Seinjoki eastern by-pass (EUR 63 million),
the 2nd phase of the Seinjoki-Oulu rail track service improvement project (EUR
90 million), the electrifcation of the Rovaniemi-Kemijrvi rail track (EUR 24
million), and the deepening of the Uusikaupunki fairway (EUR 11 million). In
addition, the central government participates in the construction costs of the
Western Metro up to a maximum 30 per cent share of the costs, with the frst
fnancial contribution being EUR 13 million in 2011.
An allocation of EUR 2.7 million is made to maintenance and investments at
the Seinjoki and Mikkeli airports and EUR 1.1 million to investments at the
Tampere-Pirkkala airport.
By 2015 a total of EUR 66 million, of which EUR 9.8 million in 2011, is allocated
to the administrative branch of the Ministry of Transport and Communications
for the funding of national broadband projects. In addition, around EUR 25
million is allocated to the project from the administrative branch of the Ministry
of Agriculture and Forestry.
Finnpilot is a state-owned limited company as of 1 January 2011.
EUR 589 million is allocated to the funding authority of the Finnish Funding
Agency for Technology and Innovation (TEKES), which is EUR 8.2 million more
than the previous year.
30
Budge t r ev i ew 2011
Te main R&D expenditure of the various main titles rise to a total of around
EUR 1,930 million, which is around EUR 80 million more than in 2010. Te
public R&D in ratio to GDP grows to an estimated 1.111.14 percent, which is an
internationally high level.
To employment, training and special measures is allocated EUR 535 million,
which is nearly EUR 60 million higher than in the spring 2009 spending limits
decision. Compared with the ordinary 2010 budget, however, the appropriations
is lower by EUR 17 million, due to falling unemployment. Te 2011 activation
rate is expected to rise to around 24.5 per cent.
Te export refnancing period is extended to the end of June 2011.
An additional EUR 10 million will be allocated for labour market support owing
to an adjustment in the income thresholds for discretionary labour market
support.
Psychotherapy compensated from health insurance as discretionary
rehabilitation was transferred within the arrangement responsibility of the
Social Insurance Institution of Finland from 1 January 2011 onwards. Health
insurance compensation costs are projected to rise as a result of the change by
EUR 6.6 million in 2011. Te central government contribution covers half of this,
i.e. EUR 3.3 million.
Te provision of advice on the decree on treating domestic wastewater in sparsely
populated areas is promoted by an allocation of EUR1 million.
An additional EUR 3 million is allocated to the protection of the Baltic Sea. Tis
will be used to implement projects enhancing waterways protection for example
in agriculture and peat production. EUR 0.8 million is allocated to acquisition of
open sea oil booms used in oil combatting.
Te level of central government interest-subsidised housing production was
nearly tripled as a stimulus measure in 20092010. In the 2011 budget the level is
reduced, creating room for non-subsidised housing production. Tis is necessary
to ensure that the supply and demand relationship in housing can be balanced
and the risk of a housing price bubble alleviated. In 2011 EUR 975 million is
allocated to interest-subsidy loan appropriations for social rented housing
and EUR 285 million in guarantee appropriations for conditional-guarantee,
intermediate-model rental housing construction loans. Tese will facilitate the
31 Budge t r ev i ew 2011
construction of around 8,500 new rental homes, which is more than double the
number built in 20072008. Te construction of housing for special groups is
supported with EUR 110 million in investment grants.
A total of EUR 90.5 million in grants is allocated to housing renovation, energy
and health-hazard improvement measures, namely to improve the energy
efciency of terraced and apartment buildings, to replace oil and electricity
heating with renewable energy sources and to encourage the construction of
elevators. In 2011, a total of EUR 121 million is available for costs arising from
cyclical renovation grants allotted in 2009-2010, EUR 75 million of which will be
funded by the Housing Fund of Finland.
Provision has been made to allocate EUR 900,000 to the continuation of the
national damp and mould action programme. Te objective of the programme is
to reduce the health hazards posed by damp and mould damage, and to prevent
the creation of new damage in new and renovation construction.
MINISTRY OF FINANCE
Snellmaninkatu 1 A
P.O. BOX 28, 00023 GOVERNMENT
Tel. +358 9 160 01
Fax +358 9 160 33123
www.fnanceministry.f
Budget review 2011
ISBN 978-952-251-135-5 (PDF)
January 2011