Finland finally has a new government. That’s the good news. But that’s about it. The agreed government agenda fails to address the most urgent problems of reducing the budget deficit and encouraging economic growth.
The election result made the formation of a new government exceptionally difficult, and for the first time since the continuation war Finland ended up with a 6-party coalition. The biggest bone of contention during the negotiations was the state budget. While the National Coalition Party (NCP) used estimates of the finance ministry and the OECD that Finland would run a deficit of about 8 billion euros during the next parliamentary term if nothing changed the Social Democrats (SDP) and the Left Alliance put their estimates below 1 billion euros. In the end they compromised not quite in the middle at 2.6 billion.
This is completely irresponsible. It means that Finland’s debts will continue to increase during a period of economic growth (estimate: 3-4%). This parliamentary term would have provided the last chance to correct the structural budget deficit before the country’s workforce will start to shrink towards the end of the decade. One would think that the current debt crisis of some Eurozone countries and the United States has made it sufficiently clear how dangerous this development is…
The new government claims that they will achieve their unambitious goal by both raising tax income and cutting spending in equal parts. That is not really the case, though. About half of the spending cuts in the state budget are reductions in monetary transfer to municipalities. Only if the municipalities chose to compensate 100% of these income losses by reducing their own expenses will the end result be half tax hikes and half spending cuts on a nation-wide level. It is much more likely though that cities and communities will partly reduce their expanses, partly increase taxes (90% expect to do that) and partly just take on more debt. So most likely the overall decrease in debt increase will be even less than expected.
Out of the remaining actual savings most cuts are planned in the education sector. This is particularly ironic as it reduces the chances for coming generations to pay back the debt that is being accumulated right now.
Many commentators agree that this is a very leftist government programme. Left Alliance leader Paavo Arhinmäki said that never before in his life has he seen such a socially oriented agenda. The SDP scored the most important ministries, in particular the finance ministry. It will be interesting to see how party leader Jutta Urpilainen will handle the implementation of these measures as finance minister. She has already started to contradict herself. While during the government formation process she insisted that the expected deficit was less than 1 billion over the next four years, after she was sworn in she claimed that the she inherited a budget deficit of 8 billion from the previous government – the exact same figure that the new prime minister Jyrki Katainen had put forward.