Updated stability programme of Finland, 2006-2010 - Main contents

EN

Official Journal of the European Union

C 71/1

On 27 February 2007 the Council examined the updated stability programme of Finland, which covers the period 2006 to 2010.

The macroeconomic scenario underlying the programme envisages that real GDP growth will decelerate from a cyclical peak of 4

% in 2006 to 2

% on average over the rest of the programme period. Assessed against currently available information, this scenario appears to be based on plausible growth assumptions, with those for 2006 and 2010 appearing cautious. The programme's projections for inflation appear realistic.

For 2006, the general government surplus is estimated at 2,9 % of GDP in both the Commission services' autumn 2006 forecast and in the current programme update, against a target of 1,6 % of GDP set in the previous update of the stability programme. This is due to the carry-over from the better-than-expected outcome in 2005 and the positive growth surprise in 2006 boosting government revenue, while expenditure has remained contained.

The main goal of the medium-term budgetary strategy in the programme is securing sustainability in general government finances and balanced central government finances under normal conditions of economic growth. The general government headline and primary surpluses are projected to follow a slight downward trend, both declining by

% of GDP until 2010. The decline in the revenue ratio, reflecting the gradual phasing in of the tax cuts package up to 2007, is less than fully compensated by the cut in the expenditure ratio owing to the government's budgetary spending ceilings and public sector reform initiatives. While the budgetary strategy has not changed compared with the previous update, the budgetary targets have been revised up by about 1 % of GDP in each year, as a result of the carry-over from the better-than-expected outcome in 2005 and higher growth prospects.

The structural balance (i.e. the cyclically-adjusted balance net of one-off and other temporary measures) calculated according to the commonly agreed methodology is planned to remain stable at a surplus of close to 3 % of GDP throughout the programme period. The medium-term objective (MTO) for the budgetary position presented in the programme is a structural surplus of 2 % of GDP, which it plans to maintain throughout the programme period. The previous programme update did not explicitly define an MTO, but the MTO was inferred in the Council opinion from the structural surplus projections in the previous programme to be a surplus of 1

% of GDP. As the MTO is more demanding than the minimum benchmark (estimated at a deficit of around 1

% of GDP), achieving it should fulfil the aim of providing a safety margin against the occurrence of an excessive deficit. The MTO lies within the range indicated for euro-area and ERM II Member States in the Stability and Growth Pact and the code of conduct and is significantly more demanding than implied by the debt ratio and average potential output growth in the long term. Having an MTO well above the minimum required level is motivated in the programme by the goal of ensuring the long-term sustainability of public finances and the fact that in...