Updated stability programme of Finland, 2007-2011 - Main contents

EN

Official Journal of the European Union

C 49/5

On 12 February 2008, the Council examined the updated stability programme of Finland, which covers the period 2007 to 2011.

Finland's macroeconomic performance has been strong and balanced over the last years, with growth in the recent years significantly exceeding earlier expectations. The present cyclical upswing in economic activity has been appropriately used to build up budgetary surpluses and to prepare for the effects of population ageing, reducing considerably the risks to the sustainability of public finances. However, the imminent demographic shift is predicted to dampen economic growth already at the end of the programme period and lead to a smaller fiscal surplus, thereby calling for sustained control over public spending.

The macroeconomic scenario underlying the programme envisages that real GDP growth will moderate over the programme period, while remaining above 3 % in 2008-2009 to drop to just above 2 % by 2011. Judging from currently available information (2), this scenario appears to be based on plausible growth assumptions, leaning towards the cautious side for 2010 and 2011. The programme's projections for inflation appear realistic.

For 2007, the general government surplus is estimated at 4,5 % of GDP in the current programme update, broadly in line with the Commission services' autumn 2007 forecast, against a target of 2,8 % 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 2006 and the positive growth surprise in 2007, boosting government revenue, while expenditure has been largely contained in line with earlier plans. The implementation of the 2007 budget was broadly in line with the Council opinion on the previous programme (3). The Council also notes that the 2007 budget was broadly consistent with the April 2007 Eurogroup orientations for budgetary policies.

The programme's central objective is to ensure sustainability of public finances in the face of population ageing. As in the previous programme, Finland's medium-term objective (MTO) for the budgetary position is defined as a general government surplus of 2 % of GDP in structural terms, i.e. in cyclically-adjusted terms net of one-off and other temporary measures. The headline and the primary balance are set to decline in each year, albeit from a high level in 2007. The programme plans to maintain structural surpluses above the MTO throughout the programme period. Compared with the previous programme, the new update projects the structural surplus (calculated according to the commonly agreed methodology) to be 1,5 percentage points higher in 2007, but by 2010 both updates project the same structural balance. The steeper fall in the surplus in the most recent update is explained by the expenditure ratio declining only marginally while the revenue ratio drops more substantially. The latter reflects the phasing in of announced tax cuts as well as cautiously projected revenues in response to GDP growth. The less marked decline in the expenditure ratio compared with the previous programme reflects a step increase in the multi-annual budgetary ceilings for...