Council opinion

of 27 November 2000

on the updated stability programme of Finland for the period 2000-2004

(2000/C 374/03)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies(1), and in particular Article 5(3) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

On 27 November 2000 the Council examined Finland's updated stability programme, which covers the period 2000-2004. The Council notes with satisfaction that the Finnish general government surplus, registered since 1998, increased in 1999, and is projected to exceed 4 % of GDP throughout the period 2000-2004, while the general government debt to GDP ratio is projected to continue to decline. Moreover, the Council considers that the updated programme is consistent with the broad economic policy guidelines.

The Council welcomes the overall record of implementation of the 1999 updated programme, although it noted that the improvement in the budget surplus actually achieved in 1999 and the reduction in government debt both fell some way short of the projections then made, with all three subsectors of general government contributing to the shortfall in the overall surplus and with lower revenue than expected. In addition, inflationary pressures have emerged. The rise in domestically generated inflation appears linked to a corresponding rise in inflation in the service sector.

The macroeconomic scenario presented in the latest updated stability programme includes strong economic growth in 2000 due to continued robust internal and external demand. Thereafter, GDP is assumed to decelerate from 2001 for the remainder of the projection period. The central characteristic of a medium-term slowing down in the economy appears plausible, taking into account the rapid recent growth of the Finnish economy and the strains on capacity already evident in certain areas. The risk remains that the economy may overheat and that excessive demand may add to inflationary pressures. The Council considers that moderate wage developments will be crucial in this respect.

As already referred to in the 2000 broad economic policy guidelines, the Council also considers that a tight fiscal stance in Finland is necessary to contain risks of overheating. Subject to this, the Council commends the fiscal strategy of the updated stability programme. This consolidates previous programmes and aims to maintain surpluses around 4,5 % of GDP through a reduction in government expenditure in relation to GDP but at the same time reduces the tax burden.

The underlying budgetary position corresponding to the 4,5 % expected surplus for 2000 will allow Finland to continue to fulfil the requirements of the Stability and Growth Pact. The Council considers that continued fiscal restraint embodied in the updated programme is justified in view of the future effects of population ageing on pensions and health care costs, to which Finland is particularly exposed.

The Council welcomes the commitment in the updated programme to continued structural reforms. Reforms are particularly important in promoting the government's central objective of raising employment and at the same time safeguarding price stability. Fiscal reform, reducing the still heavy overall taxation and social contribution burden on labour, can reinforce this potential. Concerns remain that the structure of the pension system contains disincentives for older workers to remain in the labour market and that pension system funding may need to be strengthened in the face of rapid ageing. The reductions in government expenditure and revenue relative to GDP anticipated in the programme and continued structural reforms should both help to increase employment.

(1) OJ L 209, 2.8.1997, p. 1.