COUNCIL OPINION of 12 October 1998 on the stability programme of Finland, 1998-2002 (98/C 372/01)

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(1) and (2) thereof,

Having regard to the recommendation of the Commission,

After consulting the Monetary Committee,

HAS DELIVERED THIS OPINION:

On 12 October 1998, the Council examined Finland's Stability Programme, which covers the period 1998-2002. The Council notes with satisfaction that the Finnish government financial balance is targeted to turn into a surplus in 1998 and is expected to post surpluses above 2 % of GDP throughout the period 1999-2002 while the government debt to GDP ratio is projected to continue to decline. Moreover, the Council considers that the programme is consistent with the Broad Economic Policy Guidelines.

The macroeconomic scenario presented in the Stability Programme is based on a prudent growth forecast in which GDP growth decelerates rapidly from the current strong rates. Projected GDP growth is mainly driven by growth in domestic demand, in particular from the private sector. The Council welcomes the current comprehensive wage agreement, which secures wage moderation and low inflation until January 2000. Its success will help lower inflationary expectations and so would contribute to favourable expectations on wages and inflation in the subsequent years.

The Council commends the fiscal strategy of the Stability Programme which aims at reaching surpluses above 2 % of GDP through a reduction in government expenditure but at the same time reduces the tax burden. By the end of the projection period in 2002, government expenditure is projected at 48 % of GDP, compared to 56 % in 1997. The tax to GDP ratio is expected to decline from the current 47 % to 44 % by 2002, mainly as a result of reductions in income-related taxes, particularly on labour.

The Council agrees with the emphasis that the programme puts on fiscal consolidation in the central government given its still unbalanced position and the need to reduce further its debt ratio. It therefore recommends the Finnish authorities to focus future consolidation efforts on the central government accounts.

The Council notes that while the annual ceiling set on central government expenditure for 1999 was respected in the budget proposal which was submitted to Parliament, the ceilings for the years 2000-2002 are a non-binding guideline. The Council urges the Finnish Government to respect firmly these guidelines in the budget proposals for those years.

The underlying budgetary position corresponding to the surplus target of 2,3 % of GDP in 2002 is sufficient to provide a safety margin against breaching the 3 % of GDP deficit threshold as a result of normal cyclical fluctuations. In this sense the programme is in line with the requirements of the Stability and Growth Pact. However, in view of the future effects of population ageing on the current surplus in the social security sector, the Council recommends a continued fiscal consolidation effort in order to improve further the government balance.

The Council notes that the programme does not address the issue of structural reforms. However, the Council considers that the implementation of such reforms, mainly on the services and labour markets, would contribute to a successful implementation of the programme.

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