Council opinion of 21 January 2003 on the updated stability programme of Finland, 2002-2006
Date: 2003-01-21
Institutions: Council of the European Union
Subjects: Finland, budget policy, economic policy, gross domestic product, public finance, stability programme

C 26/10

EN

Official Journal of the European Union

4.2.2003

COUNCIL OPINION

of 21 January 2003

on the updated stability programme of Finland, 2002-2006

(2003/C 26/07)

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:

the

On 21 January 2003 the Council examined Finland's updated
stability programme, which covers the period 2002 to 2006.
general
The Council notes with satisfaction that
government balance, which exceeded projections in 2001, is
expected to remain clearly
the
programme period. Furthermore,
in spite of the higher than
expected outcome in 2001, the general government debt to
GDP ratio is projected to continue to decline, unlike in the
previous
the
programme period. The Council considers that the updated
programme is consistent with the Broad Economic Policy
Guidelines (BEPG).

programme,

in surplus

throughout

virtually

during

every

year

The macroeconomic scenario presented in the 2002 updated
stability programme projects a strengthening of economic
activity in 2002 and 2003 which appears warranted on the
back of most
recent data. Subsequently, GDP growth is
expected to decelerate slightly to below its trend rate, in the
face of constraints on labour supply. Given the assumption of a
favourable external environment, the projected deceleration of
GDP growth in the later years of the programme represents a
rather cautious view.

The Council notes that the programme projects a substantial
decline in the general government surplus from 4,9 % of GDP
in 2001 to just above 2 % in 2004 (2) and a return to close to
3 % is expected for the later years of the programme owing to
assumed expenditure control. The Council notes, that all levels
of government appear to be responsible for the weakening of

(1) OJ L 209, 2.8.1997.
(2) Excluding 2004,

the
budgetary targets compared with the previous programme, due
also to surplus in 2001 having been higher than targeted.

represents an upward revision of

this

the financial position between 2002 to 2004, with only the
social security funds, preparing for the coming age-related
expenditure pressures, upholding the surplus at the general
government
level. The projected decline in the cyclically
adjusted balance by 1 ½ percentage points of GDP between
2002 and 2004 is also partly due to the decline from the
exceptionally high level recorded in 2000 in corporate taxes;
however, the decline in the cyclically adjusted surplus seems to
come at
the time when the economy should be strongly
gathering momentum, suggesting, thus, a pro-cyclical stance
of fiscal policy.

level

The Council notes that, apart from the cyclical adjustment
from exceptionally high starting point of 2000, the expected
decline in the government surplus is mainly due to higher than
originally planned income tax cuts between 2000 and 2003
and higher than planned discretionary spending at central
government
in 2001 and 2002. Even though the
previous high surpluses have created some additional room
(for fiscal manoeuvre), the Council takes note of the apparent
customary tendency of deviating from the medium-term
spending guidelines which represent
the Governments key
fiscal policy instrument. These slippages raise some concern,
since, in order to maintain high surpluses in coming years, the
programme assumes tight restraints on spending — but also a
decline in the revenue-to-GDP ratio. Therefore, the Council
renews its recommendation from last year — also along the
lines of 2002 BEPGs — that the Finnish Government reinforces
its commitment to firmly control central Government outlays
over the medium-term.

that

in the light of

The Council also notes the somewhat slow pace of debt
reduction over the programme period,
the
comfortably high primary surpluses, but recognises that this
follows mainly from net accumulation of financial assets and,
furthermore,
financial assets
the general government
appear to exceed the sectors gross debt. Nevertheless, in light
of Finland's above-average exposure to expenditure pressures
related to the ageing of the population, the Council encourages
the Finnish Government to maintain the current high surpluses
over the medium term to allow a continuous decline in the
Government gross debt ratio.

that

the projected surplus

The Council notes
in the
Government accounts throughout the programme period is
fully in line with the requirements of
the Stability and
Growth Pact. This is almost entirely due to a surplus in the
accounts of statutory social security institutions preparing for
the age-related expenditure pressures. In addition, in spite of
expected deficit in central and local government finances, the
estimated cyclically adjusted government surplus of at least 2 %
of GDP should provide a sufficient safety margin against a
breach of the 3 % of GDP reference value for the government
deficit in normal cyclical fluctuations.

4.2.2003

EN

Official Journal of the European Union

C 26/11

the measures

recently adopted to
The Council welcomes
improve financial stability at the local government level over
the medium term. The Council recommends, in line with the
2002 Broad Economic Policy Guidelines and the updated
stability programme, to ensure that the envisaged aims are
the introduction of a surveillance
achieved;
mechanism underpinning
local
governments to balance their budgets within a three year
period would be welcome.

in this respect,

legislation

requiring

sustained running of budget
pension system that has a high degree of prefunding.

surpluses, and a reformed

The Council also takes note of reforms, both planned and
underway, which aim at raising employment rates of older
workers, and encourages the Finnish authorities to proceed
with their
implementation according to the time frame
indicated in the stability programme.

The Council welcomes the attention given in the stability
programme to the sustainability of public finances. The
Council considers that on the basis of current policies, public
finances appear to be on a sustainable footing to meet the
budgetary costs of ageing populations, benefiting from the

the tax ratio in Finland is high
The Council notes that
compared with other
industrialised countries. A major
challenge will be to carry out the planned tax reforms, while
safeguarding the achievements of the past decade of placing
public finances on a sustainable path.