Council opinion of 20 January 2004 on the Updated Stability Programme of Finland 2003 to 2007
Date: 2004-01-20
Institutions: Council of the European Union
Subjects: Finland, budget policy, economic policy, gross domestic product, public finance, stability programme

3.2.2004

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Official Journal of the European Union

C 29/1

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(Information)

COUNCIL

COUNCIL OPINION

of 20 January 2004

on the Updated Stability Programme of Finland 2003 to 2007

(2004/C 29/01)

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(3) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

On 20 January 2004 the Council examined Finland's updated
stability programme, which covers the period 2003 to 2007.
The updated programme complies with the data requirements
of the revised ‘code of conduct’ on the content and format of
stability and convergence programmes.

The budgetary strategy underlying the update is based on
keeping the expenditure-to-GDP ratio unchanged throughout
the programme period, while the revenue ratio, after a
is to resume a gradual upward
temporary decline in 2004,
the programme period. The
end of
trend towards
government's budgetary strategy objective is to have central
government finances in balance by 2007; however, according
to the programme this target will not be achieved under the
current medium-term projections.

the

The macroeconomic scenario presented in the 2003 updated
stability programme projects a strengthening of economic
activity from 1,4 % in 2003 to 2,7 % in 2004, which
recent data.
appears warranted in the
Subsequently, GDP growth is expected to reach its trend rate,
averaging 2,5 % between 2005 and 2007. Employment, falling

light of most

by 0,2 % in 2003, is expected to go up by 0,3 % on average in
2004 to 2007. Inflation is forecast to rise gradually from 1,0 %
in 2003 towards 1,8 % by 2007. The near-term projections are
closely in line with the Commission's Autumn 2003 forecast.
Given the assumption of a favourable external environment,
the projected stabilisation of GDP growth in the later years
of the programme represents a rather cautious view.

The programme projects a substantial decline in the general
government surplus from 4,2 % of GDP in 2002 to 2,3 % in
2003 and below 2 % in 2004 (2). For the later years of the
programme a surplus of 2 % or above is to be restored, in line
with the newly defined expenditure ceilings. Both the central
government and to a smaller degree local governments account
for the trend weakening of the financial position between 2003
and 2007, while the social security funds will be upholding the
surplus at the general government level. The projected decline
in the cyclically adjusted surplus by 0,6 percentage points of
GDP between 2003 and 2005 is partly due to direct (income)
from
and indirect
corporate taxes. The cyclically adjusted surplus is seen to fall
from 4,3 % of GDP in 2002 to 3,0 % in 2003 and further in
2004 to 2,4 %. In 2005 and beyond the cyclically adjusted
surplus will stabilise over 2 % of GDP. These are broadly in
line with the Commission cyclically adjusted balance calcu-
lations.
the higher than expected outcome in
2002, the general government debt to GDP ratio is projected
to continue to decline modestly, from 45,1 % of GDP in 2003
to 44,6 % of GDP in 2007.

tax cuts and lower

In spite of

(alcohol)

receipts

finances,

In spite of the expected persistent small deficits in central and
local government
in the
programme of running a comfortable general government
surplus provides sufficient safety margin against a breach of
the 3 % of GDP reference value for the government deficit in
normal cyclical fluctuations.

the budgetary stance

The decline in the government surplus is mainly due to higher-
than-planned income tax cuts in 2000 to 2004 and higher-
than-planned discretionary spending at central government
level
in 2001 to 2003. The previous high surpluses have
created some additional fiscal room for manoeuvre, such that
under plausible macro-economic and budgetary assumptions,

(1) OJ L 209, 2.8.1997.

(2) With the exception of 2002, the general government surpluses have

been revised downwards for the whole programme period.

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Official Journal of the European Union

3.2.2004

the Stability and Growth Pact's medium-term objective of a
budgetary position of close-to-balance or in surplus should
be maintained over
the programme period. However, a
tendency of exceeding the medium-term spending guidelines,
as observed in the past, constitutes a risk to the government's
budgetary strategy. Therefore, the multi-annual spending limits
introduced by the new government which are now more
binding should help to keep expenditure under control.

The stability programme pays due attention to the sustain-
ability of public finances. 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
sustained running of budget surpluses, and a reformed pension
system that
is to a large extent pre-funded. Sustainability
should also be underpinned by reforms, both planned and
underway, which aim at raising the employment rate, and
the Finnish authorities should proceed with their implemen-

tation according to the time frame indicated in the stability
programme.

The recent tax cuts and some further measures planned are
intended not only to boost employment and job creation,
but also to stem the erosion of tax bases as a consequence
of their increasing international mobility of production factors
(labour and capital). In order to safeguard the achievements of
the past decade of placing public finances on a sustainable
path, strict compliance with the newly defined expenditure
ceilings will be all the more crucial.

The economic policies as presented in the updated programme
are broadly consistent with the Broad Economic Policy
specifically those with budgetary implications,
Guidelines,
inter alia, the introduction
which recommended for Finland,
of multi-annual spending limits and the reduction of
the
high level of structural unemployment.

COUNCIL OPINION

of 20 January 2004

on the Updated Stability Programme of Austria 2003 to 2007

(2004/C 29/02)

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 20 January 2004 the Council examined the updated
stability programme for Austria which covers the period
2003 to 2007. The programme was
submitted on 18
November 2003 and largely complies with the revised ‘code
of conduct on the content and format of
stability and
quantitative
programmes’. However, more
convergence
information, as contained in the twin budget 2003/2004,
with detailed estimates for
individual budgetary measures,
would have proved useful and should have been included.

The budgetary strategy of the updated programme remains
long-term focus. Substantial
unchanged, with a distinct

(1) OJ L 209, 2.8.1997.

structural savings combined with sizeable tax cuts, while
cyclically-adjusted
causing a
deficit in 2005, should entail a steady decline in expenditure
and revenue ratios and in the debt ratio.

temporary widening of

the

the optimistic side, given the usual

the macro-economic scenario in the update
By and large,
the acceleration in employment
appears realistic. However,
in 2004 could lean
growth to 0,6 % (ESA95 definition)
towards
time-lag of
labour demand to a cyclical upturn of activity. Moreover,
real GDP growth in 2006 and 2007 would remain above
potential. The implicit closing of the output gap, however,
would not
sluggish
growth, due to the positive impact of recent and ongoing
structural reforms and enlargement, given that macroeconomic
imbalances are absent in the Austrian economy.

seem implausible after a period of

The

based

balance,

cyclically-adjusted

The update maintains the budgetary targets set in the previous
on
programme.
Commission calculations according to the commonly agreed
methodology,
is set to deteriorate by 0,9 percentage points
to 1,0 % of GDP in 2003 and, after a temporary improvement,
by 1,0 percentage point to 1,4 % of GDP in 2005 due to tax
cuts. Despite narrowing thereafter, the cyclically-adjusted deficit
will decline to 0,5 % of GDP only in 2007. Thus, the cyclically-
adjusted deficit is close to balance only in the years 2004 and
2007.

Under plausible macroeconomic and budgetary assumptions,
the Stability and Growth Pact medium-term objective of a
budgetary position of close to balance or in surplus may not
be achieved over the programme period. Although downside