Council Opinion of 17 February 2005 on the updated stability programme of Finland, 2004-2008
Date: 2005-02-17
Institutions: Council of the European Union
Subjects: Finland, code of conduct, economic convergence, stability programme

3.6.2005

EN

Official Journal of the European Union

C 136/29

COUNCIL OPINION

of 17 February 2005

on the updated stability programme of Finland, 2004-2008

(2005/C 136/11)

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 surveil-
lance of budgetary positions and the surveillance and coordination of economic policies (1), and in particu-
lar Article 5(3) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

(1)

(2)

On 17 February 2005 the Council examined the updated stability programme of Finland, which
covers the period from 2004 to 2008. The programme broadly complies with the data requirements
of the revised ‘code of conduct on the content and format of stability and convergence programmes’.
Some variables concerning the basic assumptions are missing. Accordingly Finland is invited to
achieve full compliance with the data requirements.

The macroeconomic scenario underlying the programme envisages real GDP growth to ease from
3.2 % in 2004 to 2.4 % on average over the rest of the programme period. On the basis of currently
available information, this scenario seems to reflect rather cautious growth assumptions. The
programme's projections for inflation appear realistic and are in line the Commission services esti-
mates.

(3) With a projected annual surplus averaging 2 % of GDP for the general government, the update is set
to maintain a comfortable budgetary position throughout the programme period. The surplus is
essentially generated in the social security funds, while central government finances, currently in
balance, should post small deficits in 2005-07. The aim is to have central government finances back
in balance in 2007. To this end, the government has adopted annual spending limits for the period
2004-2007. Compared with the previous update, the projections for the general government
surplus from 2004 to 2007 are virtually unchanged.

(4)

Although Finland is set to maintain a favourable public sector surplus, the budgetary outcome could
be worse than projected as the baseline budgetary trend presented in the update only partially
includes the tax cuts of EUR 1.7 billion i.e. 1.2 % of GDP that supplement the two-and-half-year
comprehensive wage agreement concluded at
the end of November 2004. As there are no
announced plans to further restrain spending in 2005-07, the central government deficit would be
higher between 2005 and 2007 than mentioned in the programme, unless revenue-raising measures
are introduced, thereby also lowering the surplus in general government finances. The government
estimates that the wage-agreement-cum-tax-cuts will lower the general government surplus by 0.3
percentage points to about 1.9 % of GDP in 2007. However, the government expects that the
package will strengthen dynamism in the economy by improving the growth potential and job crea-
tion and in this way raise the revenue-raising capacity.

(5)

In view of this risk assessment, the budgetary stance in the programme is sufficient to maintain the
Stability and Growth Pact's medium-term objective of a position of close-to-balance for 2004-2008.
It also provides a sufficient safety margin against breaching the 3 % of GDP deficit threshold with
normal macroeconomic fluctuations for 2004-2008

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

C 136/30

EN

Official Journal of the European Union

3.6.2005

(6)

(7)

(8)

The debt ratio is estimated to have reached 44.6 % of GDP in 2004, well below the 60 % of GDP
Treaty reference value. The programme projects the debt ratio to decline by 3.5 percentage points
over the programme period.

Finland appears to be in a favourable position with regard to long-term sustainability of the public
finances,
in spite of important projected budgetary costs of an ageing population. The strategy
outlined in the programme is broad-based and consists of further debt consolidation and structural
reforms e.g. further steps of the pension reform and measures aimed at raising the exit age. The
structural reforms enacted and planned should have beneficial effects on the public finances.

The economic policies outlined in the update are broadly consistent with the country-specific broad
economic policy guidelines in the area of public finances. In particular, the multi-annual spending
limits introduced in 2003 seem to have worked well in the first year of operation, namely 2004,
when the final budgetary spending was below the ceilings and also expenditure as proposed in the
2005 budget is within the ceilings. The adherence to the expenditure framework is set to be main-
tained as it is politically binding.

Comparison of key macroeconomic and budgetary projections

2004

2005

2006

2007

2008

Real GDP
(% change)

HICP inflation
(%)

General government
balance
(% of GDP)

Primary balance
(% of GDP)

Cyclically-adjusted
balance
(% of GDP)

Government gross debt
(% of GDP)

SP Dec 2004

COM Oct 2004

SP Nov 2003

SP Dec 2004

COM Oct 2004

SP Nov 2003

SP Dec 2004

COM Oct 2004

SP Nov 2003

SP Dec 2004 (2)

COM Oct 2004

SP Nov 2003

SP Dec 2004 (1)

COM Oct 2004

SP Nov 2003 (1)

SP Dec 2004

COM Oct 2004

SP Nov 2003

3,2

3,0

2,7

0,2

0,2

0,7

2,0

2,3

1,7

3,7

4,1

3,7

2,1

2,8

2,4

2,8

3,1

2,5

1,4

1,5

1,3

1,8

2,1

2,1

3,4

3,9

4,0

1,7

2,3

2,4

2,4

2,7

2,4

1,8

1,7

1,8

2,1

2,2

2,1

3,8

3,8

4,1

2,0

2,3

2,3

44,6

44,8

44,7

43,4

43,4

44,9

42,5

42,2

45,0

2,2

n.a.

2,4

1,8

n.a.

1,8

2,2

n.a.

2,2

3,9

n.a.

4,3

2,1

n.a.

2,2

41,7

n.a.

44,6

2,0

n.a.

n.a.

1,8

n.a.

n.a.

2,0

n.a.

n.a.

3,7

n.a.

n.a.

1,9

n.a.

n.a.

41,1

n.a.

n.a.

Note:
(1) Commission services calculations on the basis of the information in the programme
(2) The Finnish authorities provide primary balances on the basis of net interest payments rather than gross interest payments. The

Commission services have recalculated the figures based on the data given in the programme.

Sources:
Stability programme (SP); Commission services autumn 2004 economic forecasts (COM); Commission services calculations