Stability programme of Finland

On 12 February 2008, the Council examined the updated stability programme of Finland, which covers the period 2007 to 2011. Finland's macroeconomic performance has been strong and balanced over the last years, with growth in the recent years significantly exceeding earlier expectations. The present cyclical upswing in economic activity has been appropriately used to build up budgetary surpluses and to prepare for the effects of population ageing, reducing considerably the risks to the sustainability of public finances. However, the imminent demographic shift is predicted to dampen economic growth already at the end of the programme period and lead to a smaller fiscal surplus, thereby calling for sustained control over public spending.

The programme's central objective is to ensure sustainability of public finances in the face of population ageing. As in the previous programme, Finland's medium-term objective (MTO) for the budgetary position is defined as a general government surplus of 2 % of GDP in structural terms, i.e. in cyclically- adjusted terms net of one-off and other temporary measures.

The overall conclusion is that the programme envisages continued high surpluses, albeit declining over the programme period. While the risks attached to the budgetary targets are balanced overall, the programme's fiscal projections appear somewhat cautious for 2008. The medium-term budgetary position is sound and should limit the risks to long-term sustainability. Continuing with expenditure restraint will remain crucial to stem the risk of a pro-cyclical fiscal policy stance in 2008 and to adjust to the lower growth path and the implied slower growth of tax revenue over the programme period.