Govt unveils €63.2b budget proposal for 2022

The Ministry of Finance on Friday has released a proposal of EUR 63.2 billion for the budget of the year 2022 with a deficit of EUR 6.7 billion.

Borrowing will decrease by EUR 7.6 billion from the sum budgeted for 2021, said the Ministry of Finance in a press release.

Tax revenues are projected to rise from the estimate used for the General Government Fiscal Plan in the spring.

The proposal was also published in full on the website of the ministry.

The draft budget of the Ministry of Finance for 2022 involves a deficit of EUR 6.7 billion. Including supplementary budgets, the 2021 deficit amounts to EUR 14.4 billion.

The 2022 deficit reflects significant non-recurrent expenditures, including the purchase of fighter jets, preparation for the ICT costs of social and health care reform, and financing of future agreed Government investments.

Besides the lower level of appropriations, the deficit reduction will depend on increased tax revenues boosted by the economic recovery.

Central government debt will rise to an estimated EUR 146 billion next year, said the proposal.

A summary review of child budgeting will be included in the draft budget for the first time. In addition to a section describing appropriations for the child age group in various branches of public administration, the package includes a review of taxation.

The Ministry of Finance proposal largely reflects the plan of public finances that the Government decided at the mid-term and spending limits session in spring 2021.

Work-related immigration will boost the supply of labour and support growth in employment. The aim is to allocate funds from the Finnish sustainable growth programme to finance digital infrastructure that supports promotion of the work-related immigration permit process, and to increase funding for maintaining the Finnish Immigration Service UMA case handling system.

The budget of the Service will be increased by EUR 3.5 million compared to the spring framework decision in order to reinforce decision-making and permit application processing.

This increase will help to boost work-related immigration and managed downsizing of Service staffing from the exceptionally high level that followed the 2016 wave of immigration. To establish a Work in Finland structure for promoting labour immigration, a total of EUR 2.725 million will be allocated to the operating expenses of Employment and Economic Development Offices and Business Finland, and to developing digitalisation. The aim is to create a permanent structure for promoting labour immigration that currently relies on largely fragmented, temporary and project-funded arrangements.

A specialised company will be established to promote employment of people with partial working capacity, for which EUR 10 million annually will be set aside for discretionary government transfers. Funds from the Finnish sustainable growth programme will also be set aside for capitalising the company. EUR 70 million in funds from the Finnish sustainable growth programme will be allocated to the operating costs of Employment and Economic Development Offices in order to implement the Nordic employment service model.

Based on a contribution from the Finnish Innovation Fund Sitra, EUR 67 million will be allocated to capitalise universities in 2022. The capitalisation will be implemented on the basis of university fundraising.

Municipal finances have been strongly supported in 2020. The support exceeded the costs incurred by municipalities due to COVID-19, leaving a surplus of approximately EUR 1.6 billion in the result of local government finances.

The municipal sector will also be compensated in 2021 for the effects of COVID-19 through central government transfers, grants, and an increased corporation tax apportionment. The impact of COVID-19 on local government finances is forecast to recede in 2022 and central government COVID-19 support will also end.

Total central government transfers to municipal finances will amount to some EUR 13 billion in 2022, of which EUR 7.95 billion is a central government transfer for basic public services.

Central government revenue is estimated at EUR 56.5 billion in 2022, of which tax revenues will account for EUR 47.8 billion. The revenue estimate is based on a forecast made in June. Tax revenues are expected to grow by some 6.2 per cent compared to the budgeted figure for 2021. The increase in tax revenues will be attributable in part to eased tax payment arrangements, leading to a transfer of some tax revenue from 2020 to 2021.

Tobacco tax will be increased in 2022 in accordance with the Government Programme. Reductions in tax relief for paraffinic diesel and the tax rebate for energy-intensive businesses will continue in 2022, as previously decided.

Budget preparations to continue during the autumn. Preparatory negotiations for the Government budget session will be held on 24 August, individual ministerial negotiations at the Ministry of Finance on 20-27 August, government negotiations, i.e. the budget session on 7-8 September and formal consideration of the budget proposal at a Government session on 27 September.