HS Analysis | The government could do much more to reduce borrowing

Prime minister Petteri Orpo (kok) grounded his government’s first budget proposal in dark terms at Tuesday evening’s press conference.

“I have never been in such a serious economic situation before when preparing a budget. It can be seen on the faces of our ministers,” Orpo described.

However, the concern about the state’s indebtedness does not shine as strongly from the budget proposal itself. The proposal has a deficit of 11.5 billion euros, which means that the state will take on this much more debt next year.

According to Orpo, the government is taking “determined steps to turn the debt ship”. It could do much more if it wanted to.

Debt taking according to the current forecast, will continue to be strong throughout this government period as well.

Orpo put the reason for the continuation of debt collection on the neck of the previous governments.

“We have to catch up with the permanent expenses increased by the previous and previous governments, which make our public sector permanently more expensive than our income,” the prime minister said.

The government also presented the Ministry of Finance’s summary of which factors, for example, explain the large deficit at the end of the government’s term in 2027.

The list includes, among other things, the increase in interest expenses, the costs of the fighter jet project, the need for funding of welfare areas and the investment in security decided last season.

Government yes, despite the difficult initial situation, he is trying to change the direction of economic policy in his first budget proposal. Without the government’s austerity decisions, there would be even more new debt next year.

Differential Antti Rinne (sd) and Sanna Marini (sd) for governments is clear, because during the previous government base, decisions were made almost exclusively to increase public spending.

Orpo’s board also makes cost savings, i.e. cuts.

The change in direction will still be quite modest at least next year. The government’s cuts will reduce borrowing by more than 700 million euros next year. Without the cuts, the debt would therefore be more than 12 billion euros instead of 11.5 billion euros.

A large part of the cuts is aimed at social security.

To the same in time, the taxation of wage earners and employers will be reduced roughly by the same amount as spending is cut. The reason is above all the reduction in the unemployment insurance premium due to the improvement in employment.

If the government had wanted to reduce next year’s borrowing more, it could, for example, have used the room for maneuver brought by the fee reduction to tighten other taxation. In this way, the borrowing could have been reduced by hundreds of millions of euros without increasing the overall taxation.

However, the government decided rather to let the taxation of wage earners and employers become lighter.

Government in addition to wage earners, also leaves other large groups of people out of the austerity measures. Index increases of social benefits will be frozen, but pensions will be spared from the freeze.

Both occupational pensions and national and guarantee pensions will be increased by about 5.5 percent at the turn of the year. At the same time, for example, unemployment benefits and housing allowances will not be increased at all.

The index increases will increase Kela’s pension expenses and occupational pension expenses by almost two billion euros next year, according to the Pension Security Agency’s estimate. By interfering with these increases, the government could bring significant savings to the public finances if it wanted to.

Taxation and not interfering with pension increases are just examples officials and by many economists of the recommended tools that the government fails to use to reduce debt collection.

Of course, it doesn’t have to use them. It’s about political choices.

In its budget negotiations, the government decided, for example, to secure regional flights and direct more than 300 million euros to Kela reimbursements for private healthcare.

The government calls the improvement of Kela compensation an “investment”. The government finances investments with, for example, state property income. When the previous government called similar regular spending increases “investments for the future”, the coalition rightly criticized it.

Also Orpo’s board’s decision-making is naturally guided by goals other than simply reducing debt.

However, the credibility of the economic policy is important for the government parties that promised to stop living in debt.

The Treasury minister Riikka Purra (ps) has repeatedly had to answer the opposition’s questions in parliament about why borrowing is increasing, low-income earners are being cut, and high-income earners are being taxed less.

Purra is already worried about the adequacy of the government’s austerity measures. He presented In an interview with Helsingin Sanomat during the budget negotiations, that the government should agree on possible new cuts and tax extortions as early as next spring.

With the Coalition, the Rkp and the Christian Democrats wasn’t in such a rush to reduce indebtedness. They want to wait to see if the social security cuts aimed at improving employment begin to bite and the need to take on debt will decrease without additional unpleasant decisions.

With the actions agreed in the government program, the government aims to balance public revenues and expenditures with six billion euros by the end of the government term in 2027.

The government agreed on Tuesday that it will review the need for possible new austerity decisions in the spring of 2025.