Net borrowing in the government’s draft budget next year is exceptional, but not record-breaking.
Government has ended up in a budget debate with a draft budget in which the Finnish state will take on an additional 10.7 billion euros in debt next year. The Minister of Finance said this on Tuesday Matti Vanhanen (middle).
In the draft budget, borrowing will increase significantly from the Ministry of Finance’s basic proposal, in which the general government deficit was about 7 billion euros. According to Vanhanen, the reason for the increase in the deficit is especially that the costs of the coronavirus are reimbursed to municipalities.
The budgeted borrowing of almost EUR 11 billion is exceptional. However, it is not record-breaking, as the state has taken on large amounts of debt in crisis situations in the past.
During the financial crisis, the government led by Vanhanen submitted a draft budget for 2010, which was about 13 billion euros in deficit. If inflation is taken into account and the amount is converted into 2019 money, the net borrowing of the budget in current money was about 14.7 billion euros. The Minister of Finance at that time served as the Coalition Party Jyrki Katainen.
In the following years, general government deficits were also high. They circulated around € 7-9 billion in current money. Before the financial crisis, in the 21st century, the state hardly had to take on additional debt, but for several years, on the contrary, money was budgeted to reduce government debt. On the other hand, during the recession years of the 1990s, indebtedness was very high, especially in relation to the GDP of that time.
In the graph below, HS compiled data on how much government debt was taken over or repaid between 2002 and 2021. These are therefore not final figures, but budget proposals issued in the autumn of the previous year.
Final borrowing, especially in crisis years, may have deviated significantly from that budgeted last autumn. For example, in the record year of 2010, the government finally took on EUR 12.7 billion in additional debt, converted into current money, which is two billion less than estimated in the budget.
This year, the government is in debt of more than EUR 17.6 billion, especially due to the interest rate crisis, even though the budget estimated net borrowing at only EUR 2 billion.
In any case, it now seems that Finland’s indebtedness will be exceptionally high next year. However, during the interest rate crisis, Finland is no exception among other countries.
Chief Economist of the Employees’ Association SAK Ilkka Kaukoranta write on Twitterthat, according to the OECD’s June forecast, the average general government deficit in OECD countries would be 7.1% of GDP next year. According to Kaukoranta, in relation to Finland’s gross domestic product, this would mean a deficit of EUR 17 billion.
The general government deficit is a different matter from the general government deficit, as public finances also include municipalities and social security funds. Nevertheless, according to the OECD forecast, Finnish government indebtedness next year does not seem to be at least clearly higher than the OECD average.
Of course, mere figures describing the size of borrowing do not tell you where the borrowing comes from and what the money is used for.