HS analysis|The government still says that the growth of the debt ratio will stop with its actions, but in reality it is increasingly uncertain, writes political editor Teemu Muhonen in his analysis.
Government agreed on an extraordinary savings budget for next year at high speed on Tuesday. The fast pace was explained by the fact that the government mainly implements the cuts and tax increases that were agreed upon in the government negotiations and after a long struggle over the framework last spring.
Although the cuts will reduce borrowing next year by 1.8 billion and the tax cuts will increase income by 1.4 billion, the state will have to take on more than 12 billion euros in debt next year as well.
Borrowing is not decreasing Sanna Marini (sd) from the last years of the government.
Prime minister Petteri Orpo (kok) and the Minister of Finance Riikka Purra (ps) used the time at the beginning of the press conference to find out why debt collection continues briskly.
Purra said that without the government’s actions, next year the debt would be 16 billion euros instead of 12 billion.
There is no denying that the scale of the government’s austerity decisions is significant. However, the cuts, employment measures and tax cuts are not enough to reduce the indebtedness in the way the government hopes.
The borrowing of more than 12 billion is 1.5 billion more than the government anticipated at the end of its spring austerity negotiations.
Weak economic growth and faster-than-expected spending on social and health services increases the need to take on debt for reasons beyond the government’s control.
However, the government still manages to present that its ambitious plan to reduce debt is progressing as planned. “The growth of the debt ratio will stop in 2027”, declared the title of the picture presented by Purra at the event.
In reality the stagnation of debt ratio growth is increasingly uncertain.
The picture presented by Purra shows a “scenario career”, which is therefore not a prediction of the future. According to it, indebtedness will stop temporarily in 2027 if the government’s entire nine billion euro balancing program is implemented in its entirety.
It is already clear that the welfare regions responsible for social security services are not able to curb their spending as hoped, but on the contrary, spending is growing faster than expected.
In addition, the government’s program partly relies on the growth of employment brought about by employment measures. At the moment, however, unemployment is on the rise.
If employment does not improve and the spending trend in welfare areas reverses, the government’s goal of nine billion euros and debt reduction will remain a distant dream.
In the board this is of course well known. However, the parties did not have the political will to negotiate again at the end of the summer
on a new austerity package. It would have been the third such in just over a year.
Instead, the government even slightly reduced some of the cuts from the Ministry of Finance’s basic proposal. No compensatory savings were agreed for all mitigations, Purra said.
It already seems likely that in its so-called mid-term campaign next spring, the government will again be faced with its debt promises. If waiting idly for better economic forecasts doesn’t bring results, the government may once again have to consider unpleasant decisions worth billions.
On Tuesday, Purra described the period of strict economic policy and austerity decisions as Finland’s “new normal”. The coming years will show whether the governing parties – not to mention the opposition parties – are truly ready for such a new normal.
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