Overall impact of Government stimulus package to total EUR 2 billion
The Government has today, 30 January 2009, agreed on a stimulus package having an overall impact of EUR 2 billion. The package will generate at least 25,000 man-years in employment. As a result of the stimulus decisions made by the Government, overall GDP this year and next year combined will grow by approximately one per cent. The fiscal stimulus impact, 1.70 per cent of GDP, or EUR 3 billion, brought about by the decisions concerning the budget and supplementary budget of 2009, will also rank the third largest in the Commission’s comparison among the 27 Member States.
The objective of the supplementary budget is to minimise the number of people who, as a result of the international economic downturn, have become affected by cyclical unemployment, and to carry them over the hard times. The main emphasis is therefore placed on measures that directly promote employment, such as making investments in transport infrastructure, supporting construction and lifting the social insurance contribution. Additional priorities include education and research. The number of study places in vocational training will be increased, and appropriations allocated to research and development will be raised.
Employment: Construction, transport infrastructure and lifting the social insurance contribution
To soften the effects of the quickly deteriorating economic situation, measures will be taken to stimulate construction and renovation activities, to bring forward and increase the number of investments in transport infrastructure, and to lower labour costs by decreasing the social insurance contribution on employers. The impacts of the stimulus measures will altogether generate at least 25,000 man-years in employment. In addition, the decision to bring forward investments in transport infrastructure will generate 4,300 man-years in employment.
Economic activity in construction is at risk of a gradual decline towards the end of the current year, as ongoing projects are completed. In the supplementary budget proposal, the total cost of projects stimulating the initiation of construction amount to EUR 1.3 billion, including approximately EUR 700 million for civil engineering activities and approximately EUR 600 million for building construction. The aggregate impact on employment will rise to over 17,000 man-years, construction building accounting for over 10,000 man-years and civil engineering activities for some 8,000.
It is predicted that the net impact of the stimulus package on the labour market will be greatest towards the end of the current year and during next year.
Improvement targets for public roads and the rail network
A further EUR 50 million will be allocated for basic road maintenance. This additional allocation will be utilised for bridge repairs, the improvement of the prerequisites of public transport in the Helsinki region, the construction of pedestrian and bicycle paths and for other targets relatively minor in size. This sum includes EUR 4.2 million for the development of the Kainuu region, to be used for instance in the restoration of the Tönölänsalmi bridge.
A further EUR 21.5 million will be allocated for basic rail maintenance. This allocation will be used, for instance, in the improvement of the Kokemäki–Tampere railway section, the enhancement of the railway yard activities in Kokkola–Ykspihlaja, alteration work on the railway yard in Harjavalta and the fundamental improvement of the port railway yard in Kotolahti, Kotka.
Transport infrastructure projects brought forward
The following transport infrastructure projects will be brought forward and initiated in 2009:
Main road 51 Kivenlahti–Kirkkonummi, total cost EUR 80 million
Highway 5 Päiväranta–Vuorela, total cost EUR 90 million
Highway 14 Savonlinna town centre, total cost EUR 135 million
Highway 6, Joensuu section, total cost EUR 35 million
Deepening work for the Mäntyluoto route, Pori, total cost EUR 9.2, including the activation of the investment of EUR 22 million by the City of Pori
Additionally, the continuation of the Seinäjoki–Oulu railway project will be implemented. The additional EUR 40 million for this project will be financed as VR Oy’s share of the funding.
Airports, broadband and waterway works
The renovation work on Helsinki–Vantaa Airport will be allocated EUR 10 million, the total cost of this investment being EUR 24 million. This expenditure will be financed by reducing the revenue recognition requirement for Finavia.
For launching the extension of the passenger terminal of Oulu Airport in 2009, an appropriation of EUR 6 million is proposed, the total cost of this investment amounting to EUR 21 million.
For broadband construction, a contract authorisation of EUR 66 million will be allocated to enable the payment of a central government transfer during the years 2009–2015. The central government transfer will initiate broadband investments totalling EUR 198 million. The impact of the overall project is 3,000 man-years.
A total of EUR 4 million has been added for water supply and waterway works and a EUR 0.2 million state subsidy granted for the Lake Vesijärvi project. Furthermore, transfer sewer and connecting water pipe projects will be allocated an additional EUR 2 million in state subsidy. Together, these allocations will launch projects worth EUR 24.4 million.
Housing: new and refurbishment construction
The Government reserves a Budget Authority (BA) of EUR 125 million for the granting of a 10 per cent renovation subsidy. This subsidy will be directed towards repair work on rental dwellings and housing companies launched in 2009. It is estimated that the appropriation in 2009 will amount to EUR 37 million. This subsidy will not be awarded for projects benefiting from the household tax deduction.
The Government proposes that, for the construction of new rental dwellings and renovation of dwellings, the BA for the interest subsidy loans to be approved in 2009 and 2010 will be increased by EUR 250 million, to a total of EUR 1,170 million. This solution will involve a counter-cyclical short-term interest subsidy in 2009 and 2010, in order to encourage the initiation of new rental dwelling targets (so-called interim model). It is estimated that this additional BA will enable supporting the construction of approximately 2,000 new dwellings annually.
The investment authorisation for Senaatti-kiinteistöt will be raised by EUR 30 million. The related projects include the basic refurbishment of prison buildings, the basic refurbishment and extension of the Mikael School in Mikkeli as well as the basic refurbishment and extension of the Finnish National Gallery’s storage premises in Vermo, Espoo.
The Government increases the BA for basic refurbishment of comprehensive schools, granted either during implementation or as post financing, by EUR 33 million, of which the central government transfers granted during implementation account for EUR 13 million. This will cause additional expenditure of EUR 9 million to the State in 2009. This decision will enable the launch of projects of EUR 77 million in value.
In renovation subsidies for municipalities’ social service buildings, i.e. day-care centres and residential homes for older people, EUR 9 million has been allocated. This appropriation will be paid during implementation, i.e. the appropriation impact in 2009 will be the full EUR 9 million. This will result in the launch of projects worth EUR 21 million.
Preparations are underway for granting a subsidy as post financing to aid the basic refurbishment of Svenska Teatern, allowing the refurbishment to begin in 2010, with the maximum share of state funding amounting to EUR 30 million.
A total of EUR 30 million of National Lottery funds will be used for stimulating projects with an employment impact, for the promotion of science, art, sports, physical education and youth work in accordance with the Act governing the funds distribution ratio.
Abolishing the employers’ social insurance contribution will reduce municipalities’ annual expenditure by EUR 248 million
In addition to stimulating construction activities, the attempt to soften the effects of the declining economic situation includes lowering companies’ labour costs by removing the national pension contribution paid by employers. Lifting this contribution should support demand for labour by a total of some 10,000 persons.
This reduction is intended as permanent, for rapid entry into force. The national pension contribution will be lowered by 0.8 percentage points as of 1 April 2009 and will be entirely abolished as of 1 January 2010.
The abolition of the social insurance contribution forms part of an overall labour market package promoting the sustainability of public finances by accelerating contributions to pension funds, in order to counter-balance indebtedness. The earnings-related employment pension contributions (the ‘TyEL’ contribution) paid by employees and employers will be raised annually from its current level by 0.2 percentage points during the period 2011–2014.
The abolition of the national pension contribution will reduce the cost of employment during the recession and in the face of looming redundancies, particularly with regard to capital-intensive export industries. This does not constitute a general tax privilege to the employer, but is directly aimed at employment. If a company dismisses some of its employees, it will not benefit from the abolition of the contributions related to the dismissed people.
As major employers, the municipalities are one of the largest payers of social insurance contributions. This year, the municipalities’ expenditure burden will be lightened by EUR 78 million. The net effect will result in the permanent alleviation of the municipalities’ expenditure burden by EUR 248 million each year. This burden will be transferred for the State to bear.
The blue-green coalition has consistently shifted the focus of taxation from labour to consumption which has a negative effect on the environment. This solution will alleviate the total taxation ratio for labour. The deficit created in the public finances due to the abolition of the social insurance contribution will be mainly financed by increasing energy and environmental taxes for industry and commerce. The required financing decisions will be made in the spring of 2009, when the central government spending limits are decided.
In conducting structural reforms, economic cycles can be influenced through the timing of various solutions. In the face of an economic downturn or recession, it is beneficial to lower taxes and contributions, while compensating increases should be made in a normal economic situation or during boom years. Removing the contribution will not erode the financing of basic security.
Education, restructuring protection and research and development
To reduce the effects of growing unemployment, the number of study places in vocational basic and further education and in adult education leading to a polytechnic degree will be increased by 2,150. This will bring down unemployment by a corresponding figure, provided that the study places are aimed at the unemployed. Directing the provision of education and training to people facing the risk of losing their jobs would, at least partially, prevent them from drifting into unemployment. Additionally, people entering education or training programmes would have significantly improved opportunities to find work in the open labour market upon completing their studies. Apprenticeship training will also be made available for those with higher education degrees.
An additional appropriation totalling EUR 10 million will be allocated to vocational education and vocational further education. The central government transfer for vocational basic education will be increased by EUR 3 million, corresponding to an increase of some 750 students. The additional appropriation will be particularly targeted at lowering youth employment and the prevention of youth exclusion trends, increasing educational opportunities for adults and extending the supervisor education pilot project.
For vocational further education, the central government transfer will be increased by EUR 4 million, corresponding to an increase of some 400 student-years in further education provided in educational institutes during 2009–2011. This additional funding will be used, in particular, for raising the educational level of staff without any professional education or with outdated educational skills.
The central government transfer for municipal and private polytechnics will be increased by EUR 3 million, which will allow the creation of approximately 1,000 more study places in adult education leading to a polytechnic degree in 2009–2011. The additional funding will be targeted particularly at raising the educational level of staff in the labour market who have completed an old post-secondary degree and to safeguard their eligibility in the labour market.
Investments in research and development
For the granting of research, development and innovation subsidies to companies through the Finnish Funding Agency for Technology and Innovation (Tekes), the related BA will be increased by EUR 10 million and the related appropriations by EUR 2 million, in order to secure the continuity and level of these operations.
In order to support public research, development and innovation operations, for instance those undertaken by VTT Technical Research Centre of Finland and the universities, the BA will be increased by EUR 10 million and the related appropriation by EUR 2 million.
The BA for loans for companies’ R&D operations will be increased by EUR 5 million and the related appropriation by EUR 2 million.
Additional appropriations for flexicurity and labour market training
A further EUR 7 million is allocated for employment, training and special measures in order to extend flexicurity to laid-off workers. In addition, EUR 1.2 million is granted for conducting the increasing tasks of a temporary nature related to flexicurity ensuing from this extension to the Employment and Economic Development Offices. Where possible, appropriations related to employment, training and special measures should be frontloaded.
Labour market training is granted an additional EUR 10 million appropriation. Start-up grants will be increased by EUR 5 million, for the initiation of new enterprises.
For employment-based investments, a BA of EUR 5 million and an appropriation of EUR 1.5 million have been added.
The adequacy of appropriations under the labour market policy will be re-evaluated later during the current year. Labour market training will also address the needs of those with an academic education, for instance in training programmes with a highly specific purpose offered by continuing professional development centres in universities and joint purchase training targeted at people with an academic education. Preparations are being made for the implementation of all training projects arranged as joint purchase training by companies and the labour administration.
Other appropriation decisions
For the development of the Finnish Meteorological Institute’s earth station infrastructure in Sodankylä, EUR 3.2 million is reserved.
For the basic refurbishment of the oil-combating vessel Halli, EUR 7 million is allocated. Compensation for this expenditure will be applied for from the Oil Pollution Compensation Fund.
A total of EUR 10 million is targeted at one-off defence materiel acquisitions.
The right to commit to projects under the EU’s Structural Funds Programmes will be brought forward, from the end of the programming period 2013 to the year 2009. This earlier schedule will increase employment and enhance the implementation of programmes. Advancing the schedule will increase the related BA by EUR 43.5 million and the appropriation by EUR 6 million during the current year. In addition, funds carried forward from the year 2007–2008 will be used for economic stimulation purposes during the current year. A total of EUR 57 million of unused funds from the programming period 2000–2006 are budgeted for such use.
The Government will increase the BA for energy subsidies by EUR 8 million and the appropriation by EUR 2 million. This appropriation will be used for rapidly launched projects with a positive impact on employment which promote the use of renewable energy and energy efficiency.
Debt counselling will obtain an increase of EUR 1.5 million through its appropriation, due to the growing need for financial and debt counselling.
Depreciation of investments temporarily doubled
The Government wishes to encourage companies to bring forward necessary investments currently awaiting the forthcoming years, to this or next year. The right to depreciate investments will be doubled for the years 2009 and 2010.
The tax yield from 2009 will be reduced by approximately EUR 65 million and that from 2010 by approximately EUR 83 million. The lost tax revenue will be chiefly compensated later.
Tax relief for independent entrepreneurs and agricultural entrepreneurs
The position of independent low-income entrepreneurs will be improved by amending the provisions pertaining to the division of their income into capital income and earned income. Income derived from business profits could be taxed, upon the taxpayer’s request, completely as earned income. This provision would also be applied for the income share received by an agricultural entrepreneur from a corporation subject to taxation. Currently they can select whether the base used for the taxation of capital gains of either distributable income derived from business profits or income share from a corporation subject to taxation will be 10 or 20 per cent of net assets. This change would be first applied in the taxation conducted for the year 2010.
The transfer of fields to those engaging actively in agricultural operations will be promoted by enacting a temporary exemption on profits on the sales of fields. This tax exemption would apply to transfers conducted by a natural person or the estate of a deceased person between 1 January 2010 – 31 December 2011, for agricultural entrepreneurs actively engaging in agriculture. The tax exemption will be implemented provided that it does not conflict with the EC state aid provisions.
Impacts of the supplementary budget on public finances
In accordance with the decisions made in conjunction with the supplementary budget, a total of EUR 1.2 billion will be used to increase government expenditure and launch new projects. Lifting the social insurance contribution will produce an annual income reduction of EUR 833 million in the future. The stimulus measures of the supplementary budget will weaken the balance in public finances by EUR 912 million in 2009. The stimulus decisions made will raise the spending limits for 2009 by EUR 216 million.
Government’s measures to combat recession
Following the decisions taken during the current week, the Government’s extensive set of measures constitutes a marked improvement in the operations of the financial market, a financial policy numbering among the most effective stimuli in Europe and measures to increase the short- and long-term confidence of Finns.
Financing
The total volume of financial market solutions is EUR 60.5 billion, including the state’s guarantees for banks’ own funding, the state’s capital loans to banks as well as corporate and export financing instruments. The objective is that healthy companies lose no jobs due to financial problems arising from the international financial crisis.
Revival
The stimulus impact of the decisions concerning the budget and supplementary budget of 2009 is 1.7 per cent of GDP, or approximately EUR 3 billion. The magnitude of the stimulus activities being taken in Finland is the third largest among the 27 Member States of the European Union.
Confidence
The purchasing power of salaried employees and pensioners will increase at great speed, partly due to the Government’s measures. With these measures, the Government will soften the cyclical unemployment caused by the international economic recession. Employment will be maintained and the needs of those who become unemployed or laid off will be attended to.
To counter-balance indebtedness, the Government will conduct structural measures to increase the long-term sustainability of public finances.