Finland Times

A number of economists have recommended the next government to embark on measures aimed at attaining fiscal balance as soon as possible.

The revelation came in a survey conducted by the news agency STT under which it interviewed seven economists from bank research institutes.

The Finnish Economic Policy Council last week recommended further adjustments of public finances for the period 2017-2018.

“If we could trust the deficit reducing structural measures for effective implementation and effects as well as the fact that 2017 is a substantially stronger growth year than 2016, the recommendation would be sensible,” said Vesa Vihriälä, managing director at the Research Institute of the Finnish Economy-ETLA. 

“When any of these, unfortunately, cannot be considered even reasonably certain and the debt ratio continues to grow all the time, additional adjustment measures should begin as early as next year,” added Vihriälä.

OP Pohjola Chief Economist Reijo Heiskanen pointed out that during the current parliamentary term cuts had been postponed with little success.

The Finnish Economic Policy Council said preparation of a credible fiscal adjustment programme is a central task for the next government. According to the body, the adjustments are necessary, but they should be driven in a way that the fiscal policy does not exacerbate the economic cycle.

Seija Ilmakunnas, director at the Labour Institute for Economic Research, considers the recommendation of the council as necessary. In her opinion, a weak economic situation is justified to avoid additional constraints on public finances.

The majority of economic experts during the survey recommended that the future government should make several billions in cost cutting measures and tax increases. They consider saving as the primary means to achieve fiscal balance.

A four to five billion euro cost-cutting programme would restore the country’s public finances to a more significant stable footing.

In practice, this would mean freezing the public consumption expenditure for four years at the 2015 level, said Aktia’s Chief Economist Anssi Rantala. In his opinion, the new adjustment measures should focus entirely on expenditure.

Pasi Holm, managing director at Pellervo Economic Research Institute, believes around six billion euros in adjustment measures should be made.

According to Holm, one way in which real government spending can be cut is by tying the rise in income distribution to the rise in wages.

Furthermore, he believes the social welfare and healthcare reforms as well as other structural reforms will bring about savings.