Finance Minister Annika Saarikko (Cen) has warned that Finland could slip into a recession next year.
The government presented its budget plan for next year on Thursday, with a wide range of support measures to help people cope with the sharp rise in the cost of energy and other essentials.
Minister of Finances Annika Saarikko (Cen) warned that the strong economic growth seen earlier this year “threatens to slow significantly next year” and could lead to another recession.
The government intends to increase public spending to 80.5 billion euros next year, up from 79.5 billion proposed by the finance ministry last month.
As a result, next year’s budget deficit is expected to swell to 8.1 billion euros instead of the previous estimate of 6.3 billion.
A large part of the expenditure, around 14 billion euros, will be transferred from the municipalities to the state. Indeed, responsibility for social and health care will be transferred to the new welfare counties at the end of the year as part of the sweeping sote reform.
Cost of living assistance targets families, electricity bills
The government has announced that it will reduce the value added tax (VAT) on electricity from 24% to 10% from December to next April. It will also seek to strengthen the purchasing power of households by offsetting high energy bills through tax deductions and slightly higher social security contributions.
VAT on public transport fares will drop to zero between January and April next year, says environment minister Maria Ohisalo (Green) says.
Municipalities will also lower the prices of public child care, but unlike VAT reductions, this measure is permanent, according to the government.
Families with children will also receive additional child allowances on December 23. This bonus will not affect basic social assistance income thresholds. Single parents will also see a temporary €5 increase in monthly child benefit.
An €80 million support package, which includes the expansion of rail services, is also in the pipeline for companies affected by the loss of Russian operations in eastern Finland.
Budget cuts, meanwhile, amount to 370 million euros, the majority of which – 112 million euros – comes from the transport and communications sector.
Asked by the press whether the growing deficit indicated that it was an “electoral budget”, the Prime Minister Sanna Marin (SDP) said the war in Ukraine had an impact on the Finnish economy.
It is the last budget plan of the centre-left five-party government’s legislature, with parliamentary elections looming in April.
The budget foresees some 30 million euros in humanitarian aid for Ukraine. It also included a provision of 200 million euros for Ukrainian children continuing their education in Finland.