The Finnish Economic Policy Council published its annual report on Wednesday 23 January.
In its report the council notes that even though the government has almost reached its fiscal targets, public finances will remain structurally imbalanced. Without new measures the debt to GDP ratio will begin to increase in the medium term. The council points out that the 2017 and 2018 tax cuts were poorly timed from a business cycle perspective and the tax decreases over the government’s term hinder efforts to stabilize public finances. The tightening of the fiscal policy in 2019 fits better to the current phase of the business cycle.
The decrease in the structural deficit has improved the long run sustainability of public finances. Methodological changes have however increased the sustainability gap estimate. By the most recent assessment by the Ministry of Finance, the sustainability gap is about 4 percent relative to GDP, which is one percentage point less than at the beginning of the government’s term. Council notes that the employment outlook underlying the sustainability gap assessment is pessimistic. If recent employment growth turns out to be permanent, the sustainability gap will decrease by one third.
The report is written in English and can be downloaded from the web-site: