The Finnish Fiscal Policy – A Ship Without an Anchor

In Finland, ceilings for the central government budget spending are used is to limit the rise of public spending during parliamentary terms. In its unprecedented, mid-term decision, the current government renounced its commitment to return to the ceilings in the years 2022 and 2023. We argue that the decision seriously undermines the credibility of the budgeting process, especially because it will coincide with a post-pandemic, economic upturn and the roll out of the EU stimulus and recovery package. The exceptional decision also implies reluctance of the government to return to the EU fiscal rules after the Covid-19 crisis. This, in turn, is problematic, as Finland lacks adequate structural reforms to speed up its economic growth and improve its fiscal sustainability. We argue that the government should recommit to the ceilings and complement the current system with a debt anchor and an expenditure rule derived from the anchor. In the future, the ceilings should also cover the entire public sector.