We will reform the spending limits system to support the sustainability of public finances

The most important objective of the spending limits system is still to provide predictability in fiscal policy. At the same time, it must support the sustainable management of public finances in the long run and, on the other hand, enable appropriate reactions to economic cycles and, for example, sudden crises.

From the point of view of sustainability, the main weakness of the current system is that it does not take the revenue side into account at all. In an ideal situation, the spending limits system would have a neutral approach to policy measures that are similar from the public finances viewpoint. The current system is far from this, as decision-based changes in expenditure are, as a rule, included the spending limits and changes in taxation, on the other hand, are not.

Consequently, the spending limits system must, in the future, also take into account changes made in taxation in addition to expenditures so that the rules of fiscal planning would safeguard the sustainability of public finances for both expenditures and taxes. Considering taxation changes within the spending limits is important also so that the spending limits system would not distort economic policy decision-making by preferring tax reliefs or tax subsidies over expenditure increases.

With the launch of the wellbeing services counties, the public funding of health and social services will fully come from the central government in 2023. This is a significant change also in terms of the functioning of the spending limits system. Particularly in the beginning, it may be difficult to predict changes in and the level of the funding of the wellbeing services counties, and even big surprises are possible. This must be taken into account in the spending limits system to avoid a situation where surprising changes would compel us to change spending limits regulation once it has been put in place. At the same time, however, there are reasonable grounds for keeping decision-based changes in the funding of the wellbeing services counties, such as new tasks, included in the spending limits.

The spending limits system must also provide adequate flexibility to accommodate for crises and economic downturns. Such rules must be avoided that would lead towards fiscal policy that exacerbates economic cycles. Also, an exception mechanism is needed in the spending limits to enable appropriate reactions to different crises.