Finland's fiscal policy objectives are set out in its Government Stability Program, and as a member of the European Union (EU), Finland must comply with the EU's criteria for prudent fiscal policy as laid down in the Stability and Growth Pact. Finland has been a member of the International Monetary Fund's Special Data Dissemination Standard since 1996, and the metadata it provides to the website meet all requirements for coverage, timeliness, and periodicity. A 2004 international study of budget-system frameworks by the Organization for Economic Cooperation and Development describes the Finnish Constitution as containing "extensive" provisions covering the budget process. These are supplemented by provisions of the State Budget Act. In addition, the Constitution and the 1999 Act on Openness in Government Activities impose requirements of transparency and disclosure on all government authorities, including the right of citizens to access budget-related statistics and information on the budget process. However, there is as yet no comprehensive assessment of Finland's fiscal policy transparency practices. This prevents the assignment of a higher overall compliance rating for this standard.

General Overview

Finland became a member of the EU in 1995 and the European Monetary Union (EMU) in 1999. As such, it is obligated to adopt the prudent fiscal policy criteria set forth in the EU's Stability and Growth Pact. The International Monetary Fund's (IMF) Special Data Dissemination Standard (SDDS) website discloses that Finland became a subscriber to the Standard on June 3, 1996. Timeliness, coverage, and periodicity of data meet SDDS requirements for all datasets except central government operations, for which Finland avails itself of a timeliness flexibility option. The website also shows that Finland provides advance release calendars for all appropriate datasets, and promptly disseminates its data in accordance with those calendars. The IMF's 2005 Data Module Report on the Observance of Standards and Codes (ROSC) states that the metadata that Finland posts on the SDDS website is regularly updated. The 2005 ROSC commended Finland for its commitment to statistical quality, but noted a number of shortcomings. For one, the ROSC found that government finance statistics were classified in accordance to a flawed system, at least insofar as the needs of fiscal analysis are concerned. The ROSC also noted resource constraints and expressed dissatisfaction with the timeliness of general government data. However, the SDDS website discloses that the general government data timeliness issue has since been addressed.

Finland's fiscal policy practices, including transparency requirements, are covered by the provisions of the Act on the Openness of Government Activities of 1999, the Constitution of 2000, and the State Budget Act of 1988, as amended through 2004. In a 2004 comparison of Baltic countries' budget laws, the Organization for Economic Cooperation and Development (OECD) notes that Finland has "systematically embodied budget principles into law... [and] its Constitution contains a particularly high number of provisions relating to the budget" (p. 343).

The IMF's 2007 Article IV Consultation report describes Finland's economy as "one of the best performing" within the EU. However, the report also notes that Finland's population is rapidly aging, which raises sustainability issues for fiscal policy. The report adds that the country is experiencing "supervisory problems associated with deepening international financial integration" (p. 1). The IMF warns that a considerable fiscal deterioration appears possible for the future, given the projections of the 2008-2011 budget framework, and suggests that it would be appropriate to adopt a policy of greater fiscal restraint. The IMF rejects the utility of approaching the problem through taxes, given that these are already quite high. Instead, it recommends spending constraints (including the spending ceilings set at the local government level) and improved efficiency measures. Additional steps could include an increased application of user fees and outsourcing. Finnish authorities note that effecting changes at the local level is complicated, given the strong autonomy and consensual approach to policy making that characterize local government practice.

The IMF 2007 report does note that Finland's spending restraint of the previous year has contributed to significant fiscal improvements. There was a large general government surplus that was felt primarily in the pension funds. This situation was further helped by setting multi-year central government spending limits in place, allowing for lower income taxes with no compromise of the country's fiscal position. Gross debt ratio fell by more than 5% of GDP from the levels of 2003 through 2006. The public pension system currently holds assets nearing 70% of GDP. The IMF identifies Finland's principle challenge to be the effect of its rapidly aging population, which could threaten longer term growth. According to the report, Finland has the most rapidly aging population in the EU. To deal with this, the IMF suggests policies that will increase the employment rate and speed up productivity gains. In turn, this means finding ways to improve productivity in traditionally sheltered sectors of the economy, specifically agriculture, utilities, and trade.

The IMF report goes on to note that Finnish authorities broadly agreed with the Fund's assessment of the current situation. The Finnish authorities reported to the IMF that "the central government balance would worsen by 11/2 percent of GDP and turn a deficit by 2010" (p. 9). However, these authorities expressed the belief that the situation could be mitigated by structural reforms, arguing that this could give rise to higher growth and thus avoid continuing fiscal deterioration. The 2007 IMF report also cites some studies that show Finland's combined expenditure efficiency to be below the average experienced by OECD member states. This, according to the IMF staff, indicates that "sizable spending savings would be feasible without jeopardizing the quality of services" (p. 12). In response, Finnish authorities stated that the prospect of achieving economies of scale is limited, given its low population densities. They added that they were already addressing their over-large central government staffing issues through a policy of attrition. Outsourcing and participating in public-private partnerships are further options that could be used in cutting expenditures. The IMF staff also recommends the imposition of more stringent expenditure ceilings during the budget process. However Finnish authorities reiterate that it is a challenge to attempt to impose greater local budgetary discipline (p. 13). Education, healthcare, senior-care, and most other social services are provided at the municipal level, and these recurrent costs are expected to grow as the population continues to age. One approach to achieving savings would be the merging of municipalities and the coordination of service provision, as suggested by the IMF, but the Finnish authorities point out that the municipalities enjoy constitutional guarantees of autonomy, making such policies difficult to implement, politically. Nonetheless, the Ministry of Finance's (MoF) website does disclose that a move toward municipality mergers is in progress, in line with IMF suggestions.

In sum, the IMF 2007 report finds that the medium-term budget framework adopted for the 2008-2011 period is "insufficiently restrained" (p. 17). It recommends that Finland set a general government surplus target of about 4% for both 2007 and 2008, noting that fiscal tightening is "advisable both to ensure long-term sustainability and from a cyclical perspective" (p. 17). It also calls for steps to be taken promptly to boost productivity and employment, and for the postponement of further tax cuts or spending increases until the beneficial effects of these steps can be verified. To handle the problems of imposing greater fiscal restraint at the local government level, the IMF recommends reform of the rules governing intergovernmental relations.

The IMF's 2005 Article IV Consultation (published in 2006) provides details of some of the specific difficulties facing an attempt to restructure the local-government aspect of Finland's fiscal policies. There are 432 small municipalities, each with an average population of 11,000. This is the level of government upon which the bulk of the responsibility for providing social services falls. The 2006 report notes that a commission has been set up to investigate possibilities for improving efficiency, including the possible merger of smaller municipalities and the "creation of 20 to 25 new regional entities to whom taxes and transfers would accrue, with services provided by existing municipalities on contractual bases" (p. 7). The report finds merit in these options, but adds that the public/private balance in providing and financing social service needs to be reconsidered. The report argues that "a reform of the fiscal framework governing municipal finances is essential to changing incentives" (p. 7). The IMF applauds significant public pension reforms that were put in train at the start of 2005. These include a change from the mandatory retirement age of 65 to a more flexible system spanning the ages of 63 to 68 and the imposition of an increased accrual rate for older workers, incentivizing workers to remain in their jobs. The report notes that Finnish authorities agreed with the idea that by instituting mutual labor and product market reforms, the need for fiscal readjustment would be significantly lessened.

The Principles

Clarity of roles and responsibilities.

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According to the MoF website, the Ministry is that part of the government charged with the responsibility of preparing the nation's economic and fiscal policy. The MoF prepares the annual budget and is responsible for drafting legislation and regulations regarding local government financial requirements. According to the MoF's 2006 Brochure, available on its website, the MoF also participates in budget implementation, and plays the role of expert in the development of Finland's tax policies.

In a 2004 comparison of Baltic countries' budget laws, the OECD notes that "Finland has systematically embodied budget principles into law... [and] its Constitution contains a particularly high number of provisions relating to the budget" (p. 343). The laws that supplement the Constitution in underpinning Finland's budget process are the State Budget Act of 1988, as amended, and the Parliamentary Rules of Procedure. According to the OECD report, the law stipulates that the annual national accounts must include any additional information available on the management of the central government's finances and a statement of compliance with the state budget. The report must also include the factors used to assess the "effectiveness and operational performance of the state's operations" (p. 116). Also required are the income statements and balance sheets of the state's public enterprises and any extra-budgetary funds. The state's annual accounts must include a statement on implementation that includes any surplus or deficit for the year, along with any cumulative surplus or deficit carried over from prior years. The accounts must also include a cash-flow statement, an indication of the financial position as of the last day of the financial year, and such notes as may be required to "provide true and accurate information" (p. 116).

The 2004 OECD report notes that the primary impetus behind the 1999 passage of a new Finnish Constitution (effective in 2000) was to clarify the roles and responsibilities of the executive and the parliament. Although budget reform was not central to the enterprise, several budget-related provisions were brought under the authority of the Constitution as a result of the process. The Constitution includes a balanced-budget requirement, mandating that forecasted revenues are sufficient to cover appropriations. According to the OECD, "a more important constitutional requirement in Finland is that, following elections, the government shall without delay submit its program to the Parliament in the form of a statement. Although the government's "statement" is non-binding, sections of it provide the basis for guiding fiscal policy during the life of the government or until the composition of the government is essentially changed" (p. 358).

The Finnish Constitution also explicitly rests authority in the parliament to make amendments to the draft budget. The OECD report adds that, in Finland, "agreements between the political parties establish non-legally binding guidelines on the direction of change of major fiscal aggregates" (p. 365). The report notes that section 59 of the Rules of Parliament states: "not only may the Finance Committee propose amendments to the draft budget, but also, during the plenary session, members may propose amendments. When this happens, the budget bill is returned to the Finance Committee, which may concur or propose further amendments" (p. 365). By law, annual accounts must be submitted to parliament, although the Finnish Constitution does not set a hard deadline for this. The law does set general accounting provisions for government accounts. Section 14 of the State Budget Act asserts: "the State accounts shall be kept according to generally accepted accounting practice." Finland keeps "whole-of-government" accounts and its appropriations (excepting asset depreciation) on an accruals basis, according to the OECD report. Section 15 of the State Budget Act holds that "the accounts shall be arranged so that it is possible to follow up the outcome of the budget at least at the level of detail of budgetary items. The accounts will include all revenue, expenditure, and financial transactions on a gross basis. Government agencies shall arrange to monitor the profitability of chargeable activities so that their annual results can be presented with their annual accounts." In addition, the law mandates performance accounting, along with the monitoring of operating costs.

A significant change in budget-related roles and responsibilities was announced in a September 2007 press release by the MoF. At that time, plans to restructure the administrative branch were announced, wherein the MoF would take over jurisdiction of the Department for Municipal Affairs, the Department for Development of Regions and Public Administration, and the Local Government IT Management Unit, all of which had been under the aegis of the Ministry of Interior. The effective date of this reform was set for January 1, 2008. Also in 2008, the MoF would take authority over the administrations of the provincial, registry, and state-local districts. These changes entail dismantling the state-local district system. While the mandate for local government autonomy remains unchallenged, the MoF would assume responsibility for ensuring central/local government cooperation. The MoF will develop both the local government financing system and the system of transfers from the central to the local governments. It will also monitor and forecast local government finances and draft legislation relating to local government administration. Funds have been appropriated to cover the costs of merging municipalities and related expenses. According to the press release, "as of 2007, discretionary grants will be more tightly tied to the processes reforming local government structures and the provision of services." The press release adds that regional administrative reforms will continue. This restructuring is part of a drive to boost productivity, as part of the MoF's Productivity Program's stated goal of reducing central government personnel by approximately 9,600 by 2011.

The 2006 Handbook on Performance Management by Salminen and Vitala states that the Finnish government comprises 12 ministries and the office of the Prime Minister. By law, the ministries are responsible for political decision-making and for drafting legislation, as well as for implementing such legislation as relates to the authority of their ministries. Overall, there are 125,000 individuals working within the government administration, of whom 24,000 are employed by the central government, with 55,000 employed at the regional or local level. Regional level administrative agencies are largely advisory in function. They carry out research, supervision, and other such tasks. The Finnish municipalities are inheritors of a long tradition of autonomy in the provision of most public services. At the top of the municipal structure is the council, an elected body, which handles decision making and appoints a board that is tasked with executing council decisions. The council organizes itself into specialized committees (e.g., education, healthcare). Whereas, according to the Handbook, the committees were once service providers, they are now largely contractors of services. In recent years, too, the municipalities have sought to achieve economies of scale through increased cooperation among and even mergers of municipalities. Overall, however, none of the publicly available sources explicitly addresses Finland's compliance with this principle.

Open budget processes

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According to the MoF website, the budget process begins in December of the year preceding the budget year. At this time, the various ministries submit their operating and financial plans to the MoF. In March, the overall government spending limits and individual ministry ceilings are set and communicated to the ministries, which must then draft their individual budgets. These are presented to the MoF for review in May, along with any proposed changes to their assigned spending ceilings. In July and August, the MoF communicates with the ministries, informing them of its position on their budget proposals. This communication is simultaneously released to the public on the MoF website. During this time, the government holds a budget session to consider the budget proposal to be submitted to parliament in September. Upon the submission of the budget to parliament, it is sent to the Finance Committee for consideration, then discussed in parliamentary plenary session. The MoF website also discloses that a part of the Ministry's responsibility is to monitor and analyze current economic trends. The Ministry produces a variety of reports and surveys on the present economic environment and forecasts of likely future trends, and makes these available to the public on its website, as well.

The 2008 Budget Review by the MoF sets forth the current budget goals as they have been established by the National Stability Program. The stated aim is to improve public finances through the implementation of structural reforms that will increase employment by alleviating the effects of population aging. The review adds that the principle mechanism used to achieve a reduction in public expenditures is the restructuring of local government and service provision. The budget review sets a ceiling on the central government's deficit, which must remain at or below 2.5% of GDP, and commits the government to remaining compliant with spending limits.

Section 18 of the Act on Openness of Government Activities provides that the authorities shall see to the appropriate availability, usability, protection, integrity, and other matters of quality pertaining to documents and information management systems. Section 20 holds that the authorities shall promote the openness of their activities and, where necessary, produce guides, statistics, and other publications, as well as informative materials on their services and practices, and on the social conditions and developments in their field of competence. When the extent of this duty is being assessed, due consideration shall be given to the opportunities to obtain information on the activity of the authority by means of access to its documents or the general compilations of statistics in Finland. Section 19 mandates that the authorities keep available those documents which contain information on the initiation of a legislative reform project, a commission relating to the same, a deadline set and the person in charge of the drafting; and plans, accounts, and decisions on pending matters of general importance. When requested, the authorities must provide access to information on the stage of consideration, alternatives, and impact assessments relating to such matters, as well as on the opportunities of private individuals and corporations to exercise an influence on the matters. Overall, however, none of the publicly available sources explicitly addresses Finland's compliance with this principle.

Public availability of information.

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The IMF's SDDS website discloses that Finland became a subscriber to the Standard on June 3, 1996. Timeliness, coverage, and periodicity of data meet SDDS requirements for all datasets except central government operations, for which Finland avails itself of a timeliness flexibility option. The website also shows that Finland provides advance release calendars for all appropriate datasets, and promptly disseminates its data in accordance with those calendars. The IMF's 2005 Data Module ROSC states that the metadata that Finland posts on the SDDS website is regularly updated. The 2005 ROSC commended Finnish statistical authorities for their commitment to quality, but noted a number of shortcomings. For one, the ROSC found that government finance statistics were classified in accordance to a flawed system, at least insofar as the needs of fiscal analysis is concerned. The ROSC also noted resource constraints and expressed dissatisfaction with the timeliness of general government data. However, the SDDS website discloses that the general government data timeliness issue has since been addressed.

Chapter 2, Section 12 of the Finnish Constitution, effective as of March, 2000 accords the citizenry "freedom of expression and right of access to information." According to subsection 2 of Section 12, "documents and recordings in the possession of the authorities are public, unless their publication has for compelling reasons been specifically restricted by an Act. Everyone has the right of access to public documents and recordings." The Constitutional provisions guaranteeing right of public access to information are broadly stated, but they are more explicitly enumerated in the Act on the Openness of Government Activities (hereafter the Openness Act). The Openness Act entered into force in 1999, and aims to improve the management of government information, providing access and opportunity for the general public to monitor the use of public resources.

The website of the MoF allows broad public access to a wide range of publications related to fiscal policy in general and the annual budget in particular. These include, but are not limited to quarterly economic bulletins, annual updates on the Finnish Stability Program, graphs and statistical presentations of central government spending and revenues, the Annual Budget Review, research documents, memoranda of MoF working groups, press releases, and statements of the MoF's operations. Documents are also available in hardcopy from the Ministry, on request. Statistics Finland, the independent primary statistics agency of the Finnish government, also maintains a website on which it provides publicly accessible statistical data in a variety of formats, as well as reports, press releases, occasional research papers, metadata, and the release calendars for all official data. Overall, however, none of the publicly available sources explicitly address Finland's compliance with this principle.

Independent assurances of integrity.

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The IMF's SDDS website discloses that Finland became a subscriber to the Standard on June 3, 1996. Timeliness, coverage, and periodicity of data meet SDDS requirements for all datasets except central government operations, for which Finland avails itself of a timeliness flexibility option. The website also shows that Finland provides advance release calendars for all appropriate datasets, and promptly disseminates its data in accordance with those calendars. The IMF's 2005 Data Module ROSC states that the metadata that Finland posts on the SDDS website is regularly updated. The ROSC commends Finnish statistical authorities for their commitment to quality, but notes a number of shortcomings. For one, the ROSC finds that government finance statistics were classified in accordance to a flawed system, at least insofar as the needs of fiscal analysis is concerned. The ROSC also notes resource constraints, and expressed dissatisfaction with the timeliness of general government data. However, the SDDS website discloses that the general government data timeliness issue has since been addressed.

The ROSC reports that the institutional and legal framework supporting Finland's statistical regime is effective. In addition to the Statistics Act of 2004 and the Act on the Bank of Finland (1998), Finland's data regime is governed by European monetary regulations. Procedures to ensure the cooperation of contributors to the national statistics and protect confidentiality are in place. Statistics Finland has the primary responsibility for collecting fiscal data. The ROSC finds that staffing was adequate, but tightly stretched. The ROSC specifically notes that "the statistical agencies adhere to the principle of objectivity in the collection, processing, and dissemination of statistics. They demonstrate professionalism, are transparent in their policies and practices, and provide guidelines to staff on ethical conduct" (p. 5). Government finance statistics are compiled according to the 1995 European System of Accounts (ESA95). The ROSC suggests, however, that a better classification would be in accordance with the Government Finance Statistics Manual of 2001 (GFSM 2001), so as to enable a "more comprehensive fiscal analysis" (p. 5). However, at the time of the ROSC, there were no plans to adopt the GFSM 2001 standard. Accuracy and reliability of Finnish statistics are rated highly, due to the use of sound source data and techniques. The ROSC suggests that primary source data, derived from administrative sources and surveys, be supplemented with sources that would provide greater detail that would enhance the capacity for generating more precise macroeconomic data. The ROSC also finds Finland's statistics to be adequately consistent across datasets, generally. The SDDS website notes that all statistics compiled and disseminated by Statistics Finland are subject to the Statistics Act of 2004, which prohibits the publication of any data that would permit its identification with any individual or entity. Fiscal data is, for the most part, recorded on an accrual basis, and source data includes the central and local government's actual outturns, along with those of the social security funds.

Section 18 of the Act on Openness of Government Activities provides that the authorities shall see to the appropriate availability, usability, protection, integrity, and other matters of quality pertaining to documents and information management systems. Section 20 holds that the authorities shall promote the openness of their activities and, where necessary, produce guides, statistics, and other publications, as well as informative materials on their services and practices, as well as on the social conditions and developments in their field of competence. When the extent of this duty is being assessed, due consideration shall be given to the opportunities to obtain information on the activity of the authority by means of access to its documents or the general compilations of statistics in Finland. Section 19 mandates that the authorities keep available those documents which contain information on the initiation of a legislative reform project, a commission relating to the same, a deadline set and the person in charge of the drafting; and plans, accounts, and decisions on pending matters of general importance. When requested, the authorities must provide access to information on the stage of consideration, alternatives and impact assessments relating to such matters, as well as on the opportunities of private individuals and corporations to exercise an influence on the matters. Overall, however, none of the publicly available sources explicitly addresses Finland's compliance with this principle.