Automatic stabilization and additional support by the government helped to limit economic losses in 2020. The chosen support measures for 2021, including providing financing to fight the corona crisis, are adequate.
We need a credible plan for maintaining fiscal space in the future after the appropriate stimulus
The current crisis demonstrated these support measures are crucial and it is imperative there is enough fiscal space to fight crises in the future. However, 2021 is not yet a year for fiscal consolidation. The Council is worried about the rapid rise in public debt over a medium term, the fact that the structural deficit has existed for years even during cyclical peak, and about the increased indebtedness of local governments. Therefore, preparing fiscal consolidation measures should be commenced immediately.
The sustainability road map is a welcome step to the right direction, but it needs to be made much more concrete. The absence of a concrete road map with appropriate policy measures runs the risk of affecting fiscal expectations adversely. The government should communicate its employment and fiscal policy goals more clearly.
Employment policy is crucial for creating and sustaining fiscal space
The government has made considerable new measures to increase employment, which is commendable. However, some other policy measures have most likely lowered employment prospects, and the overall evaluation should encompass all measures and the additional expenditure which incurs from their implementation.
Employment policy evaluations need to be comprehensive because the fiscal implications of employment policy are important. Policies leading to greater employment were planned to be used for financing the increase in permanent expenditures in the beginning of government term, and they are of paramount importance for the solution of the sustainability gap.
Household indebtedness should be contained with new policy measures
Household indebtedness has risen and it is increasingly concentrated to a small share of households. Increasing consumer credit and a greater number of over-indebted households are also key concerns. These developments may undermine financial stability and the recovery from future downturns.
The proposal by the Ministry of Finance to limit household indebtedness is welcome, but it should probably be made more stringent regarding the regulation of housing cooperatives and in the area of tax.
The council also welcomes the plan to reform personal insolvency procedures.
Jouko Vilmunen, Chairman of the Economic Policy Council
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Seppo Orjasniemi, Secretary of the Economic Policy Council
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Report (available from 10 o’clock, 26 January 2021):
The Economic Policy Council was founded in 2014 to impartially evaluate the aims and methods of economic policy. The chairman of the Economic Policy Council is Professor Jouko Vilmunen. The other members are Professor Martin Ellison, Professor Johanna Niemi, Professor Jukka Pirttilä, and Professor Jari Vainiomäki.