Finland’s New Government to Ramp Up Spending as Growth Cools

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(Bloomberg) -- Finnish policy makers struck an agreement to form a five-party ruling coalition with plans to increase public spending by more than 4 billion euros ($4.5 billion) as the economy cools.

After four years of center-right rule, parties from the left and center of the political spectrum agreed on a common platform that involves additional spending on road and rail projects as well as on education and innovation.

Finland’s New Government to Ramp Up Spending as Growth Cools

Permanent spending will be increased by 1.23 billion euros and there will be a one-time program amounting to 3 billion euros, prime-minister designate Antti Rinne of the Social Democrats told reporters in Helsinki on Monday. The spending spree is to be funded through 730 million euros in additional tax revenue and 200 million euros of reallocated funds, with the rest generated by growth in employment levels. About 3 billion euros will be raised by selling state assets and holdings.

New Policies

The government also wants to raise the employment rate to 75% of the workforce by 2023, from its current level of 72.6%. Civil servants say at least 100,000 new jobs will have to be created over the next four years in order to offset the impact of an aging population.

Rinne, 56, won the April general election by promising to end four years of policies that included wage cuts and longer working hours. The policies were deeply unpopular but helped drag the euro zone’s northernmost economy out of a deep recession.

His government will also try to reorganize the way public health care is administered at local level. The previous government of Juha Sipila had sought to introduce a greater role for the private sector, in a plan that collapsed in March and was seen as playing a role in his election defeat.

The new coalition government will comprise 19 ministers -- seven Social Democrats, five from the Center Party, including the finance minister, three Greens, as well as two each from the Left Alliance and the Swedish People’s Party. Parties are likely to nominate their candidates in the next few days.

The deal struck by the five parties leaves the nationalist Finns Party in opposition with the center-right National Coalition.

Key Targets

  • Employment rate at 75% by 2023 with 60,000 new jobs created
  • Balanced public finances by 2023, assuming no global economic shocks
  • Reduced inequality, lower income disparities
  • Moving toward carbon neutral society by 2035

©2019 Bloomberg L.P.

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