Government reaches agreement on second supplementary budget proposal for 2022
The second supplementary budget proposal for 2022 responds to appropriations needs directly caused by Russia’s war of aggression in Ukraine and mitigates the harm caused by COVID-19 to children and young people.
In total, the supplementary budget proposal envisages an increase in appropriations in net terms of approximately EUR 2.3 billion for 2022. An increase of approximately EUR 2 billion in appropriations is proposed due to Russia’s war of aggression in Ukraine. On the other hand, specifications to the schedule of payments of the F-35 fighter programme will reduce the need for appropriations by EUR 1.5 billion in 2022.
The Government held negotiations on the supplementary budget proposal on Friday 20 May, and the proposal will be submitted to Parliament on Wednesday 25 May.
Change in revenue estimate
An increase of approximately EUR 1 billion is proposed in the revenue estimate. The proposed change is almost entirely due to growth in the corporate tax revenue estimate. This is explained by better economic progress than expected in 2021, which led to companies being in a more favourable financial situation than anticipated.
Impact of Russia’s war of aggression in Ukraine
A total increase of approximately EUR 2 billion in appropriations is proposed due to Russia’s war of aggression in Ukraine. The Government decided on the bulk of these expenditure increases in April 2022 in connection with the government session on spending limits, when decision were made on measures for 2023–2026.
Finland’s security environment has changed following Russia's war of aggression in Ukraine, and this requires immediate measures to bolster defence capability and border security. On this basis, a total of nearly EUR 690 million in additional appropriations is proposed for the Ministry of Defence’s branch of government and for the Border Guard.
Additional appropriations of approximately EUR 38 million are proposed to improve cyber security preparedness. The proposals are allocated to several branches of government and numerous agencies.
Appropriation increases totalling approximately EUR 293 million are proposed for measures to support security of supply. The majority of these measures will be allocated to agriculture.
Furthermore, additional appropriations of approximately EUR 175 million are proposed for the package on the green transition and energy self-sufficiency. The package includes support for accelerating energy investments, for the green transition of agriculture, for the phasing out of fossil fuels in transport and for heating solutions in housing. The processing of permits for green transition investments will also be sped up.
A loan guarantee model for households and a deficiency guarantee model for housing companies are being prepared to support climate-friendly investments. To this end, the loan guarantee arrangement to be implemented within the InvestEU programme will be expanded by EUR 50 million to EUR 100 million. According to preliminary estimates, this will enable approximately EUR 300–400 million in additional lending within the programme. This will not have an impact on appropriations in the supplementary budget proposal, but the central government guarantee related to the programme is proposed to be increased from EUR 35 million to EUR 50 million in 2022. The guarantees would be allocated to loans financing improvements to the energy efficiency of buildings, the adoption of heating systems using renewable energy sources, the construction of vehicle charging infrastructure and the acquisition of electric cars.
Increases in appropriations of EUR 586 million in total are proposed for the package concerning immigration. The majority of these increases will be allocated to the costs of the reception of people fleeing the war in Ukraine.
A total of nearly EUR 170 million is proposed for measures to be implemented due to the rise in energy prices. An extraordinary index adjustment is proposed for benefits linked to the national pension index as of 1 August 2022 to compensate low income earners for the rapid increase in prices, which would increase government expenditure by approximately EUR 94 million. The increase to an individual benefit would be approximately 3.5 per cent. The full national pension would increase by approximately EUR 24 per month, the guarantee pension by approximately EUR 30 per month, labour market support and basic unemployment allowance by approximately EUR 26 per month, the basic amount of social assistance by approximately EUR 18 per month, and the study grant for adults living independently by approximately EUR 14.5 per month. The benefits proposed to be increased also affect each other. Thus, the total increase received by an individual or a family will vary on a case-by-case basis. The size of the full national pension has a bearing on the size of the pension income allowance that is deducted from pension income. This being the case, the proposal would also increase the net income of persons receiving earnings-related pension in taxation for 2022. This will be reflected in a reduction of approximately EUR 59 million in earned income and capital income taxes, of which the central government's share is approximately EUR 18 million.
In addition, an appropriation of EUR 75 million is proposed for the new transportation support for the logistics sector.
Appropriations totalling EUR 83 million are proposed for assistance to Ukraine. This assistance would consist of support for alleviating the acute humanitarian situation and support for reconstruction (called the Bitcoin package), material support supplied by the Defence Forces and civilian material support.
Investments in support for children and young people
A total of EUR 120 million is proposed for mitigating the effects of the COVID-19 pandemic restrictions on children and young people.
Of this appropriation, EUR 58 million would be allocated to pre-primary and primary education, EUR 26 million to vocational education and training and EUR 17 million to general upper secondary education. EUR 7 million would be allocated to youth work in schools and educational institutions, EUR 5 million to the Finnish model for leisure activities and EUR 2 million to the new start of the Schools on the Move, Studies on the Move and Adults on the Move programmes.
In addition, an appropriation of EUR 5 million is proposed for improving the availability of mental health services for children and young people.
State ownership steering
As a result of the exceptionally sharp rise in the price of natural gas towards the end of December 2021, the government decided to capitalise Gasum Oy in order to secure the company’s financial capabilities to operate in the midst of an energy crisis. This capitalisation was carried out through a bank loan taken out by Governia Oy. An appropriation of EUR 212 million is proposed for state ownership steering so that Governia Oy will be able to repay the loan. This will bring the costs of this capitalisation back into the scope of normal government debt servicing.
In addition, provisions will be made for a EUR 540 million central government guarantee as security for Finnair Plc's loan. The aim is to extend the central government guarantee of the loan at most to 10 June 2006.
New decisions on transport infrastructure projects
Budget authority of EUR 14 million and an appropriation of EUR 3 million are proposed for the Sahasaarenkatu road connection to the Kemi bioproduct mill. In addition, budget authority of EUR 12 million and an appropriation of EUR 1 million are proposed for the highway 6 Korian kohta project in 2022.
It is proposed that investments relating to extending the locks and raising the water level in the Saimaa Canal, which were decided earlier, be cancelled. Of the EUR 95 million total budget authorities allocated to the project, the non-earmarked share of EUR 92.9 million is proposed to be rescinded.
Other key supplementary budget proposal decisions by the Government
The budget authority granted to the Border Guard in 2022 for the acquisition of two offshore patrol vessels is proposed to be increased by EUR 128 million to EUR 448 million.
Budget authority of EUR 150 million is proposed to compensate necessary ICT transition costs to wellbeing services counties, the City Helsinki and the joint county authority for the Hospital District of Helsinki and Uusimaa. This budget authority is estimated to give rise to EUR 50 million in expenditure for the central government in 2022 and EUR 100 million in 2024. In addition, an increase of EUR 980 million is proposed to the December 2022 payment of funding to the wellbeing services counties. The funding in question is an advance on 2023 in accordance with the Act on the Funding of Wellbeing Services Counties (617/2021).
EUR 87 million is proposed for aid for electrification of energy intensive industry. This aid compensates the indirect costs caused to the price of electricity from emissions trading in sectors where the risk of carbon leakage is significant.
An increase of EUR 48 million is proposed for support of public transport. This would, among other things, compensate urban regions for an estimated half of the ticket income losses caused by reduced passenger numbers. The appropriation would also be used for transport procurements carried out by the centres for economic development, transport and the environment to replace market-based transport and to compensate urban areas for the increased costs of operating bus transport.
An appropriation of EUR 6 million will be allocated to the development of information security in Finland. Within the scope of this allocation, fixed-term information security vouchers can be granted to companies operating in sectors critical to the functioning of society, to the key service providers of these companies and to organisations.
The general interest rate has risen more sharply than anticipated. As a result, the estimate of interest expenses of central government debt is proposed to be increased by EUR 167 million.
Impact on central government debt and the balance of central government finances
The net increase in appropriations in the supplementary budget proposal for 2022 is EUR 2.3 billion. The proposal increases the revenue estimate by approximately EUR 1 billion. The proposal increases the government’s net borrowing requirement by approximately EUR 1.3 billion. Net borrowing in 2022 is expected to total nearly EUR 8.9 billion. Central government debt on the budget is expected to total EUR 138 billion at the end of 2022, which is approximately 52 per cent of gross domestic product (GDP).
The supplementary budget proposal will be submitted to Parliament in the government plenary session starting at 13:00 on Wednesday 25 May, after which it will be available on budjetti.vm.fi.
Inquiries: Joonas Rahkola, Special Adviser to the Prime Minister in Economic Policy Affairs, tel. +358 295 160 998, Joel Kuuva, Special Adviser to the Minister of Finance, tel. +358 50 414 6444, Heikki Sairanen, Special Adviser to the Minister of the Interior, tel. +358 50 456 4662, Lauri Holappa, Special Adviser to the Minister of Education, tel. +358 295 160 870, Silja Borgarsdóttir Sandelin, Special Adviser to the Minister of Justice, tel. +358 295 150 116
Government session on the second 2022 supplementary budget proposal, entries in the meeting minutes, 20 May 2022