Government unveils stimulus packages for economic recovery

The Finnish government has approved a supplementary budget for 2009 including a special stimulus package. The overall impact should amount to €2 billion. It includes about €140 million in transport infrastructure projects. The social partners have welcomed the stimulus package, with trade unions highlighting the emphasis on construction projects while the Confederation of Finnish Industries considered it a positive step towards supporting economic revival.

The government in Finland has committed itself to implementing a guaranteed pension from the beginning of March 2011. It will cost €111 million a year, will raise the lowest pensions by about €100 a month and will affect about 120,000 people.

These provisions are part of a stimulus package that was unveiled as a supplementary budget for 2009. The various measures are set to increase state spending by €1.2 billion. The Finnish Prime Minister, Matti Vanhanen, estimated that the total impact of the package, including the leverage effect, would amount to €2 billion. He estimated that the package would lead to the creation of 17,000 jobs directly and 25,000 jobs indirectly in 2009 and in 2010. The supplementary budget also includes about €70 million for road and rail maintenance, and another €70 million for further transport infrastructure projects. Minister of Finance, [Jyrki Katainen](http://www.hs.fi/haku/?haku= Jyrki Katainen), explained that the targets for stimulus spending were selected for their maximum impact on employment.

Support package for corporate financing

The ministerial committee on economic policy has announced a number of new decisions on helping corporate finance. The state is to offer banks operating in Finland guarantees and capital. It will also invest its pension funds in corporate bonds, offer companies billions in financial support through the specialised state-owned financing company, Finnvera, and provide partial financing for the construction of thousands of new homes through the state-owned credit institution Kuntarahoitus (Municipality Finance).

Overall, the state is pledging about €60 billion in guarantees, loans and investments, and is expecting a boost of €45 billion in corporate financing. Prime Minister Vanhanen described the decisions as ‘massive, even gigantic’.

The largest sums of money are in the bank support package, which aims to secure the continuity of corporate credit. In fact, the Finnish parliament has already approved guarantees of €40 billion to help banks to raise capital. The guarantees are subject to fees, according to guidelines set by the European Central Bank (ECB).

Principles that are set for state-owned companies are to be applied in setting salaries for bank directors. Bonuses paid as incentives may be no more than 40% of the basic salary and the value of performance-based shares can be no higher than that of the paid salary. There is an overall negative view towards stock options.

The state also hopes to get some return on its capital credit. Banks that accept the financial boost must commit themselves to maintaining the financing of households and small and medium-sized enterprises (SMEs), which Prime Minister Vanhanen considers as the ‘blood circulation’ of the national economy.

Social partners welcome government package

The Suomen Ammattiliittojen Keskusjärjestö (SAK, Central Organisation of Finnish Trade Unions) welcomed the emphasis on construction projects. SAK President, Lauri Ihalainen, stated:

It’s good that the government has reacted to the economic downturn and has addressed the job market situation with this budgetary supplement. The stimulus package places heavy emphasis on construction and road building projects, which will directly and immediately create jobs.

For its part, the Elinkeinoelämän keskusliitto (EK, Confederation of Finnish Industries) described the package as being well prepared and that it would support economic revival. However, EK expressed concern about where compensatory funds would come from when companies’ social security contributions were discontinued. The confederation warned: ‘A compensatory funding model should not weaken companies’ competitiveness or their ability to create new jobs’.

The Suomen Yrittäjät (SY, Federation of Finnish Enterprises) agreed that the supplementary budget was sound, adding that the provisions should be quickly implemented. Nevertheless, SY warned that reducing employers’ social insurance contributions should not lead to an increase in the tax burden of small enterprises as the government seeks other sources to compensate for the lost funds.

Meanwhile, the SAK-affiliated Rakennusliitto (Finnish Construction Trade Union) hailed the government’s supplementary budget as a good start to economic stimulus policies. Its Chair, Matti Harjuniemi, commented: ‘This provides a good starting point for the next supplementary budget, which is needed to head off deflation’. However, Mr Harjuniemi noted that a one-off solution would not be enough to avoid a recession.

Pertti Jokivuori, Statistics Finland