HELSINKI (AFP) – Finland’s government will have to implement a “pain package” of tax rises and spending cuts worth billions of euros to rebalance its finances after the coronavirus crisis, a group of leading economists warned on Friday.
In a government-commissioned report, four of the Nordic country’s best-known economic thinkers warned of a “lost decade” of growth and a deep recession sparked by the economic standstill of the coronavirus crisis. “The corona crisis will impoverish Finland and significantly weaken the balance of Finnish public finances in the medium term,” the authors, led by professor Vesa Vihriala, said in a statement.
The report warned that spending cuts, tax hikes and structural changes, worth at least three to four per cent of GDP, will be needed to address the shortfalls.
“This will most likely be sufficient to keep the debt-to-GDP ratio below 90 per cent during the 2020s,” the report said.
The prospect of further cuts to public finances is likely to be unwelcome to Finland’s centre-left coalition, whose leading Social Democrat party won last year’s election on a platform of opposition to the previous five years of austerity.
Receiving the report on Friday, Finance Ministry’s Top Civil Servant Martti Hetemaki acknowledged that “being gloomy is being realistic,” and said that difficult decisions “cannot be left for tomorrow”.
In the immediate term the report called for the safe lifting of restrictions in order to try and restore confidence in the market.
Schools are due to begin contact teaching again next Thursday in the country of 5.5 million, which has so far recorded 255 deaths and 5,600 infections. A limit on gatherings to 10 people is due to be increased to 50 on June 1, as theatres, museums and other institutions will be allowed to reopen. The authors said the emergency business payouts so far announced by the government, part of a bailout package that is likely to reach EUR15 billion this year, are not going to be enough to support the private sector.
Instead, they called for a more general system of aid to stop small and medium-sized firms going bust, including helping with staff costs, but warned that ministers will have to make choices about which sectors are most worth supporting.
The authors called for a budget stimulus in 2021 year to kick-start the economy, in the form of public infrastructure investments to increase productivity, rather than tax cuts.