Enacted Summary
As a member of the European Union (EU), Finland must comply with the EU's criteria for prudent fiscal policy as laid down in the Stability and Growth Pact. Finland has been a member of the International Monetary Fund's Special Data Dissemination Standard since 1996, and the metadata it provides to the website meet all requirements for coverage, timeliness, and periodicity. A 2004 international study of budget-system frameworks by the Organization for Economic Cooperation and Development describes the Finnish Constitution as containing "extensive" provisions covering the budget process. These are supplemented by provisions of the State Budget Act. In addition, the Constitution and the 1999 Act on Openness in Government Activities impose requirements of transparency and disclosure on all government authorities, including the right of citizens to access budget-related statistics and information on the budget process. However, there is as yet no comprehensive assessment of Finland's fiscal policy transparency practices. This prevents the assignment of a higher overall compliance rating for this standard.
General Overview
Finland became a member of the EU in 1995 and the European Monetary Union (EMU) in 1999. As such, it is obligated to adopt the prudent fiscal policy criteria set forth in the EU's Stability and Growth Pact. The International Monetary Fund's (IMF) Special Data Dissemination Standard (SDDS) website discloses that Finland became a subscriber to the Standard on June 3, 1996. Timeliness, coverage, and periodicity of data meet SDDS requirements for all datasets. The website also shows that Finland provides advance release calendars for all appropriate datasets, and promptly disseminates its data in accordance with those calendars. The IMF's 2005 Data Module Report on the Observance of Standards and Codes (ROSC) states that the metadata that Finland posts on the SDDS website is regularly updated. The 2005 ROSC commended Finland for its commitment to statistical quality, but noted a number of shortcomings. For one, the ROSC found that government finance statistics were classified in accordance to a flawed system, at least insofar as the needs of fiscal analysis are concerned. The ROSC also noted resource constraints and expressed dissatisfaction with the timeliness of general government data. However, the SDDS website discloses that the general government data timeliness issue has since been addressed.
Finland's fiscal policy practices, including transparency requirements, are covered by the provisions of the Act on the Openness of Government Activities of 1999, the Constitution of 2000, and the State Budget Act of 1988, as amended through 2004. In a 2004 comparison of Baltic countries' budget laws, the Organization for Economic Cooperation and Development (OECD) notes that Finland has "systematically embodied budget principles into law . . . [and] its Constitution contains a particularly high number of provisions relating to the budget" (p. 343).
The IMF's 2005 Article IV Consultation (published in 2006) provides details of some of the specific difficulties facing an attempt to restructure the local-government aspect of Finland's fiscal policies. There are 432 small municipalities, each with an average population of 11,000. This is the level of government upon which the bulk of the responsibility for providing social services falls. The 2006 report notes that a commission has been set up to investigate possibilities for improving efficiency, including the possible merger of smaller municipalities and the "creation of 20 to 25 new regional entities to whom taxes and transfers would accrue, with services provided by existing municipalities on contractual bases" (p. 7). The report finds merit in these options, but adds that the public/private balance in providing and financing social service needs to be reconsidered. The report argues that "a reform of the fiscal framework governing municipal finances is essential to changing incentives" (p. 7). The IMF applauds significant public pension reforms that were put in place at the start of 2005. These include a change from the mandatory retirement age of 65 to a more flexible system spanning the ages of 63 to 68 and the imposition of an increased accrual rate for older workers, incentivizing workers to remain in their jobs. The report notes that Finnish authorities agreed with the idea that by instituting mutual labor and product market reforms, the need for fiscal readjustment would be significantly lessened.
The IMF’s 2008 Article IV Consultation report describes Finland’s economy as “among the best EU performers” (p. 3), but cautions that long-term fiscal sustainability is threatened by an aging workforce and declining productivity. Finland’s budget deficit is projected to be 6 percent of GDP for 2010, the first time it has exceeded the EU limit of 2.5 percent since it adopted the euro. The primary driver of this is a relatively high ratio of public-expenditure-to-GDP. The IMF believes Finland could improve the efficiency of its public spending through increased benchmarking to highlight best practices, outsourcing of government contracts, and promoting public-private partnerships. Meanwhile, suggestions on improving revenue include increased property taxes and lower income taxes to promote higher labor force participation. Still, the report’s overall risk classification for fiscal sustainability is labeled as “low,” with many other EU countries facing a higher level of risk. Finland’s economic performance in 2009 fell far short of the IMF’s prediction in its 2008 Article IV report, which was published in February 2009. The report projected growth of 0.5 percent for 2009, while a December 2009 review of the Fund’s website reveals a revised figure of -6.4 percent growth for the year. Economic growth is forecast to be 0.9 percent for 2010.
The Principles
IIClarity of roles and responsibilities.
According to the MoF website, the Ministry is responsible for preparing the nation's economic and fiscal policy. The MoF prepares the annual budget and drafts legislation and regulations regarding local government financial requirements. According to the MoF's 2008 Brochure, available on its website, the MoF also participates in budget implementation, and plays the role of expert in the development of Finland's tax policies.
In a 2004 comparison of Baltic countries' budget laws, the OECD notes that "Finland has systematically embodied budget principles into law . . . [and] its Constitution contains a particularly high number of provisions relating to the budget" (p. 343). The laws that supplement the Constitution in underpinning Finland's budget process are the State Budget Act of 1988, as amended, and the Parliamentary Rules of Procedure. According to the OECD report, the law stipulates that the annual national accounts must include any additional information available on the management of the central government's finances and a statement of compliance with the state budget. The report must also include the factors used to assess the "effectiveness and operational performance of the state's operations" (p. 116). Also required are the income statements and balance sheets of the state's public enterprises and any extra-budgetary funds. The state's annual accounts must include a statement on implementation that includes any surplus or deficit for the year, along with any cumulative surplus or deficit carried over from prior years. The accounts must also include a cash-flow statement, an indication of the financial position as of the last day of the financial year, and such notes as may be required to "provide true and accurate information" (p. 116).
The 2004 OECD report notes that the primary impetus behind the 1999 passage of a new Finnish Constitution (effective in 2000) was to clarify the roles and responsibilities of the executive and the parliament. Although budget reform was not central to the enterprise, several budget-related provisions were brought under the authority of the Constitution as a result of the process. The Constitution includes a balanced-budget requirement, mandating that forecasted revenues are sufficient to cover appropriations. According to the OECD, "a more important constitutional requirement in Finland is that, following elections, the government shall without delay submit its program to the Parliament in the form of a statement. Although the government's "statement" is non-binding, sections of it provide the basis for guiding fiscal policy during the life of the government or until the composition of the government is essentially changed" (p. 358).
The Finnish Constitution also explicitly rests authority in the parliament to make amendments to the draft budget. The OECD report adds that, in Finland, "agreements between the political parties establish non-legally binding guidelines on the direction of change of major fiscal aggregates" (p. 365). The report notes that section 59 of the Rules of Parliament states: "not only may the Finance Committee propose amendments to the draft budget, but also, during the plenary session, members may propose amendments. When this happens, the budget bill is returned to the Finance Committee, which may concur or propose further amendments" (p. 365). By law, annual accounts must be submitted to parliament, although the Finnish Constitution does not set a hard deadline for this. The law does set general accounting provisions for government accounts. Section 14 of the State Budget Act asserts: "the State accounts shall be kept according to generally accepted accounting practice." Finland keeps "whole-of-government" accounts and its appropriations (excepting asset depreciation) on an accruals basis, according to the OECD report. Section 15 of the State Budget Act holds that "the accounts shall be arranged so that it is possible to follow up the outcome of the budget at least at the level of detail of budgetary items. The accounts will include all revenue, expenditure, and financial transactions on a gross basis. Government agencies shall arrange to monitor the profitability of chargeable activities so that their annual results can be presented with their annual accounts." In addition, the law mandates performance accounting, along with the monitoring of operating costs.
A significant change in budget-related roles and responsibilities was enacted on January 1, 2008, according to an MoF press release from September 2007 that detailed the plan. The MoF took over jurisdiction of the Department for Municipal Affairs, the Department for Development of Regions and Public Administration, and the Local Government IT Management Unit, all of which had been under the aegis of the Ministry of Interior. Also in 2008, the MoF obtained authority over the administrations of the provincial, registry, and state-local districts. These changes entailed dismantling the state-local district system. While the mandate for local government autonomy remains unchallenged, the MoF assumed responsibility for ensuring central-local government cooperation. The MoF developed both the local government financing system and the system of transfers from the central to the local governments. It also monitors and forecasts local government finances and draft legislation relating to local government administration. This restructuring was part of the MoF's Productivity Program's stated goal of reducing central government personnel by approximately 9,600 by 2011.
The 2006 Handbook on Performance Management by Matti Salminen and Marja-Leena Vitala states that the Finnish government comprises 12 ministries and the office of the Prime Minister. By law, the ministries are responsible for political decision-making and for drafting legislation, as well as for implementing the legislation that relates to the authority of their ministries. Overall, there are 125,000 individuals working within the government administration, with 24,000 employed by the central government and 55,000 employed at the regional or local level. Regional level administrative agencies are largely advisory in function. They carry out research, supervision, and other such tasks. The Finnish municipalities are inheritors of a long tradition of autonomy in the provision of most public services. At the top of the municipal structure is the council, an elected body, which handles decision making and appoints a board that is tasked with executing council decisions. The council organizes itself into specialized committees (e.g., education, healthcare). Whereas, according to the Handbook, the committees were once service providers, they are now largely contractors of services. In recent years, too, the municipalities have sought to achieve economies of scale through increased cooperation among, and even mergers of, municipalities. Despite the information provided on the roles and responsibilities of government by the above-mentioned documents, none of the publicly available sources explicitly addresses Finland's compliance with this principle.
IIOpen budget processes
According to the MoF website, the budget process begins in December of the year preceding the budget year. At this time, the various ministries submit their operating and financial plans to the MoF. In March, the overall government spending limits and individual ministry ceilings are set and communicated to the ministries, which must then draft their individual budgets. These are presented to the MoF for review in May, along with any proposed changes to their assigned spending ceilings. In July and August, the MoF communicates with the ministries, informing them of its position on their budget proposals. This communication is simultaneously released to the public on the MoF website. During this time, the government holds a budget session to consider the budget proposal to be submitted to parliament in September. Upon the submission of the budget to parliament, it is sent to the Finance Committee for consideration, and then discussed in parliamentary plenary session. The MoF website also discloses that a part of the Ministry's responsibility is to monitor and analyze current economic trends. The Ministry produces a variety of reports and surveys on the present economic environment and forecasts of likely future trends, and makes these available to the public on its website, as well.
The 2010 Budget Review by the MoF, released in September 2009, details economic forecasts for the coming year and announces changes to the budget. The plan lays out the wider economic goals of the budget and states where revenues will come from and how expenditures will be appropriated. The document notes that for the first time since it adopted the euro, Finland will exceed the EU limit on government deficits of 2.5 percent of GDP. The MoF expects the central government budget to run a deficit of 6 percent of GDP in 2010, due to lower tax revenues and government stimulus efforts to combat the global recession.
Section 18 of the Act on Openness of Government Activities provides that the authorities shall see to the appropriate availability, usability, protection, integrity, and other matters of quality pertaining to documents and information management systems. Section 20 holds that the authorities shall promote the openness of their activities and, where necessary, produce guides, statistics, and other publications, as well as informative materials on their services and practices, and on the social conditions and developments in their field of competence. When the extent of this duty is being assessed, due consideration shall be given to the opportunities to obtain information on the activity of the authority by means of access to its documents or the general compilations of statistics in Finland. Section 19 mandates that the authorities keep available those documents which contain information on the initiation of a legislative reform project, a commission relating to the same, a deadline set and the person in charge of the drafting; and plans, accounts, and decisions on pending matters of general importance. When requested, the authorities must provide access to information on the stage of consideration, alternatives, and impact assessments relating to such matters, as well as on the opportunities of private individuals and corporations to exercise an influence on the matters. Despite the information provided on the budget process by the above-mentioned documents, none of the publicly available sources explicitly addresses Finland's compliance with this principle.
IIPublic availability of information.
The IMF's SDDS website discloses that Finland became a subscriber to the Standard on June 3, 1996. The timeliness, coverage, and periodicity of data meet SDDS requirements for all datasets. A December 2009 review of the website also shows that Finland provides advance release calendars for all appropriate datasets, and promptly disseminates its data in accordance with those calendars. The IMF's 2005 Data Module ROSC states that the metadata that Finland posts on the SDDS website is regularly updated. The 2005 ROSC commended Finnish statistical authorities for their commitment to quality, but noted a number of shortcomings. For one, the ROSC found that government finance statistics were classified in accordance to a flawed system, at least insofar as the needs of fiscal analysis is concerned. The ROSC also noted resource constraints and expressed dissatisfaction with the timeliness of general government data. However, the December 2009 review of the SDDS website discloses that the general government data timeliness issue has since been addressed.
Chapter 2, Section 12 of the Finnish Constitution, effective as of March 2000 accords the citizenry "freedom of expression and right of access to information." According to subsection 2 of Section 12, "documents and recordings in the possession of the authorities are public, unless their publication has for compelling reasons been specifically restricted by an Act. Everyone has the right of access to public documents and recordings." The Constitutional provisions guaranteeing the right of public access to information are broadly stated, but they are more explicitly enumerated in the Act on the Openness of Government Activities (hereafter the Openness Act). The Openness Act entered into force in 1999, and aims to improve the management of government information, providing access and opportunity for the general public to monitor the use of public resources.
The website of the MoF allows broad public access to a wide range of publications related to fiscal policy in general and the annual budget in particular. These include, but are not limited to, quarterly economic bulletins, graphs and statistical presentations of central government spending and revenues, the Annual Budget Review, research documents, memoranda of MoF working groups, press releases, and statements of the MoF's operations. Documents are also available in hardcopy from the Ministry, on request. Statistics Finland, the independent primary statistics agency of the Finnish government, also maintains a website on which it provides publicly accessible statistical data in a variety of formats, as well as reports, press releases, occasional research papers, metadata, and the release calendars for all official data. Overall, however, none of the publicly available sources explicitly addresses Finland's compliance with this principle.
IIIndependent assurances of integrity.
The ROSC reports that the institutional and legal framework supporting Finland's statistical regime is effective. In addition to the Statistics Act of 2004 and the Act on the Bank of Finland (1998), Finland's data regime is governed by European monetary regulations. Procedures to ensure the cooperation of contributors to the national statistics and protect confidentiality are in place. Statistics Finland has the primary responsibility for collecting fiscal data. The ROSC finds that staffing is adequate, but stretched thin. The ROSC specifically notes that "the statistical agencies adhere to the principle of objectivity in the collection, processing, and dissemination of statistics. They demonstrate professionalism, are transparent in their policies and practices, and provide guidelines to staff on ethical conduct" (p. 5). Government finance statistics are compiled according to the 1995 European System of Accounts (ESA95). The ROSC suggests, however, that a better classification would be in accordance with the Government Finance Statistics Manual of 2001 (GFSM 2001), so as to enable a "more comprehensive fiscal analysis" (p. 5). However, at the time of the ROSC, there were no plans to adopt the GFSM 2001 standard. The accuracy and reliability of Finnish statistics are rated highly, due to the use of sound source data and techniques. The ROSC suggests that primary source data, derived from administrative sources and surveys, be supplemented with sources that would provide greater detail that would enhance the capacity for generating more precise macroeconomic data. The ROSC also finds Finland's statistics to be adequately consistent across datasets, generally. The SDDS website notes that all statistics compiled and disseminated by Statistics Finland are subject to the Statistics Act of 2004, which prohibits the publication of any data that would permit its identification with any individual or entity. Fiscal data is, for the most part, recorded on an accrual basis, and source data includes the central and local government's actual outturns, along with those of the social security funds.
Section 18 of the Act on Openness of Government Activities provides that the authorities shall see to the appropriate availability, usability, protection, integrity, and other matters of quality pertaining to documents and information management systems. Section 20 holds that the authorities shall promote the openness of their activities and, where necessary, produce guides, statistics, and other publications, as well as informative materials on their services and practices, as well as on the social conditions and developments in their field of competence. When the extent of this duty is being assessed, due consideration shall be given to the opportunities to obtain information on the activity of the authority by means of access to its documents or the general compilations of statistics in Finland. Section 19 mandates that the authorities keep available those documents which contain information on the initiation of a legislative reform project, a commission relating to the same, a deadline set and the person in charge of the drafting; and plans, accounts, and decisions on pending matters of general importance. When requested, the authorities must provide access to information on the stage of consideration, alternatives and impact assessments relating to such matters, as well as on the opportunities of private individuals and corporations to exercise an influence on the matters. Overall, however, none of the publicly available sources explicitly addresses Finland's compliance with this principle.
