52000AG0302(03)

COUNCIL OPINION

of 31 January 2000

on the updated stability programme of Finland, 1999 to 2003

(2000/C 60/03)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

Having regard to Council REgulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillane and coordination of economic policies(1), and in particular Article 5(3) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

On 31 January 2000 the Council examined Finland's updated Stability Programme, which covers the period 1999 to 2003. The Council notes with satisfaction that the Finnish general government balance turned into a surplus in 1998 and, after an expected outturn of just over 3 % of GDP in 1999, is projected to register surpluses above 4 % of GDP throughout the period 2000 to 2003, while the general Government debt to GDP ratio is projected to continue to decline. Moreover, the Council considers that the Programme is consistent with the Broad Economic Policy Guidelines.

The Council welcomes the record of implementation of the 1998 Programme(2), where the projections then made for the improvement of the budget balance and the reduction in government debt have been exceeded.

The macroeconomic scenario presented in the updated Stability Programme appears realistic for 1999 and 2000, but it carries the risk that the economy may overheat and threaten price stability if wage moderation weakens. It is therefore important that wage moderation is sustained.

The Council commends the fiscal strategy of the updated Stability Programme. This builds on the previous Programme and aims at reaching surpluses above 4 % of GDP through a reduction in government expenditure in relation to GDP but at the same time reduces the tax burden.

The Council notes with satisfaction that the debt reduction could now actually exceed the expectations in the updated Programme due to more extensive privatisation measures - with proceeds directed towards debt reduction - than assumed in the Programme.

Finland has already fulfilled the requirements of the Stability and Growth Pact in 1999. This will continue to be the case during the updated Programme period as the surplus target of 4,7 % of GDP in 2003 is clearly sufficient to provide a safety margin against breaching the 3 % of GDP deficit threshold in normal cyclical fluctuations. Moreover, the Council considers that the continued fiscal consolidation effort embodied in the updated Programme is also justified in view of the future effects of population ageing.

The Council welcomes the fact that the updated Programme addresses the issue of structural reforms. Fiscal and labour market reform is needed to reduce the current heavy overall taxation and social contribution burden on labour. Regarding public expenditure, it is opportune to review benefit entitlements and the structure of the pension system. The reductions in Government expenditure and revenue relative to GDP foreseen in the Programme are themselves consistent with increasing employment, which the Government identifies as its main economic objective. Further structural reforms in market services and in the labour market would also support employment creation. The Council recommends that such reforms be applied with energy and consistency.

(1) OJ L 209, 2.8.1997, s. 1.

(2) The first stability programme of Finland, 1998 to 2002, was the subject of a Council opinion of 12 October 1998 (OJ C 372, 2.12.1998, p. 1).