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Comments by Dr. Markus Sovala: Economic Policy Council's 2019 Report

Finland's Economic Policy Council published their annual report in January 29, 2020. In the report, the Council evaluates the government’s fiscal policy and its employment-promoting policies. As in the previous reports, in addition to fiscal policy, the Council concentrates on fiscal sustainability and on the connections between social security and employment.

Director General, Dr. Markus Sovala from the Ministry of Finance, gave his remarks on the report. He gave his comments in the report launch seminar, in Helsinki, on 29 January 2020.

For more information, including the full EPC 2019 report, please see: https://www.talouspolitiikanarviointineuvosto.fi/en/home/

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Comments by Dr. Markus Sovala: Economic Policy Council's 2019 Report

  1. 1. Economic Policy Council Report 2019 Some comments Dr. Markus Sovala Director General, Economic Policy Coordination January 29, 2020
  2. 2. 29.10.2019 EPC Report 2 • Well written, based on solid arguments and empirical findings. • Will again contribute positively to the quality of policy discussion. Many observations of the Report are aligned with those of Ministry of Finance • MoF shares overall picture of economic prospects of Finland and main challenges of the economic policy described in the Report. • Both Council and MoF consider employment growth as a key for solving challenges of the Public Finances. • Chapter 3 of the Report provides valuable guidance for designing and measuring impacts of the reforms. This will be studied carefully in the Ministry. • Also the descriptive analysis on mismatch is interesting, although the Council’s conclusions are less clear. A concrete recommendation based on this analysis would be interesting to see.
  3. 3. 29.10.2019 Fiscal policy stance is too lax? 3 “Given the fact that there are also long-term reasons to consolidate public finances, the fiscal policy stance can be considered to be too lax.” (Chapter 1.3) • Building fiscal buffers is important. However, structural reforms and employment increasing measures should be the main avenue to enhance sustainability. • The Government aims at balancing public finances by 2023. Achieving this through structural reform would mean stronger buffers and smaller sustainability gap in the public finances. • There are also uncertainties related to the real time estimates of fiscal policy stance. As the Report observes itself, proper fiscal stance depends on cyclical development. Only in ex-post one may conclude if the stance was right.
  4. 4. 29.10.2019 4 Medium-term plan for addressing sustainability? “ … there should be a credible medium-term plan about how the sustainability gap will be addressed. The Council sees merit in an arrangement where such a plan would be discussed and decided in parliamentary negotiations … serve as an anchor not only for the current but also future governments.” • There is perhaps a slight misunderstanding. The fact that the Government hasn’t set any specific target for sustainability gap reduction, doesn’t imply that there are no measures in the pipeline. On the contrary, Social and Health Services Reform, productivity enhancing measures and employment policy reforms should be mentioned. • The Government closely follows and evaluates how preparations for the reforms are advancing. • Mid-Term Assessment of the Government Program in the next winter provides a natural occasion to decide additional measures and formulate a more comprehensive framework or plan for the reforms. • As the problem is of structural nature, a possible long-term political commitment for the reforms would be warmly welcomed by the MoF. We will see if this is politically feasible or not.