Finland Sees 2013 Deficit Narrowing to 1% as Taxes Raised

Finland’s six government parties struck an agreement on next year’s budget, narrowing the deficit to about 1 percent of gross domestic product as the northernmost euro country raises taxes and cuts spending.

“We will stop debt growth by 2015,” Prime Minister Jyrki Katainen told reporters in Helsinki. “Unfortunately it entails spending cuts and tax increases. Still, that’s what we’ve agreed and that’s what we’ll do. It will have a positive impact on confidence within Finland and abroad.”

Debt will rise to 96 billion euros ($120 billion), or 47 percent of GDP, according to a statement handed out to reporters in Helsinki. The Finance Ministry in June projected a deficit of 1 percent next year and 1.6 percent this year.

Early indicators have shown the economy probably contracted in the second quarter as the nation fights off slowing European demand. Finland has also enacted tax increases and spending cuts to keep deficits in line and insisted on collateral in exchange for helping to bail out fellow euro members Spain and Greece, limiting the burden on taxpayers.

Tax Increase

The country has kept its budget deficit within European Union rules since 1996 even as the economy shrank 8.5 percent in 2009 following the outbreak of the global financial crisis. It’s the only euro member to have retained its Aaa credit rating with a stable outlook at Moody’s Investors Service, after the rating company on July 23 cut the outlooks on the top ratings of Germany, the Netherlands and Luxembourg.

Finland will spend 940 million euros next year on export financing to boost sales abroad. Tax increases, including a 1 percentage point increase in the value added tax, will raise an extra 1.3 billion euros for state coffers. The government will also establish a bank tax from next year. The measures are in line with the framework from 2013 to 2016 agreed on last year.

Svenska Handelsbanken AB (SHBA) today forecast that the economy, home to mobile-phone maker Nokia Oyj (NOK1V), will grow 1 percent this year. The expansion may accelerate to 2 percent next year, down from a 2.5 percent prediction in May, the bank said.

The government’s budget proposal will be sent to parliament on Sept. 17.

To contact the reporter on this story: Kati Pohjanpalo in Helsinki at kpohjanpalo@bloomberg.net

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net

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