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Finland Sees Lower Borrowing in Bid to Halt to Debt Growth

Finland plans to borrow less next year amid narrowing deficits as the government struggles to meet a target of ending debt growth by 2015, according to a budget proposal by the Finance Ministry.

Net borrowing will fall to 6.6 billion euros ($8.8 billion) from 7.8 billion this year, the Helsinki-based ministry said on its website. Government spending will be 53.9 billion euros next year and debt will rise to 98 billion euros, the ministry said. Prime Minister Jyrki Katainen’s cabinet will discuss the proposal on Aug. 28-29 before sending it to parliament.

Finland is in a recession for the second time in four years amid weak export demand and rising unemployment. Lemminkaeinen Oyj, a road builder, said today it will reduce 500 positions and mine-equipment maker Metso Oyj (MEO1V) said Aug. 5 it will seek to cut 750 jobs as companies in the northernmost euro member struggle with a broader recession in the 17-nation bloc.

The government has targeted an end to a debt build-up by 2015 as it seeks to safeguard the euro area’s only stable AAA credit rating. The framework budget agreed on in March for four years starting in 2014 includes tax increases and spending cuts worth about 600 million euros. Austerity was then tempered with a reduction in the corporate tax rate to 20 percent from 24.5 percent, which comes into force next year and costs about 870 million euros, according to the ministry.

Tax Gains

Tax receipts will grow about 1 1/2 percent next year, including about 300 million euros more from dividends as taxation is revamped, and an additional 200 million euros from taxes on alcohol, tobacco, sweets and electricity. A windfall tax on power producers that don’t generate carbon emissions will bring in 50 million euros, according to the proposal.

The budget deficit will reach 2.5 percent of gross domestic product this year before narrowing to 2.1 percent next year, the Finance Ministry said June 19. Debt will peak at 59.9 percent of GDP in 2015 it said. The Bank of Finland said June 11 debt would reach 61.8 percent in 2015, breaching the 60 percent European Union threshold. The ministry will publish new forecasts on Sept. 16.

Finance Minister Jutta Urpilainen said yesterday the government will discuss measures to make people work longer and changes to municipally funded social services and make a decision by the end of the year. Urpilainen has ruled out raising the pension age before the next election scheduled for April 2015.

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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