Finland Increases Budget Shortfall Estimate as Tax Revenue Falls

The Finnish government increased its net borrowing estimate for 2013 by 15 percent as the nation’s recession erodes tax revenue.

Finland sees this year’s budget deficit growing to about 9 billion euros ($12 billion), compared with a previous estimate for a 7.8 billion-euro shortfall, the Helsinki-based finance ministry said in a statement today.

“Revenues from value-added tax and income tax will diminish, which explains about half of the extra borrowing need,” Juhana Brotherus, an economist at Danske Bank A/S (DANSKE) in Helsinki, said by phone. “This illustrates the fragility of the domestic market situation.”

This year’s revenue from income tax and capital gains tax will be 434 million euros less than previously estimated, the ministry said. Value-added tax will yield 372 million euros less.

Prime Minister Jyrki Katainen has summoned lawmakers and industry groups to a meeting on Aug. 26 to help chart a path out of the nation’s economic decline as he seeks to preserve his government’s stable AAA credit rating.

The difference in yield between benchmark Finnish 10-year debt and similar-maturity German bonds fell 1.2 basis points to 26 points as of 11:30 a.m. local time.

“I don’t see this net borrowing increase causing any immediate pressure for the credit rating nor do I expect any serious impact on Finnish bonds,” Brotherus said.

To contact the reporter on this story: Kasper Viita in Helsinki at kviita1@bloomberg.net

To contact the editor responsible for this story: Christian Wienberg at cwienberg@bloomberg.net

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