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Finland Raises Budget Deficit Estimate as Tax Revenue Falls

Finland raised its net borrowing estimate for 2013 by 15 percent as a recession in the northernmost euro member erodes tax revenue.

The budget deficit will widen 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.

“Revenue 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 in Helsinki, said by phone. “This illustrates the fragility of the domestic market situation.”

Revenue from income taxes and capital gains taxes will this year be 434 million euros less than estimated, the ministry said. Value-added taxes will generate 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 economic decline as he seeks to preserve the nation’s stable AAA credit rating.

The difference in yield between benchmark Finnish 10-year debt and similar-maturity German bonds narrowed one basis points to 26 points as of 1:20 p.m. local time.

“This kind of amount fits into our strategy without problems,” Anu Sammallahti, deputy funding director at the Finnish Treasury, said by phone. “We’ll proceed according to plan, we can distribute the sum among the different instruments.”

The treasury is set to sell one more euro-denominated benchmark bond during the second half of the year as well as arranging one or two tap auctions, it said on June 28.

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