Finland’s general government revenue and expenditure are chronically out of balance. Population ageing is adding to health and social services spending and at the same time public debt service payments are growing. A fiscal correction will require significant spending cuts and tax increases in future parliamentary terms. The Bank of Finland estimates that the sustainability gap is about 4% of GDP.
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The sustainability gap estimate tells us by how much the general government fiscal balance needs to be permanently adjusted so that public debt does not grow out of control in the future. The updated estimate is 3.5% relative to GDP.
The financial position of households and businesses has on average remained good through the crisis, with the exception of the service industries directly impacted by COVID-19. Support measures have weakened the public finances.
The Bank of Finland estimate puts the sustainability gap in Finland’s public finances at 4.7%. If public expenditures over the long term continue to be larger than revenues, public debt will eventually begin to grow out of control.