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Main / Central government finances

Central government finances

One of the core functions of the Ministry of Finance is to manage central government finances in a way that allows the Finnish economy to develop in the best possible way. In terms of the national accounts, central government consists of not only on-budget entities but also off-budget funds (excluding the State Pension Fund, which is classified under the sector of employment pension institutions), universities and Solidium Ltd.

The Ministry draws up the annual proposal for the Budget and where necessary for supplementary budgets, and also proposes the overall spending limits for the years ahead. The Ministry of Finance supplies the other ministries with general guidelines and regulations on how to formulate the budget proposal, how to implement the Budget, and general principles on how to manage government assets. The Ministry of Finance also supervises Budget implementation and execution and is responsible for the management of government cash reserves. The Ministry is a key player in the statutory bodies set up to regulate financial relations between central and local government, too, and contributes to the preparation of the European Union budget through its involvement in the work of the Council of the European Union (Euroopan Unionin neuvosto) (Council of Ministers) (Ministerineuvosto) and its Budget Committee.

Central government budget revenue, expenditure and balance

Central government finances are part of general government, which also comprises local government finances and social security funds.

Local government finances

Local authorities are guaranteed extensive autonomy under the Constitutional Act, the main provisions of which include the power to levy taxes and the right to decide on how to manage their own finances. Local authorities determine their tax rate independently and set property tax rate within the fluctuation margin specified by Parliament. In addition, local governments receive a share of corporate tax revenue, the exact proportion being determined by Parliament. Financial differences between municipalities are equalized by means of a system of central government transfers. Local authorities bear main responsibility for providing public services, which they can produce independently or in cooperation with other municipalities. They have a statutory duty to provide services in health care, social welfare, education and cultural activities.

The Basic Public Services Programme and the basic public services budget

To ensure balanced and predictable finances for the tasks and obligations of local authorities, a Basic Public Services Programme was launched, accompanied by an annual basic public services budget. The basic public services budget is reviewed in connection with the government spending limits and Budget procedure. The Advisory Committee on Local Government Finances and Administration deals with financial issues between the central and local government.

The Advisory Committee on Local Government Finances and Administration

The Advisory Committee is responsible for finding ways to harmonize financial measures in central and local government with overall economic developments, for monitoring the functioning of the system of central government transfers to local government and for preparing proposals for improving the system. The Advisory Committee comprises representatives of the Ministry of Finance, the Ministry of the Interior, the Ministry of Social Affairs and Health, the Ministry of Education and the Association of Finnish Local and Regional Authorities and is chaired by the minister responsible for local government affairs.

The Advisory Committee includes a finance division chaired by the Budget Director of the Budget Department at the Ministry of Finance, with public servant representatives from the ministries handling local government affairs and the central organization for municipalities. The finance division is responsible for drawing up medium-term forecasts in local government finances, and related reports are published twice a year.

More information about local government finances

Muncipal affairs

Social security and employment pension funds

Social protection is financed to a large extent through social security funds and employment pension funds. Benefits disbursed from the funds are governed by legislation. They are funded by means of wage-related social security contributions and general tax revenue, because the State guarantees solvency in the funds for national pensions, health insurance and pensions for entrepreneurs. The contribution rates for social security, employees’ and employers’ health insurance and employers’ national pension contributions are stipulated in statutory provisions. The Ministry of Social Affairs and Health approves the employment pension contribution rates and the unemployment insurance contribution rates for employers and employees an annual basis. The unemployment security and pension schemes include cyclical buffers for curbing a rise in contributions when the economy is weaker. In terms of national accounts, the State Pension Fund has been classified under the sector of the employment pension institutions since 2010.

Additional information:

The Social Insurance Institution of Finland

Ministry of Social Affairs and Health

The Finnish Centre for Pensions

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Ministry of Finance P.O BOX 28 FIN-00023 GOVERNMENT Tel. +358 295 16001 E-mail: