The government's economic policies are justified, but the measures they have selected are insufficient to meet their stated targets.
That's according to the Economic Policy Council, an independent body of economists established in 2014 to evaluate government policies.
The government's stated aim is to stabilise state debt to GDP ratios by the end of this government term in 2027. Public spending has grown faster than state income, and Finland will take on some 10 billion euros of new debt this year.
In addition, economic forecasts have weakened. The council's report on policy measures announced so far includes five points on which the government could do better.
1) Don't rule out raising taxes
The council says that tax rates should be on the table, if more austerity measures are needed. The report suggests looking at changing some reduced rates of VAT.
Most products incur VAT at a rate of 24 percent, but food, books, medicines and public transport all get reduced rates.
The government programme includes a commitment not to increase the total tax burden. The council, however, points out that if there are no changes to current tax regimes, the state tax take as a percentage of GDP will decline significantly as traffic on the roads switches to electric motors. That will make budget balancing even more difficult.
2) Social spending cuts target the same people
The government programme aims to protect those in the weakest positions in society, but the council says that is not quite the full picture.
Much of the burden for balancing the public financing will fall on cuts to spending on social benefits. Some lower-income people will see their financial position deteriorate significantly, and many of the cuts to social spending will hit the same people.
The report draws attention to the fact that the government is aiming to front-load savings with cuts to social welfare spending and working-age benefits, even though a significant chunk of social spending goes to pensioners.
On the other hand, the government's plans to reform the pension system could yield savings without endangering the position of those on lower incomes, according to the council.
The report suggests re-evaluating pension benefits that are not based on income. At present pension entitlement is accrued for stints of unemployment and studying.
3) Employment measure imbalance
The government is aiming to achieve an 80 percent employment rate by 2031, and also wants to increase the number of hours worked.
Cuts that will reduce the value of social benefits in relation to salaries are expected to increase the numbers in the workforce by tens of thousands. The forecasts suggest that will, in turn, improve the public finances by around two billion euros.
The council regards those employment targets as justified, but warns against over-promising as the estimates of eventual impact are uncertain.
Those uncertainties are connected to the labour market, labour supply and changes in incentives to work.
The government's package of measures on employment is also imbalanced, according to the council. It focuses above all on changes to incentives, such as weakening rights to income-linked unemployment benefits.
There are other barriers to employment, however, including insufficient professional skills, health problems and labour market mismatch problems.
4) Housing policy measures are contradictory
Housing policy targets are to ensure a functioning housing market and reasonably priced housing.
The council states that some of the planned measures are likely to be effective, but some are not.
For example the system of state funding for more affordable housing, known as ARA funding, is being phased out. The council suggests that is justified because ARA housing reduces the private sector provision of housing, and does not increase the total amount of housing. The housing benefit is a better way to support lower-income households, according to the council's report.
Reducing the transfer tax on housing is also justified, according to the council.
However the experts suggest that cuts to housing benefits are questionable. They probably worsen the position of the weakest in society, and force the lowest-income households to claim income support.
That is the social benefit of last resort. The government says it is aiming to reduce dependence on these payments.
5) Smaller carbon sinks could cost taxpayers
The government should be aiming to incentivise creation and maintenance of carbon sinks, according to the council's report. That would lessen the need to buy carbon credits under carbon trading rules.
The incentives should be based on forcing landowners to pay for carbon emissions from their property.
Finland is already finding it difficult to reduce carbon emissions as required under the EU's climate regulations. Reduced carbon absorption by the land use sector is reportedly set to cost Finland at least a billion euros.
Carbon neutrality means that the carbon-equivalent emissions caused are equal to or less than those absorbed by the forests and other land in the country.
Higher rates of logging and slower growth of timber mean that Finland's land-use sector has switched from being a net carbon sink to a net source of emissions.
Springtime budget talks
The domestic economists' recommendations detailed in the report are similar to those outlined in the International Monetary Fund's report published on Tuesday. The IMF also suggested new austerity measures and suggested that some cuts in social spending were justified.
As new economic forecasts suggest a recession this year, the report will give ammunition to those decision-makers looking to make savings this spring.
Finance Minister Riikka Purra (Finns) has warned that the need for additional austerity could be between half a billion and two billion euros.
The Finance Ministry is currently mapping out possible austerity measures to be considered by ministers.
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