Economic fluctuations are directly reflected in the balance of general government finances. Finland’s long-term objective in general government finances is to maintain and support stable and sustainable economic development, thereby largely avoiding social expenditure cuts and tax increases. The central government fiscal balance and gross debt are the elements of general government where fluctuations in general government finances are most clearly visible. As the economy weakens, the rise in the public sector deficit level is mitigated by taking debt. For this reason, changes in economic conditions are reflected most clearly in the level of the fiscal balance and thus also in fluctuations in central government debt. The goal is to balance the economy by increasing employment, whereby the level of tax revenue also grows and, as a result of falling unemployment, the need to increase general government expenditure also declines.
Among the biggest future challenges of general government finances and economic policy are instability of economic conditions, restructuring pressures on the private sector, and the long-term funding problems of the welfare state. Economic policy problems are linked to the social and structural problems of society. Problems should be examined multisectorally and in parallel, to ensure that efficiency measures achieve sustainable results over both the short and longer term. Operational sustainability should be central to the management of general government finances. Short-term measures to support economic activity should at the same time improve the sustainability of the fiscal balance of general government finances. The social costs of the welfare society may lead to instability and a sustainability gap in general government finances if economic policy does not take account of the effects of the structural problems of society, such as the change in population age structure and the distortion of the economic dependency ratio.