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Ralf Sund:
“It is possible to simultaneously decrease income gaps
and balance the State economy”

STTK (06.06.2011) Although the parliamentary elections were held on April 17, Finland is still without a new government in early June. “What has gone wrong in the negotiations?” asks Ralf Sund, the economic policy expert of the union confederation STTK, in his recent column in the daily newspaper Kaleva.

“The unclear state of the Finnish economy is much to blame for the slow progress in the negotiations,” says Sund.

Amid Finland’s severe recession in the 1990s, negotiations on forming a new government began by agreeing on an economic frame, which was then filled in by compromises made by various task forces. This time, the opposite has been the case.

“While the negotiators could not agree on the economic frame, other parts of the government programme were nonetheless worked out. Without an economic frame, however, work can only advance to a certain point - it cannot be finalised,” explains Sund.

In Sund’s opinion, the economic frame consists of the solutions to three major issues. First, the parties have to agree on the adjustment needs of the State economy. Then they should agree on the means of the adjustment, i.e. on the expenditure savings or cuts, or tax rises. And third, the parties must agree on how to refocus or redirect State expenditure. For each additional expenditure the parties need to find a corresponding cut in expenditure.

“The list of smaller points of friction is long,” writes Sund. “The most important are the focus of expenditure cuts and tax rises.”

As to the adjustment of the State economy, one essential matter is its schedule. Is the adjustment planned to be implemented in four or eight years? In the latter, figures are cut by half. Although the forthcoming government cannot decide on the programme of its successor, it can make a decision on what shape the State economy is for the following term.

Sund believes that the negotiations will lead to an adjustment plan that stretches over two government periods (eight years). The publicly presented estimate of an adjustment need from EUR 2 billion to EUR 4 billion is realistic.

“Taxes will be raised by EUR 1 or EUR 2 billion and expenditure cut by approximately the same amount in four years. Such solutions will not prevent the government from waging an economic policy that promotes growth and employment. This will not hinder a policy that decreases income gaps and improves the social character of society,” maintains Sund.