Expenditure pressures on public finances: how much can we afford?

This article argues that the long-term financial prospect for Finland's government is relatively poor. Despite recent pension reforms that will decrease the GDP to pension expenditure ratio by between 2-3%, life expectancy increases will still produce a growth in pension expenditures of around 5% in addition to a sizable public spending increase for social welfare and health care expenditures for the elderly. Kinnunen argues that the key to sustainability is the use of more conservative public service price development indicators that take into account greater wage costs likely to be incurred by local governments than general wage development statistics would predict. Perhaps the most alarming concern is that Finland's low rate of employment undermines public revenues, and uncertainty about the future of the labor market undermines long-term financial planning. Given concern over the tax base, the most prudent course of action is to adjust expenditures to a level that can withstand worst case scenarios.