The debt taken by the Marin government is not low-interest.
The State Treasury (Valtiokonttori) established a strategy in 2004 in which it swaps long-term interest rates for short-term ones, because in theory, short-term rates are lower than long-term ones. The Marin government did not change this practice, which works in theory, especially when the interest rate trend was downward.
Unfortunately, the practice was not updated once interest rates reached negative levels, so the money borrowed by the Marin government is now such that real, increased interest is being paid with real money in the Orpo government’s budgets. Former Minister Saramo declared, as I recall, that “the loans taken by this government are zero-interest or negative.” With such an attitude, it was not worth starting the fiscal consolidation.
Statement from a government minister:
“I had not understood that the strategy guiding the State Treasury would lead to long-term negative-interest loans being converted into floating-rate loans.”
There is a loose connection here to Fortum’s adventures in Germany (and a few other similar “delicious bombs”) in that derivative contracts are at the heart of it. In this case involving the State Treasury (Valtionkonttori), it seems the details were somehow kept secret.
What these derivative contract messes have in common, in my opinion, is that making complex agreements is considered a virtuous and useful display of skill in its own right. In a way, these contracts are only for “smart people” who are surely making some clever moves that the average person wouldn’t understand. Consequently, a kind of secrecy is always an essential part of the package. We “stupid people” aren’t supposed to know what people smarter than us are doing; we wouldn’t understand any of it anyway.
As an aside, I’ve always feared when the pension insurance company Varma will mess up our pension money with its hedge fund investments.
I would still maintain that an even greater problem for Finland’s future is that, despite poor implementation, those currently in government are practically the only parties from whom any kind of spending cuts or labor market reforms could succeed even to some extent. Or do you seriously want to try and argue that the SDP, Left Alliance, and the Greens would try to balance the budget more? Or push for any changes to increase labor market flexibility?
At least there were no signs of this during the previous government’s term or in the election debates.
The fact that a low-interest loan is turned into a high-interest one doesn’t change the fact that it was taken out at a low interest rate.
Nor the fact that Orpo and Purra are only accelerating borrowing. It’s not mandatory; they could have changed course but chose otherwise. Debt-funded tax cuts during a recession.
Politicians may say one thing about it, economists another.
I certainly do. For me, the National Coalition Party (Kokoomus) has always been just as much of a big spender as all the others. I am old enough to remember the “Sari the Nurse” (Sari Sairaanhoitaja) campaign led by Jyrki Katainen, which was completely irresponsible given the state of public finances. This was the National Coalition’s contribution to labor market policy, which resulted in great damage to our country’s competitiveness and public finances for a long time.
I am also old enough to remember whose “brilliant” idea it was to lower the VAT on food. It was the Vanhanen II cabinet in 2009.
In Finland, reckless spending is not at all foreign to right-wing governments. It is simply naive to assume that if a government is formed by right-wing parties, it is inherently somehow smart and responsible.
I will quickly list at least the following as major mistakes of this government, which likely would not have happened if the Marin government had continued:
Lowering the fuel tax
Lowering income tax
Making work-based immigration more difficult
In the big picture, this government’s spending does not differ greatly from the Marin government’s spending when looking at balancing public finances, and that is likely already clear to everyone in light of the numbers.
What does it matter at what interest rate the loan was taken? What matters is what the money was used for (as consumption debt to finance a bloated public sector) and what interest is being paid on it.
Marin and the other socialists could have also done something, but they didn’t. As I have stated, the current government should cut more. But even now, almost every party is on the barricades opposing the cuts and the union mafia (AY-mafia) is organizing a general strike.
And could we please stop harping on about the tax cuts? Completely insignificant tax cuts in one of the world’s most highly taxed countries, which have almost no significance for the budget. Especially compared to all the useless nonsense that the state and taxpayers fund.
I still completely agree on the need for cuts and also on the shortcomings of “right-wing government/governments”. Katainen’s government was a complete disaster and Katainen himself was a total pushover. But even then, the biggest reason for reckless fiscal management was the SDP and the Left. Katainen’s biggest mistake was an excessive desire to be prime minister and form a government at any cost. Shitty economic policy was driven more by the left-wing parties. As the prime minister’s party, the National Coalition (Kokoomus) certainly bears its share of responsibility.
PS. The “Sari the Nurse” (Sari sairaanhoitaja) campaign is a good example of what happens when all parties push for the same things as the Social Democrats and the Left. It’s good that you too have noticed what a poor outcome it leads to.
Neither can I, and we don’t get very far in this discussion when we get stuck in whataboutism. It would be important to look toward the future by learning from past mistakes. Party politics and debating sometimes feel like fans of two hockey teams arguing over which team is better, where everyone sticks to their own side through thick and thin, regardless of the facts.
To put it simply, it can be stated that the more leftist the policies that have been or are being implemented, the worse the outcome. This is especially true in Finland, where even the “right-wing parties” are pretty much in the center or on the left. This is completely regardless of which party or parties have held government responsibility. This is probably the most essential lesson for the future?
Let’s just agree to disagree. However, the essential difference between us seems to be that I have no need to defend, for example, the National Coalition Party’s (Kokoomus) bad decisions (even though I have voted for the National Coalition in some elections for lack of better options). You, on the other hand, seem to find it difficult to admit the mistakes of left-wing parties.
Just three days ago, I pointed out to you that the previous government also made many mistakes. For me, the SDP isn’t some hockey team that I support heart and soul, not by any means. There is a lot of stagnant thinking within the party. The connection to the business world and the mindset of entrepreneurs is poor. Tax policy proposals are often half-baked and poorly communicated. And if the SDP moves in the wrong direction, I will vote for another party instead.
Uhh. What part of what I wrote earlier did you not understand? Well, let’s recap. 1) The current government should cut significantly more. Even though even these current marginal cuts are making the trade union movement, the left, and interest groups go wild. 2) Marin and the other socialists wouldn’t do even the little that the current government is doing. Could you perhaps link to some concrete cost savings that the socialists have proposed?
If cuts were made to the political elite instead of pitting social groups against each other. The public would also accept cuts to corporate subsidies and the harmonization of capital gains taxes without a peep.
What is the little that the current government has done? Small cuts to spending, yes, but an equal amount of cuts to revenue. The debt curve remains unchanged—net zero.
Among the cuts, there are also these kinds of brain farts like increasing the maintenance backlog of the road network. These are things that will have to be fixed later at multiple times the cost.
What’s the point of cuts if you waste that money and more by lowering taxes, and in a recession no less? If you save a hundred and set it on fire immediately, you aren’t a hundred richer.
the budget deficit can be fixed, for example, precisely with cuts or by raising taxes. Cuts combined with tax reductions do nothing for the matter. Unless, of course, you cut more than you reduce tax revenue.
the question then is why—why haven’t Orpo and Purra wanted to do anything about their number one priority, the budget deficit? They lead the government; no one is stopping them from fixing the situation. Only the will is lacking.
No amount of mental gymnastics changes the fact that the Prime Minister and the Minister of Finance have refused to even try to patch the budget.
This “Finland Inc.” (Oy Suomi Ab) comparison is heard a lot. I would like to ask whether we can “restructure” unproductive Finns into the unemployment line if productivity is not at the desired level or if work simply isn’t available?
Next, I would challenge everyone to consider whether our less fortunate fellow citizens have any incentives to participate in growing the collective pie if the reward systems are like in companies where management gets rewarded and the workers do not? Anyone can do the math on whether it’s worth sacrificing 40 hours of their free time if they still have to live hand-to-mouth. In my opinion, Finland Inc. (Oy Suomi Ab) no longer offers any kind of higher purpose for sacrificing oneself for the common good.