On 25 February, a report prepared by a parliamentary working group on a ‘debt brake’ was published in Finland. According to the report, general government finances should be adjusted by EUR 8–11 billion in the next parliamentary term in order to bring the general government deficit to around 2–2.5% of GDP by 2031.
A debt brake has been justified on the grounds of strengthening the sustainability of central government finances. However, there is one key question that has been neglected in this debate: who will pay for the adjustment?
Economic policy is also gender equality policy
Economic policy is often treated as a technical issue: how much debt there is, how big the deficit is, and how central government finances can be balanced. In reality, it also always involves value-based choices. Adjustment measures – whether in the form of spending cuts or tax increases – always affect people. They have different effects on different population groups, areas and genders.
In Finland, public services, social security and welfare state structures are key infrastructures for equality. They even out income inequality, make it possible for people to work, and support people at different stages of their lives. When a fiscal adjustment amounting to billions of euros takes place, we are not only talking about a line item in the budget – we are talking about whose everyday life will change.
The adjustment required by a debt brake can be exceptionally large in scale. The level of adjustment may be up to three times higher than the adjustments under the current government and, at worst, they may undermine economic growth and increase unemployment.
The key question for equality is what the adjustment will affect. Historically, spending cuts have often targeted social security, public services, and the funding for municipalities and wellbeing services counties in particular.
Their effects are not evenly distributed. For example, women, on average, tend to use public services more, and they more often work in the public sector. At the same time, low-income households are more dependent on social security. Because of this, fiscal policy can strengthen or weaken gender equality – often without even being noticed.
A debt brake may reduce democratic leeway
A key characteristic of a debt brake is that it binds the fiscal policy of future governments in advance. Most parliamentary parties have committed to the adjustment goal, although not all parties joined the agreement.
This also raises a democratic question: to what extent should economic policy be set in stone across parliamentary terms?
If the level of adjustment is specified in advance, the political debate may focus on the topic of what to cut, rather than whether cuts are needed or how they should be carried out. Although the range of methods has yet to be agreed on, such large-scale adjustments will make it difficult to avoid cuts to social security and healthcare and social services. From an equality perspective, this is problematic.
Social policy, services and the structure of the welfare state are key tools for equality – and yet they are often targeted for the biggest savings.
We also need systematic assessment of how economic policies affect people. This means assessing gender impacts, examining impacts across income brackets and analysing regional impacts, for example. Economic policy is not only a question of debt and deficit. It is also a question of social justice.
A debt brake is a value-based choice
The debt brake debate shows that economic policy is essentially about making value-based choices in a world of limited resources. There are many ways to reduce debt: by cutting spending, levying taxes or supporting growth. However, there is a risk that a debt brake will actually weaken growth and even increase the debt burden as a result. Therefore, the real question with regard to a debt brake is not only how much money we want to save, but, most importantly, how the savings will be carried out and who will pay the price. To be as fair as possible, the adjustment required by the debt brake should be tax-focused, concentrate on growth measures such as investment, and focus as little as possible on spending cuts.
If we want to maintain the strong equality-based foundation of the Finnish welfare state, this issue must be kept at the heart of the debate.