FINLAND'S government, long used to lecturing Ireland about the merits of frugality, tempered its commitment to austerity by providing tax cuts to companies to help create jobs without allowing the budget deficit to widen.
The six-party coalition agreed yesterday to lower the corporate tax rate to 20pc from 24.5pc, as part of a raft of measures that target €300m in spending cuts and the same amount in overall tax increases, Prime Minister Jyrki Katainen said after talks on a budget framework for the next four years ended in Helsinki. Talks to draft Finland's 2014 budget will be held in July.
"It's a mixture," Mr Katainen told reporters. "We do austerity measures, but at the same time by doing structural reforms, especially to taxation, we stimulate the economy."
Finland's economy shrank last year as Europe's debt crisis deepened, hurting exports and eroding consumer confidence in the northern-most euro nation.
The country is now mired in its second recession in four years, making the government's budget goals less attainable and adding to the cost of caring for Europe's fastest-aging population.
"It's a fitting amount" of austerity, said Pasi Kuoppamaeki, an economist at Danske Bank in Helsinki. "More tightening wouldn't have been good at this point."
The coalition, which cut its 2013 economic expansion forecast to 0.4pc from 0.5pc, reiterated its goal of ending debt growth by 2015.
It also targets bringing the central government deficit to within 1pc of gross domestic product from last year's 3.4pc.
Today's measures are enough to curb debt growth, Mr Katainen said.
Keeping to the 1pc central government deficit target would have required €3bn of tightening, he added.
Finland's jobless rate climbed to 8.7pc in January from 7.8pc a year earlier as companies cut jobs to stay profitable.
"We want to send a clear message to the world – we are determined to defend the Finnish welfare society based on work," Finance Minister Jutta Urpilainen said yesterday.
"We have taken decisions that support growth and help create the basis for new job creation," she added.
Finland is the only euro member with a stable AAA rating at Standard & Poor's, Moody's Investors Service and Fitch Ratings.
Germany and Luxembourg have negative outlooks on their top credit grades at Moody's, and the Netherlands faces a downgrade at all three companies. (Bloomberg)