Helsinki City Hall.

Coronavirus hits Helsinki’s economy – drafting of 2021 budget continues in uncertain times

Helsinki’s budget for the upcoming year is being drafted under exceptional circumstances and in uncertain times. The City’s estimated coronavirus bill is over €750 million during this and the next year. Especially the City’s tax revenue is expected to take a sharp dive. The corona crisis forces the City to increase its debt, but the investments that are important to the City’s growth and vitality will not be cancelled.

– The City of Helsinki’s responsible management of the economy allows us to keep from panicking. Due to the blurry picture of the situation, the estimates concerning the economy are evolving and changing all the time, says Mayor Jan Vapaavuori. – As with the previous recessions, the development in employment is the key issue that dictates the depth, length and long-term multiplier impact of the crisis.

Thus far, the spring lay-offs have not caused a massive increase in unemployment. However, unemployment in Helsinki and elsewhere in the Metropolitan area has grown faster than the national average, and in Helsinki, the number of unemployed has increased by 10,000 compared to March. At the end of June, there were 31 per cent less open job opportunities than in the previous year. The unemployment situation has deteriorated especially among young people and long-term unemployment has increased.

In the second quarter of the year, the combined wages and salaries of the Helsinki residents have decreased by almost eight per cent on average compared to the previous year. The decrease in the wages and salaries shows in the City's local income tax revenue, which has been estimated to decrease by almost €70 million in 2020.
The number of basic social assistance recipients in Helsinki increased by nine per cent compared to the previous year. The number of households receiving housing benefits has increased as well.

The City’s economy has also been severely hit by the drop in tourism. The number of overnight stays by domestic tourists has dived in Helsinki and in the Metropolitan area. The decrease has been clearly steeper than in the rest of the country.

City’s corona bill for next year around €580 million

The impact of the corona crisis on the City’s economy in 2021 is estimated at €580 million. The sum includes €80 million to be paid back to the Finnish government. It does not take into account possible new corona compensations from the government.

The corporation tax revenue is expected to decrease by more than €200 million in 2021, assuming that the temporary increase in the municipalities' share of the corporation tax is restored to the previous level after this year.

It has been estimated that the financial crisis will decrease the City's local tax revenue by €80 million and the real estate tax revenue by €5 million. The other income losses amount to almost €50 million.

In total, it has been estimated that the coronavirus will increase the City's expenditure by almost €160 million in 2021. The major part of this comes from the increase in the expenses and shares of payment of the social and health care division, the HUS joint municipal authority and the HRT joint municipal authority.

- Responsible management of the economy is needed in the future as well. Helsinki has to ensure the medium-term productivity development and be able to finance the investments required by the growth mainly with internal financing. The goal for the upcoming years in the City's management of the economy is that the loan stock increases by a maximum of 100 percent by the year 2024. This is also an essential principle in the upcoming budget proposal, says Mayor Vapaavuori.

Investments in city growth despite coronavirus

The framework proposal for the 2021 budget is presented to the City Board on Monday, 17 August 2020. According to the framework proposal now published, the City's expenditure growth in 2021 may reach 2.54 per cent compared to this year’s budget. In the calculation of the growth per cent, the base figure of this year’s budget has been revised lower due to the notable decrease in the estimate for the price index of basic services.

– When considering the uncertainty of the economic outlook and comparing the situation from the municipal perspective, this can be deemed as a reflationary framework. Despite the coronavirus, Helsinki’s investments in the growth of the City remain intact. The framework proposal’s investments for 2021 are at the level of the 2019 peak year, €780 million in total, notes Vapaavuori.

The City Board’s agenda (in Finnish), including the budget framework proposal, was published on Thursday, 13 August at 2:00 pm.

Next steps in the budget process

The City monitors the development of the economic situation. Especially changes to the GDP growth estimates and Helsinki's employment situation affect the drafting of the budget framework proposal. After the processing of the framework proposal, the City’s committees and boards will draft their own budget proposals.
The Mayor’s budget proposal is published on Thursday, 29 October 2020. The City Council approves next year’s budget for the City in December.

The Mayor's information session on the economy is available for viewing on the Helsinki Channel and the City’s Facebook page.
Helsinki Channel
City of Helsinki on Facebook

Photo: Laura Oja