measures. Refusing suitable work offered or measures promoting employment will lead to temporary
suspension of the right to labour market subsidy. Furthermore, the demand for labour in labour-intensive
enterprises and services will be supported by cutting employer contributions. The budget proposal also
includes a number of measures to reduce structural unemployment and to increase employment. The
Government proposes inputs of EUR 100 million in low-wage support for employers in order to
encourage older and low-productivity labour to continue working and to be re-employed.
The Government supports the competence base of economic growth by increasing resources for research
and development and by improving the harmonization of research and its commercial applications. It will
also reform education to strengthen economic growth and to secure the labour supply by bringing
forward the average age for embarking on a career. Another aim is to reduce the risk of social exclusion
among young people.
The reform of health insurance financing will take effect in 2006. The purpose of the reform is to
safeguard the sufficiency of financing for benefits granted on the basis of sickness. The health insurance
financing will be divided into two parts, medical care insurance and earned income insurance. The cost
effect of the reform will be neutral in terms of general government finances, employers and the insured.
Decisions made by the current Government have reduced taxation on work by a total of EUR 1.4 billion.
By the end of the electoral period, taxation on work will have been reduced by a total of EUR 2.8 billion.
As a result of the reductions for the electoral period, the tax rate of a medium-income employee will be
reduced by some 3 percentage points.
2. Decision making process and implementation
The Government’s fiscal policy objective is to maintain strong central government finances. This is
essential if public finances are to cope with the implications of population ageing over the next few
decades without placing an unreasonable tax burden on future generations. Stability and sustainability in
general government finances require steps to curb and control public expenditure, to increase
productivity and to strengthen the growth potential of the economy. The requirement of a cautious
expenditure policy applies to both central government and the municipal sector.
2.1. Formulation and execution of the budget
The formulation of the budget proposal begins in March each year following Government approval of the
spending limits of the ministries. Based on these spending limits and on directives issued by the Ministry
of Finance, budget formulation progresses in the ministries, which issue their own directions to agencies
and departments under their purview. The agencies draw up their draft budgets in the course of the
spring. The ministries then formulate a draft budget for the whole of their branch of government from the
plans submitted by the agencies. This draft budget is handed to the Ministry of Finance in May. In
addition, ministries can propose changes to their spending limits in matters on which they have drawn up
proposed adjustments, and the proposed changes are submitted to the Government for consideration
together with the budget proposal.
The draft budgets of the ministries are processed at the Ministry of Finance in the course of the spring
and summer. The Minister of Finance decides his position on the budget proposal in July or August and
hands the proposed budget to the ministries. Based on the position paper of the Ministry of Finance, a
series of negotiations on the draft budgets are held between the Ministry of Finance and each of the other
ministries with a view to settling any differences of opinion on the size of appropriations. Following this
round of negotiations, the whole Government considers the draft budget prepared by the Ministry of
Finance in the Government budget session held in August. At the budget session, the Government
substantively endorses the contents of the budget proposal.
Once the Ministry of Finance has finalised the budget proposal, it is officially approved by the
Government and the President of the Republic and is submitted to Parliament for consideration at the