Negotiations begin on City of Helsinki’s 2024 budget proposal

Helsinki City Board political groups begin negotiations on the City of Helsinki's 2024 budget this week. To facilitate the negotiations, city employees have prepared a coordinated calculation of budget proposals from the city’s boards, investment proposals and tax financing estimates. The calculation seeks to foster implementation of the Helsinki City Strategy – A Place of Growth.
Rakennuksia vierekkäin edestä kuvattuna
Photo: Beatrice Bucht / Helsingin kaupunki

After the recent nationwide reform of social and health services, the City of Helsinki’s budget proposal preparations have been altered so that the current city operations are now divided in the budget proposal into two entities: the Municipality of Helsinki and the state-funded Social Services, Healthcare and Rescue Division. Funding of the latter division is composed from general funding received from the Finnish State, as well as income from customer fees and other operating income. The Municipality of Helsinki then represents the rest of the City of Helsinki operations – the Education Division, the Urban Environment Division, the Culture and Leisure Division and the City Executive Office – and does not include Social Services, Healthcare and Rescue Division expenditures. 

Investments in growth and service development

Helsinki's population growth requires both large investments in the functionality of the expanding city as well as new premises to accommodate the increasing need for services. These investments in growth and service development will cause operating expenses to rise. At the same time, it is uncertain whether there will be corresponding growth in tax revenue in the coming years due to the financial changes brought about by the social and health services reform and an unstable international economy.

Helsinki’s growth continues, despite the fact that the number of started housing construction projects and building permits is down from previous peak years. It is estimated that 7,000 new dwellings will be completed this year and just under 6,000 in 2024. Construction continues in Helsinki in larger project areas and as infill construction in different parts of the city. The most housing under construction is in the project areas of Kalasatama and Pasila. It is predicted that the housing market and construction sector will recover as early as 2024, in line with the stabilisation of the operating environment.

Forecasts predict that 672,213 people will be living in Helsinki at the end of 2023. In the years 2023–2024, population growth may once again match the peak years of the 2010s, at around 8,200 people per year. This trend is expected to slow down after 2025, however, to slightly less than 7,000 people annually. The majority of population growth will occur within the non-Finnish-speaking population. According to the projection, this group will account for slightly less than 20 percent of the city’s population by the end of 2025.

Calculation sees increase in operating expenses, especially in basic services

One of the priorities of the Helsinki City Strategy is to pursue sustainable growth based on responsible finances. As part of this joint strategy, the City Council has committed to a “responsibility mandate” governing growth in operating expenditure. This mandate states that any possible increases are linked to changes in cost levels and population growth, in addition to self-imposed productivity targets.

The Municipality of Helsinki’s balanced calculation for 2024 has been prepared in accordance with this mandate, but it also takes into account the effects that 2023’s salary and cost increases will continue to have in 2024. In line with the mandate, the growth of the operating economy is a total of 4.63 per cent. Overall operating expenditure will increase by 5.3 per cent, compared to the 2023 budget. In the preparation of the calculation, the increase in operating expenditure has been targeted in particular on basic services, for example, Education Division allocations will increase by 5.1 per cent. In addition to this expansion of service production, operating expenditure is increased by rents, municipal contributions and service fees resulting from large investments.

The tax financing level of the Municipality of Helsinki is still significantly affected by the tax financing changes associated with the nationwide social and health services reform. For the year 2023, the tax percentage of all municipalities was reduced by 12.36 per cent, making Helsinki's tax percentage 5.36. For the year 2024, the municipalities must declare the income tax percentage to the nearest tenth of a percentage point, and so in Helsinki’s case, the municipal tax revenue used in the calculation is estimated at 5.3 per cent tax. The real estate tax revenues take into account the increase of the lower limit of the real estate tax on ground area from 0.93 per cent to 1.30 per cent for 2024, in accordance with the proposed amendment to the Real Estate Tax Act. Tax and state contribution revenues are estimated to accumulate to a total of EUR 2,103 million, which is 7.1 per cent less than in the current year, when the effects of the higher tax rate from previous years are removed.

Investments predicted to rise

According to the calculation, investments required for the Municipality of Helsinki’s necessary growth will reach a record high in 2024, when EUR 1 billion in investments will be made, raising the ten-year investment programme total to EUR 9.4 billion. During this ten-year period, EUR 3.2 billion will be invested in premises. The largest projects starting in 2024 include the Kruunuvuorenranta service block and renovation of the Yrjönkatu swimming pool.

EUR 4 billion will be used to develop Helsinki’s urban structure.  The largest projects include infrastructure construction in the Kalasatama, West Harbour and Pasila project areas and the Crown Bridges project. In addition, the city will prepare to implement light rail lines with routes connecting the districts of West Helsinki, Viikki-Malmi and the West Harbour, as well as tramway routes connecting Kalasatama-Pasila and Eiranranta-Hernesaari, as noted on the balance sheet of the city-owned public transport company Metropolitan Area Transport Ltd. The implementation of these rail projects is decided separately, in consideration of funding decisions from the state. All of Helsinki’s investments in the sustainable growth of the capital region are by extension also investments in Finland’s overall economic growth. 

In the 2024–2026 financial planning period, the Municipality of Helsinki’s annual margin is estimated to decrease from the levels seen in 2022 and 2023. As a result, the city’s operations and investments cash flow, in other words, the measure of the city economy’s surplus and deficit, will be significantly more than EUR 300 million in the negative in the coming years. This deficit cash flow from operations and investments will be primarily covered in the financial plan by loans and partly by the city’s cash reserves.

During the planning period 2024–2026, the city's loan portfolio is estimated to grow by a total of EUR 498 million over three years. In 2024, the loan base will be EUR 1,197 million, and at the end of the financial plan period, EUR 1,503 million.

According to the updated October calculation, the Finnish State’s share of the Social Services, Healthcare and Rescue Services Division financing will be EUR 2,699 million. The Division’s operating expenditure will therefore increase by 3.4 per cent, when compared to 2023. The Division aims to produce zero profit in 2024, but the predicted 2023 deficit will be rectified in 2025 and 2026, in accordance with the associated legislation.
The coordinated calculations prepared by city employees will facilitate negotiation of the budget between the political groups represented in the Helsinki City Board. The mayor's proposal for the budget will be announced when the negotiations have concluded, in early November.