Mayor Jukka Mäkelä’s budget proposal for 2023: Ensuring sustainable growth is essential

3.11.2022 15.00

The budget has been drawn up in the middle of major changes and general uncertainty about economic development.

The budget has been drawn up in the middle of major changes and general uncertainty about economic development. The health, social and rescue services reform will affect municipalities’ operations and financing model, and the economic environment has changed drastically as a result of Russia’s attack on Ukraine. The European energy crisis and rapid inflation have a major impact on the economy. 

“On the positive side, I would like to mention all the active post-Covid development work done during Espoo’s 50 Years as a City anniversary year, the upcoming completion of the West Metro at the end of the year, and our city being selected as one of the finalists in the European Capital of Innovation competition,” says Mayor Jukka Mäkelä

“This is a time of great uncertainty, but Espoo’s economy is on a sound footing,” he adds.  

Espoo Story guides the city’s development 

The city’s main goals for this council term include balancing the city’s economy, recovering from the coronavirus pandemic, implementing the health and social services reform, working towards achieving carbon neutrality, and ensuring successful integration and employment among immigrants. Espoo’s role as an innovation city is essential for the competitiveness of the entire country. 

“We want to be the most sustainable city in Europe, now and in the future. Sustainability includes being the top city for culture and education and providing services in a resident-oriented and innovative manner together with our partners,” Mayor Mäkelä says.  

After the health and social services reform, the city’s role in strengthening vitality will be even clearer. A key objective for the Growth and Learning Sector is to promote wellbeing and early support and allocate resources to integration and the prevention of segregation, among other things. The Cultural Unit and Sports and Exercise Services will continue to play a key role in promoting the wellbeing of Espoo residents.  

Solutions to global challenges are sought together with partners 

The City of Espoo was recently selected as one of the three finalists in the European Capital of Innovation competition (iCapital). The winner will be announced at the European Innovation Council Summit in December. One of Espoo’s strengths is radical cross-disciplinary cooperation. Together with Aalto University and the VTT Technical Research Centre of Finland, the city forms a hub that brings together all organisations and individuals – start-ups, students, top-level companies, researchers and residents – to create innovations for a better life. The ambitious work to promote both sustainable development and people’s wellbeing supports these efforts.  

“Together with our partners, we have an important role in enabling the creation and retention of knowledge-intensive jobs in Finland. A hundred metropolitan areas around the world are competing for knowledge-intensive companies and jobs. Our entire country’s economic performance and future will be determined in this competition. The city plays a crucial role, particularly from the perspective of a sustainable urban structure and appealing services,” Mayor Mäkelä says. 

“The next Government Programme must secure the investment capacity of large cities. Without growth in cities, Finland’s economy is not sustainable. We must invest in growth and expertise in the capital region cities so that the region can continue to generate jobs and wellbeing throughout Finland.” 

The financial plan implements the Espoo Story and the Economically Sustainable Espoo programme 

The budget’s tax revenue is based on the forecast of economic growth outlined in the economic survey published by the Ministry of Finance this autumn and on the estimates of the development of tax revenue presented in the tax forecast framework maintained by the Association of Finnish Local and Regional Authorities. The new financing model and the real estate tax rates decided by the City Council have been taken into account in the tax revenue estimates. Espoo’s new local income tax rate is 5.36%. 

Next year, tax funding will decrease by 36% compared to the level in 2022. As a result of the reform, the share of tax revenue in the city’s revenue base will decrease significantly and the share of central government transfers will increase to 31%. 

The net costs of organising services, i.e. the operating margin deficit, will decrease from EUR -1.7 billion in 2022 to EUR -890 million. The change is due to the costs that will be transferred to the wellbeing services county. The city’s comparable net costs will grow by approximately 8.8%. This estimate takes into account the growing need for services, the general development of costs (including the pay settlement), the increase in pension contributions, and growing costs, such as those related to the completion of the West Metro extension. 

In 2023, the city’s annual contribution margin is estimated to rise to EUR 352 million and the financial result for the accounting period is expected to reach EUR 157 million. The financial figures for 2023 will be further improved by the remittance of tax revenue partially accrued with the higher tax rate of 2022. In 2024, the city’s annual contribution margin is estimated to drop to EUR 237 million and the financial result for the accounting period to EUR 38 million, as the 2022 tax rate will no longer have an impact. 

The entire Corporate Group of Espoo will invest some EUR 497 million in 2023. Between 2023 and 2032, it will invest around EUR 3.8 billion, an average of EUR 375 million per year. The level of investment will remain high in the next few years. Investments in the West Metro and its development corridor as well as the City Rail Link and the Jokeri Light Rail are investments into the growth potential of the entire country. The city’s investment programme will have a total budget of EUR 2.1 billion. A large part of the investments will be allocated to the construction and renovation of schools and day care centres in accordance with the Schools in Shape programme. 

The amount of the city’s loan will not increase in 2023. However, in the financial plan period, internal financing will not entirely cover the investments required for the growth of the city, and the city’s loan portfolio will increase by EUR 55 million. Based on the scenarios prepared by the city and the Corporate Group, the health, social and rescue services reform will slow down the annual growth of the city’s tax funding, and the annual contribution margin will not be sufficient to cover the city’s and the Corporate Group’s major depreciation or to finance all growth investments. The city will continue to accumulate debt unless the state increases its contribution to financing growth. 

“The Espoo Story and the Economically Sustainable Espoo programme are our key tools. By implementing them, we will improve Espoo’s ability to adapt to future challenges,” the Mayor says. 

The Espoo City Council will decide on the budget for 2023 on 7 December 2022. 

Further information

Jukka Mäkelä, Mayor of Espoo, tel. 046 877 3953 
Pia Ojavuo, Financial Planning Director, tel. 043 826 9139