From gross debt to net debt

Executive summary

The choice between gross and net debt makes a difference for countries such as Finland. The article written by the Chief Economist of the Central Organisation of Finnish Trade Unions (SAK) Patrizio Lainà and UTAK’s Executive Director Lauri Holappa examines whether public debt should be assessed using gross debt or net debt. This a key question, because the choice of indicator shapes how Finland’s fiscal position is perceived. Gross debt—particularly the EU’s EDP measure—dominates public debate and fiscal rules are based on this indicator. Nevertheless, the focus on gross debt ignores public financial assets. Net debt, by contrast, subtracts financial assets (such as cash, deposits, and equity holdings) from liabilities and therefore provides a more comprehensive picture of the public sector’s balance sheet.

Finland’s public finances look substantially stronger in net-debt terms. The authors show that Finland’s fiscal position appears markedly stronger when measured in net terms. While gross debt is around the EU average (roughly 87% of GDP in 2025), net debt is much lower (around 43% of GDP), placing Finland in a relatively strong position compared to other EU countries. If pension fund assets are included, Finland’s public sector becomes a net creditor, with financial assets exceeding liabilities. This highlights that Finland’s relatively large public financial wealth is largely invisible in current fiscal frameworks.

Gross debt is highly sensitive to accounting choices. The article also emphasizes that gross debt is not a neutral or unambiguous measure. Its level depends on accounting choices, such as whether to include certain government-backed loans (e.g., related to housing), how to treat central bank holdings of government bonds, or how derivative-related collateral is recorded. These choices can significantly increase or reduce reported debt levels without reflecting meaningful changes in fiscal sustainability.

Gross-debt targets can create harmful incentives to sell public assets. A key policy concern is that the focus on gross debt creates incentives to sell public assets to improve headline debt ratios. However, the authors argue that such sales are often economically unjustified, as public assets—especially equity holdings—have historically yielded higher returns than government borrowing costs. Selling assets may therefore weaken long-term public finances by reducing future income streams.

Large-scale consolidation could deepen stagnation and damage long-term growth. The article warns that EU fiscal rules require Finland to implement large-scale fiscal consolidation (around €10 billion) in the next government term. Given the weak growth outlook, such consolidation risks pushing the economy into prolonged stagnation or recession, with lasting negative effects (hysteresis). The authors suggest that rigid adherence to gross-debt-based rules could therefore lead to suboptimal and potentially harmful policy outcomes.

Policy recommendations

1. Incorporate net debt into fiscal frameworks. EU and national fiscal rules should give greater weight to net debt measures that account for public financial assets. This would provide a more accurate assessment of fiscal sustainability and better reflect cross-country differences in public sector balance sheets.
2. Avoid asset sales aimed solely at reducing gross debt. Governments should not sell public financial assets merely to improve headline debt ratios. Asset sales should only be considered when they are economically justified (e.g. reallocating resources or supporting growth-enhancing investments), not as an accounting exercise.
3. Mitigate the growth impact of fiscal consolidation through investments. If large fiscal adjustments are required, they should be designed to minimize negative macroeconomic effects. Especially during economic downturns tax increases are preferable to expenditure cuts. This could involve combining consolidation with targeted public investments—potentially financed through asset sales—to offset demand shortfalls and prevent long-term damage to economic growth.