The Finnish economy is gaining momentum after a long period of sluggish performance, driven by a strong revival in exports and renewed competitiveness. Further reforms will be needed to boost employment, stabilise public finances and ensure that high levels of well-being are maintained for future generations, according to a new report from the OECD.
The latest OECD Economic Survey of Finland says high business and consumer confidence are underpinning the current broad-based economic recovery. The Survey recommends reforming taxation to support future growth and redesigning social welfare policies to serve the dual goals of boosting employment and ensuring better opportunities for the most vulnerable members of society.
The Survey, presented in Helsinki by OECD Deputy Secretary-General Mari Kiviniemi and Finland’s Finance Minister Petteri Orpo, projects growth around 2.5% in 2018. It identifies priorities for future public policy action, including further reforms to ensure financial stability and the long-term sustainability of public finances, in the context of population ageing.
“The Finnish economy has regained its growth momentum and Finland is once again showing its resilience,” Ms Kiviniemi said. “The strong recovery owes much to the efforts of workers, who have accepted sacrifices to restore price competitiveness, companies, which have restructured and innovated to meet evolving customer needs, and the government, which has accompanied these efforts through ambitious reforms.”
“Good times are the moment to lay the foundation of future success, so this is no time for complacency. Unemployment remains too high, ageing-related costs are weighing on public finances, and globalisation and technology continue creating challenges as well as opportunities” Ms Kiviniemi said.
The economic recovery has lifted government revenues, which along with spending containment, has cut the budget deficit, but more needs to be done to put public finances on a stronger footing, the Survey says.
Reforms to the tax and benefit system should support growth, competitiveness and employment, while maintaining the ability to contain income inequality and preserving the quality of social services.
A budget-neutral shift from labour taxes towards indirect, property and environmentally-related taxes can alleviate the burden on employment and foster greener growth, the Survey said.
Boosting Finland’s employment rate, which is low by Nordic standards, will be key to ensuring a vibrant economy and sustainable social welfare, the Survey said. At present, the combination of different working-age benefits, childcare costs and income taxation creates complexity, reduces work incentives and holds back employment. Coordinating the tapering of various working-age benefits against earnings could drastically improve work incentives and transparency, while preserving the current level of social protection.
Specific measures could be used to lift work incentives for parents and older workers. Combined with the new income registry linking benefit payments to real-time incomes from 2020, such reforms would make for a truly efficient and inclusive benefit system, adapted to evolving work patterns, the Survey said.