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Leif Fagernäs: The Finnish Economic Situation and Challenges Finnland-Österreich Wirtschaftsklub Suomi-Itävalta Liikemiesklubi Jahresversammlung 17.4.2007 Main Economic Forecasts (ETLA) 17.4.2007 2 LF/mt 17.4.2007 3 LF/mt GDP, index 1995 = 100 Source: OECD 17.4.2007 4 LF/mt Industrial production, index 1990 = 100 17.4.2007 5 LF/mt Productivity by Branch Labour productivity, index 1985 = 100 750 700 Electronics and Electrotechnics Manufacturing 650 Total Economy 600 Private Services Construction 550 500 450 400 350 300 250 200 150 100 1985 17.4.2007 1987 LF/mt 6 Source: Statistics Finland 1989 1991 1993 1995 1997 1999 2001 2003 2005 Public Sector Balance, % of GDP 17.4.2007 7 LF/mt 17.4.2007 8 LF/mt WEF Clobal Competitiveness Index 2006 Finland´s ranking (out of 125) in various areas 0 Institutions Higher education and training Innovation Health and primary education Infrastructure Business sophistication Macroeconomy Technological readiness Market efficiency 17.4.2007 9 LF/mt 5 10 15 20 Source;: WEF 17.4.2007 10 LF/mt Economic situation • Short terms prospects good • Problems in making full use of growth opportunities – Shortage of qualified labour – Slow growth of fixed investments • Impediments to growth will increase in the near future – – – – – Ageing Slower productivity growth Increasing difficulties in raising employment Strained public finances Supply and price of energy • Good short term prospects do not remove the need for structural reforms 17.4.2007 11 LF/mt The Supply of Labour Decreases 90000 80000 70000 60000 Arrivals to the labour market 50000 Departures from the labour market 40000 30000 1990 1995 2000 2005 Source: The Finnish Centre for Pensions 17.4.2007 12 LF/mt 2010 2015 2020 2025 2030 Finland has not been an Attractive Investment Target Fixed Business Investment 1990 – 2006 250 ind. 1990=100 200 Denmark Finland Sweden Euro area USA 150 100 50 0 1990 1992 1994 1996 1998 Lähde: OECD Economic Outlook, No 77, 2005 17.4.2007 13 LF/mt 2000 2002 2004 2006e Stock of Direct Investments, EUR billion 17.4.2007 14 LF/mt Consumer Prices 17.4.2007 15 LF/mt Key factors for growth and competitive business environment challenges of the new government • Reduction of taxes to increase work and employment • Strengthening of know-how and competencies • Renewal of innovation policies • More and successful entrepreneurs • Functioning labour market • Availability of energy at reasonable price and mitigating climate change 17.4.2007 16 LF/mt Source: OECD 17.4.2007 17 LF/mt Taxation • Increase supply and demand of labour • Lower income tax in all wage categories • Reduction of highest marginal tax to 50 per cent • Competitive corporate tax • Equitable taxation of dividends • Abolition of inheritance tax of corporate property 17.4.2007 18 LF/mt International Tax Comparison 2005 Income Tax Percentages in Finland and in 13 Other European Countries, Average Single employee 55 % 47,5 % 50 % 45 % 37,8 % 40 % 35 % 40,3 % 31,5 % 30 % 33,4 % 24,7 % 29,2 % 25 % 24,8 % 20 % Finland Other European Countries 15 % 10 % 5 % 0 % 20000 30600 €/v 46600 Euroopan maat: Alankomaat, Belgia, Espanja, Iso-Britannia, Italia, Itävalta, Norja, Ranska, Ruotsi, Saksa, Sveitsi, Tanska ja Viro. 17.4.2007 19 LF/mt 100000 R&D Expenditure in Relation to Value Added and the Share of High Technology of Exports R&D-intensity, % Sweden 5 4 Finland Japan 3 USA 2 Norway Germany Tanska France UK Netherlands Canada Ireland 1 Italy Spain 0 10 0 17.4.2007 20 LF/mt Lähde:20TEKES, OECD, Science, Technology and Industry Scoreboard 2003 60 50 40 30 Share of High Technology of Exports, % Innovation policies • Increase investments in R&D by 7 per cent annually – Strategic competencies centers – Commercialisation of technological innovations • Renew the research structures – Stronger universities • Concentration on key areas, economic autonomy, reform of administration • Incentives for venture capital in growing SMEs 17.4.2007 21 LF/mt 17.4.2007 22 LF/mt Willingness to Become an Entrepreneur Portugal USA Ireland Spain Italy Greece EU15 France UK Germany Denmark Austria Sweden Belgium Netherlands Finland % 0 10 20 30 40 50 Survey is Based on 21 000 telephone interviews 17.4.2007 23 LF/mt Source: Flash Eurobarometer 160, 2004 60 Functioning labour market • More flexibility in collective agreements – Wage rises and working-time arrangements decided on company level • Availability of qualified labour – – – – Vocational training to respond to the needs Better regional mobility Removal of unemployment traps Increase of work-based immigration • Social security to encourage employment – Reform of unemployment benefits • Better labour peace 17.4.2007 24 LF/mt 17.4.2007 25 LF/mt Sustainable energy policy • Need for electricity will grow by 10-15 per cent by 2020 • Favourable conditions for diversified energy production – in particular emission free energy, including nuclear power • Strategy for the use of biomass for energy and industry • Reduction of electricity tax • Global climate policy – Level playing field – Rewards for energy efficiency 17.4.2007 26 LF/mt Electricity Supply by Energy Sources 2006 Total 90,0 TWh Net imports 12,7 % Oil 2,0 % Coal 17,9 % Hydro power 12,6 % Wind power 0,2 % Peat 6,9 % Biofuel 11,3 % Waste fuels 1,1 % Natural gas 10,9 % Source: Finnish Energy Industries 17.4.2007 27 LF/mt Nuclear power 24,4 % World GHG Emissions GHG emissions in MtCO2-eq. 50000 45000 40000 35000 30000 25000 20000 15000 10000 5000 0 Rest of World Asia Latin America USA EU-25 2000 Source: European Commission 17.4.2007 28 LF/mt 2010 2020 2030