The following is the Executive summary of the OECD assessment and recommendations, taken from the Economic Survey of Finland 2006 published on 4 May 2006.
Growth performance has been among the best in the OECD, underpinned by a strong innovation performance and high educational attainment. The unemployment rate, currently at 8%, has dropped below the euro area average, employment rates, particularly among the old workers, have been increasing rapidly, inflation is among the lowest in the OECD and the government surplus sizeable. Yet, there is considerable scope for further improvement as GDP per capita is still only close to the OECD median. This largely reflects a subdued productivity performance in the sheltered sectors, including in the provision of public services, as well as unused labour resources, especially of young and older workers. With population ageing imminent and pronounced, both growth prospects and fiscal sustainability could be undermined. Against this background, policymakers will need to address the following challenges:
Ensuring the sustainability of public finances. This will require: i) the maintenance of a sizeable fiscal surplus over the remainder of this decade; ii) the phasing out of early retirement schemes; and iii) efficiency gains in public services, greater use of fees in their provision and more supply of such services by the private sector, for which there is scope while respecting equity objectives. The medium-term goal must be to reduce the high tax wedges on labour further, despite the spending pressures from ageing.
Raising employment. Lowering taxation, especially on labour, is one way to raise labour supply and achieve the government’s ambitious medium-term employment target. But more is needed. The tax-benefit system leads to unemployment and poverty traps and active labour market policy should be better focused on the most vulnerable groups. Moreover, the central wage agreements, while serving the country well in terms of restraining wage inflation, have compressed the earnings distribution, which reduces demand for the low-skilled. Strong employment creation recently makes it likely that the short-term employment target of creating 100 000 jobs over this electoral period might be achieved. Nevertheless, further reform needs to be undertaken to achieve the more ambitious long-term objective of a 75% employment rate.
Boosting productivity and enhancing resilience. The considerable productivity boost from information and communication technology (ICT) products is likely to wane, and more emphasis should be put on utilising ICT elsewhere in the economy, particularly in both private and public services. Measures to raise competition in the service sectors, including in the public sector are needed. The housing market has been very volatile in the past, though current house prices seem to be closely aligned with fundamentals. But house price inflation has picked up and credit demand is strong. Now is an opportune time to introduce reforms to curb future risks stemming from the housing market. Labour market mobility would be enhanced and public money saved by reducing the support to social housing, the extent of which currently goes beyond that required to satisfy equity objectives.
A comprehensive reform package is needed to meet these challenges and ensure a continuing strong growth performance.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded. It contains the OECD assessment and recommendations, but not all of the charts included on the above pages.
The complete edition of the Economic Survey of Finland 2006 is available from:
For further information please contact the Finland Desk at the OECD Economics Department at email@example.com. The OECD Secretariat's report was prepared by Dave Turner, Asa Johansson and Laura Vartia under the supervision of Peter Hoeller.