Foundations for Growth and Competitiveness 2026

Finland

Finland’s economic performance has lagged behind the OECD average over the past decade. Productivity growth has weakened, widening the gap in output per hour worked. While employment rates remain below the OECD average, the participation rate has improved, although convergence has slowed in recent years.

Addressing the slowdown in productivity while ensuring long-term fiscal sustainability requires broad structural reforms. Improving value for money in infrastructure investments and reducing remaining barriers to trade and FDI would strengthen competitiveness and support sustainable growth. Broadening the indirect tax base, together with boosting R&D and venture capital investment, would foster innovation and economic resilience.

Economic performance

Gaps to the average of the upper half of the OECD countries

Source: Panel A: OECD, Economic Outlook database; Panel B: OECD, Labour Force Statistics database; Panel C: OECD, Economic Outlook and Productivity databases; Panel D: OECD, Economic Outlook and Annual National accounts, GFCF by assets databases.

Selected policy gaps

Note: Other Nordic countries refers to the unweighted average of Denmark, Iceland, Norway and Sweden.

Source: OECD calculations based on the Foundations for Growth and Competitiveness database.

Physical infrastructure: Improve value for money in infrastructure investments

Although infrastructure decision-making in Finland is generally effectively controlled and transparent, the value for money from public investments remains relatively low. Limited competition in public procurement processes has contributed to cost inefficiencies. Addressing these issues is essential to maximise the growth potential of infrastructure spending and ensure fiscal sustainability.

Recommendations

✓ Implement an independent ex-ante review mechanism for planned public investment projects to assess their economic viability and long-term impact.

✓ Increase competition in public procurement processes to lower costs of infrastructure investments.

Trade and FDI: Streamline border processes and reduce the number of fees

Finland’s openness to trade and foreign investment is above the OECD median, but it remains behind the top performers in key areas. Trade facilitation processes have too many layers of fees and charges and appeal procedures could be more efficient and transparent. Moderate restrictions on foreign ownership and market entry also constrain the full potential of foreign direct investment. Addressing these issues will strengthen Finland’s competitiveness and support long-term economic growth.

Recommendations

✓ Reduce the number of fees and charges collected in border processes to simplify trade and lower transaction costs.

✓ Further strengthen appeal procedures by enhancing fairness and transparency.

✓ Review and further reduce restrictions on foreign ownership, establishment of branches, and residency requirements for managers to enhance competition and dynamism, especially in distribution services.

Taxation: Enhance tax efficiency by relying more on indirect taxes

The Finnish tax administration system is effective, with high rates of on-time and electronic filing. While recent measures have strengthened the indirect tax system, including an increase in the standard VAT rate from 24% to 25.5% in September 2024, there remains scope to improve tax efficiency by broadening the base of indirect taxes and reducing distortions from transaction-based taxes. Property tax revenues in Finland, at 1.4% of GDP, are below the OECD average of 1.8% in 2022. Ensuring that future tax policy decisions build on these recent reforms can support fiscal sustainability and enhance overall tax system efficiency.

Recommendations

✓ Broaden the VAT base by gradually phasing out reduced rates where feasible, once a robust economic recovery is underway, to further improve tax efficiency and support fiscal consolidation.

✓ Transition from direct property transfer and transaction taxes to annual real estate taxes to reduce negative effects on labour mobility, leveraging the country’s well-developed land information system, which features full coverage, digitisation and daily updates.

Innovation: Strengthen R&D support and foster investment in emerging technologies

Despite progress over recent years, R&D expenditures as a share of GDP remain below those of the top-performing OECD countries, particularly in the business sector. Tax incentives for R&D also remain relatively low. Additionally, venture capital investment in tech sectors such as ICT and green industries is modest, requiring further measures to foster more innovative start-ups.

Recommendations

✓ Evaluate and strengthen R&D tax incentives to ensure they are well-targeted, effective across firm sizes and types, and complementary to direct supports.

✓ Foster greater venture capital and private equity investment in ICT, green, and other high-potential sectors by leveraging public-private co-financing models and expanding government guarantees to reduce risks.

✓ Support firms to maximise EU funding opportunities and collaborate with other countries to attract EU financial support for the green and digital transition.

Governance: Improve regulatory effectiveness by enhancing ex-post evaluations

Finland’s overall public governance and rule of law is well established and above the average for OECD countries. However, Finland makes limited use of ex-post evaluation of laws and subordinate regulations. Regulations are not systematically evaluated against their intended outcomes, and mechanisms for oversight and quality control could be further strengthened to ensure that regulations deliver intended benefits and support an efficient and dynamic business environment.

Recommendations

✓ Establish comprehensive ex-post evaluation systems, including rigorous oversight mechanisms, to ensure regulations deliver intended benefits and minimise unintended consequences.

✓ Foster a culture of continuous improvement in regulatory policy by systematically incorporating feedback from stakeholders and regularly updating evaluation practices.

Recent progress on structural reforms

The government recently reconfirmed the target set in 2023 to raise overall R&D spending to 4% of GDP by 2030 and expanded R&D tax incentives to better support private sector innovation. In 2024, Finland introduced a EUR 400 million direct grant scheme to support investments to decarbonise industry. It also streamlined public venture capital activities by merging state-owned entities. However, these initiatives take place against a backdrop of fiscal pressures. In April 2025, Finland announced the General Government Fiscal Plan for 2026–29, which is expected to slow consolidation through planned tax cuts and higher defence spending. Improving spending efficiency in health and social welfare while normalising reduced VAT rates is essential to strengthen long-term fiscal sustainability.