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Economy

OECD: Finnish economy needs reforms

Finland’s economy is gradually picking up, but uncertainty surrounds the recovery. Bold action is needed to find new sources of growth, according to OECD.

Determined action to implement structural reforms is needed to revive economic growth, restore competitiveness and preserve high standards of living and well-being, according to the OECD’s latest Economic Survey of Finland.

The Survey, presented by OECD Secretary-General Angel Gurría and Finance Minister Jutta Urpilainen, discusses Finland’s reaction to sub-par growth since the global financial crisis as well as the prospects for key sectors like electronics and forestry.

It welcomes the government’s recent announcement of an ambitious reform strategy, and urges Finland to follow through on plans to strengthen competitiveness, boost innovation, address population ageing, consolidate municipal finances and lift the economy’s potential output.

“Finland has been hit hard by the global crisis, mainly through a sharp fall in exports, and the recovery is still hesitant,” Mr Gurría said.

“Bold action is needed to find new sources of growth, regain competitiveness, ensure sound public finances, and preserve the Finnish welfare model. The reforms Finland undertakes today will lay the foundations for high levels of prosperity and well-being for future generations.”

The Survey points out that Finland’s population is ageing more rapidly than in most OECD countries, exerting growing pressure on public finances, notably via pension and health care spending, and a shrinking workforce.  Although employment among older workers is on the rise, the effective retirement age remains relatively low, as many workers retire at the age of 63, despite financial incentives to work longer.

Further pension reform, including gradual increases of the retirement age and the end of part-time pensions, will be needed to counter projected increases in pension spending, which is set to rise by more than 3% of GDP by 2030.

Pension reform should be complemented by measures to lengthen working lives, requiring better integration of older workers through fighting age discrimination and promoting lifelong training.

A special chapter of the Survey addresses local government finances and the long-standing need for municipal reform. Finnish municipalities tend to be small but provide a large share of public services like education, health care and social services.

With spending increasing steadily, and some municipalities struggling to align service provision with national standards, the OECD recommends that Finland continue promoting the voluntary merger of municipalities, or the scaling back of their public service delivery responsibilities, where possible. Local public finances could be further strengthened by modifying the tax mix and reinforcing fiscal rules, according to the Survey.

The Survey encourages further measures to boost innovation and green growth, notably through education and research spending and the phasing out of environmentally harmful subsidies.

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