Responsible Competitiveness Programme for Growth Policy

SUMMARY

8th January 2013

Central Organisation of Finnish Trade Unions SAK

Finnish Confederation of Professionals STTK

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Introduction ............................................................................................................................. 3 

1 The Structure of Finnish Economy in Transition ................................................................ 4 

2 We Need a Broadly Based Growth Strategy ........................................................................ 6 

3 Added Investment in Labour Policy .................................................................................... 8 

4 Competence for All .............................................................................................................. 9 

5 Housing Construction to be Accelerated ........................................................................... 11 

6 Efficient Transport Strengthens Competitiveness ............................................................. 13 

Regulation of Shipping on a Global Basis ........................................................................ 13 

Versatile Energy Production Finland’s Strength .............................................................. 14 

7 Well-functioning Markets – Fair Competition .................................................................. 15 

Authorities Must Shorten Processing Times .................................................................... 15 

Efficient Regulation .......................................................................................................... 15 

8 Innovation more Precious than Gold ................................................................................. 17 

More Attention to Impact on Employment in Public Companies .................................... 17 

Development of working life is innovation policy ........................................................... 17 

High-level Research an Asset in Global Economy ........................................................... 17 

9 Taxation and Ownership to Promote Growth .................................................................... 19 

Taxation of Income to Promote Employment ................................................................... 19 

Businesses Must Stand for a Fair Part of Taxes ............................................................... 19 

No More Increases in Fuel and Energy Taxes .................................................................. 20 

State Ownership Policy still Necessary ............................................................................ 21 

Developing the Capital Market ......................................................................................... 21 

10 Hope and Areas of Growth Still Exist! ............................................................................ 23 

The Arctic is a Great Source of Natural Resources .......................................................... 23 

Potential in Tourism .......................................................................................................... 24 

Mining can be Sustainable ................................................................................................ 24 

Forest-based Sector to New Growth ................................................................................. 25 

Safe Food is an Advantage in the World .......................................................................... 25 

Demand for Clean Technology is Growing ...................................................................... 25 

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Introduction The downturn of the international economy, which began as a financial crisis in 2008, has given rise to a number of proposals for creating growth and balancing public economies – also here in Finland. Well-functioning infrastructure, good education system, strong development work of products, sustainable public economy as well as a well-functioning labour market system have been the strongholds of Finnish competitiveness in the international competition. In addition to these traditional strengths we now need new ideas in order to boost economic growth even further. This Growth Policy Programme introduces the joint views of the two employee federations, SAK and STTK, on the basis of which we will be able to promote economic growth and create decent jobs. This will enhance our ability to finance the welfare state and to promote social cohesion In Finland. Lauri Lyly Mikko Mäenpää President President SAK STTK

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1TheStructureofFinnishEconomyinTransition The economic structure is in perpetual transition. Transitional periods between different stages of development, which then lead to the next stage, have been a characteristic feature of the Finnish economic history. A new transitional period is now again at hand, when the period of the very rapid growth that began in the middle of the 1990’s, is coming to an end. Particularly the great leap in growth brought about by the manufacturing electronic industry seems to be over. At an earlier stage of globalisation, Finland was on the winning side in job development, but for the past couple of years now, the trend has turned negative. Large domestic corporations are directing their investments abroad, closer to the growing markets. Along with this structural change, Finland has lost jobs. Corporate and economic structures have been shattered and subcontracting chains have grown longer, ownership of enterprises has become more international and the cycle of returns is expected to be shorter. The services sector is gaining more significance. The share of industry of the Gross National Product and of employment is on a moderate but continuous decline. According to estimates, the world economy is shifting towards an era of slower growth. The aging of populations in the Western countries as well as finding the solutions for the present debt problems will slow down growth for several years to come. Growth is showing signs of slowing down also in developing economies, where scarcity of resources is beginning to limit the most reckless growth. Growth based on wasting natural resources is not, in the long run, sustainable. That is why growth must be reconciled with sustainable development. Finland is one example of this. Also the developing countries are more and more interested in sustainable solutions in the field of the policy for growth, due to both social and ecological pressures. The ability of mankind for innovation has not, however, been lost. As economic growth is based more on innovation than on extending the use of natural resources, it is safe to assume that economy will continue to grow in the future, too. Growth must, however, be generated under more difficult conditions – in a world where resources are more scarce. For Finland, the new situation in the world economy will both bring great problems and offer great opportunities. Losing the traditional industrial base and, along with it the clusters of expertise, poses a significant threat to Finland. The dying out of industry is linked with increasing social and economic disparity and polarisation of societies. In short, the issue is that when jobs with medium wages are lost, they are replaced by a small number of very highly paid, so-called expert jobs, and a great number of jobs with wages which are considerably lower than before. This will give rise to more social disparity. There will be working people who cannot survive on their wages, and financing the welfare state will be endangered.

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Growth will best be created by simultaneous development of the quality of employment and productivity. Productivity must be increased sustainably in the long run, not by chasing speedy profits by making employees redundant.

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2WeNeedaBroadlyBasedGrowthStrategy The SAK and STTK Growth Policy Programme is based on the idea that creation of growth does not only need the top players, but all players. The success of Finland is based on the stability of the operational environment. Welfare state and public services have secured Finns all opportunities for enterprise and skills development. This is the explanation given for Finland’s top scores in several international competitiveness rankings. Finnish institutions enjoy great trust due to good, non-corrupt governance and judicial system. Social stability and internal safety create a favourable atmosphere for investment. Spreading of the shadow economy may, in the worst scenario, lead to deterioration of social trust. This is why strong measures are needed to fight it. Keeping the wage gap under control will create social stability. In a socially cohesive society, the weakest are taken care of, but every member of the society is entitled to make a success of himself by his own work. These achievements of the Scandinavian welfare state must be maintained. The high level of skills among the population has been the very corner stone of success since the 19th century. It has required investment in an education system that covers everything from a comprehensive basic education to free-of-charge higher education. Welfare services like children’s day-care and public health services as well as inclusive social security make it possible for the population to assume an active role in the world of work. In Finland, the flexibility needed by the world of business and the security demanded by the employees are combined in a way that promotes economic growth. In the resource constrained world it will be more important than ever to raise the employment rate in all population groups. For Finland to cope in the future, we will need a broadly based growth strategy with an objective to improve in a comprehensive manner the conditions that will contribute to the improvement of the material living standard while maintaining environmental sustainability. In Finland, the Government has played a significant role in changing the pattern of economic activity throughout the economic history. This can be illustrated by Government actions related to general orientation of education and providing financial support to new sectors as well as the policy for Government ownership. One of the key factors contributing to the country’s competitiveness is the contractual society, in the framework of which the issues related to the world of work are dealt with on a tripartite basis with the participation of employees, employers and the Government. It is necessary that we will, all together, promote a stable and predictable operational environment that will make it possible for productive enterprise to grow in our country. To improve the future prospects in this

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field, we need to enhance the cooperation of the trade union organizations, the employer organizations and the authorities responsible for industrial policy. Increasing productivity is, in the future, too, an essential factor in promoting economic growth and employment. Along with technological development, all the factors stated above are essential when it comes to increasing productivity. Measures

Good governance and a good judicial system are guarantees for good investment environment

Strengthening contractual society. This will secure a stable and predictable environment for economic activity

Provision for welfare services, as they promote broad-based skills and make high employment rate possible

Investment in education to ensure high level of skills for the entire population

Continued and intensified efforts to fight shadow economy

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3AddedInvestmentinLabourPolicy

The rate of change in the labour market is constantly accelerating. Approximately 10 per cent of jobs will be lost in one way or another, and every year about 800 000 periods of unemployment will get started. At the same time, Finnish population is aging. Immigration and birth rate seem to keep the number of working-age population as such fairly stable, but the share of people over 65 years of age is, none the less, on a clear increase. This will create a need to raise the employment rate in order to finance the welfare state. Acceleration of the rate of change in the labour market is manifested in an alarming growth of structural unemployment: even 60 per cent of all unemployment is structural and resulting from restructuring economic life. Supply of jobs does not adapt to the changing demand quickly enough, and this creates unemployment. The two very powerful changes taking place in the labour market make it necessary to add resources to skills development. It is not enough to concentrate on top-level skills development, but skills must be developed at all levels. After economic crisis, the countries with the most flexibility in their operations, are the first to return to the growth path. Skills development and investment in skills development should be mainstreamed in Finnish industrial policy. In the last few years, allocation of resources to active labour policy has not been adequate. This has resulted in a situation, where employee skills and employers do not meet. Retraining, further education and training as well in-service training are the fields most gravely neglected. Government investment in active labour policy must be significantly increased. Increasing labour supply has been raised as the most important issue in the Government labour policy, but this must be specified: the most essential issue is to emphasize the importance of quality. Repelling structural unemployment will require much more investment than alleviation of cyclical unemployment. All means available in labour policy must be taken into use in a more efficient manner. Employers may, at discretion, for example be paid wage subsidies for hiring persons who are defined as unemployable. This has helped to decrease structural unemployment rather well. Measures:

More resources to active labour policy Improving quality and resources of employment services Increasing resources in further education and training and in in-service

education and training

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4CompetenceforAll The Government’s aim is to make Finland the most competent country in the world by 2020. The aim is ambitious. Coping in global competition must be based on professional mobility of employees. This kind of mobility will only be possible, if the country’s education system is flexible enough to be able to respond to the rapidly changing needs of the world of work. From the point of view of economic growth, it is important to improve the competence and performance of all working communities. In Finland, further education and training paid for and provided by employers is very unevenly divided. People employed in production occupations have the poorest access to training paid for by employers, in spite of the fact that high-skilled employees maintaining their learning abilities are an asset to businesses. Learning a new occupation will be difficult, if learning skills are left to gather rust. Of the people who are made redundant, it is the people with the lowest level of qualification who face the greatest problems in finding a new occupation and a new job. Work-based learning must, with the support of educational establishments, be made an integral part of every employee’s job. In an ideal situation, examinations and parts of examinations could be passed at the workplace. Information and guidance services on work-based training must be available from one place, and they must be geared to support maintenance and development of competence at work. Training providers must be able to respond quickly to changes taking place at the workplace as well as to new learning needs. The number of study places must be adequate. Adult education and training opportunities are now deteriorating, due to Government austerity measures. Apprenticeship training, in particular, will be an object of fierce cuts in 2013. The Government needs to allocate additional resources to apprenticeship training for the latter half of its period in office. As many as 110 000 young (20 – 30 years of age) people are without post-comprehensive qualifications. And still, education is the best security against unemployment and poor working conditions. Therefore, preparations should be made to extend compulsory education by one year in order to keep young people in training and integrate them into the labour market. This reform would put the Government under obligation to provide a study place for every young person. In the autumn 2012, the central labour market organisations proposed new means to facilitate the entry of young people to the labour market. These include a proposal for creating a supported apprenticeship training model for young people, introduction of an open vocational school as well as flexible transfer from vocational training to apprenticeship training.

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To implement these proposals, the financing system of vocational education and training must be reformed in a way that it will speed up the transition from training to employment. Furthermore, it is necessary that education and training providers cooperate and that all young people continue their education and training after primary education. Enhancement of entrepreneurial skills – e.g. skills related to internationalisation, sales, management and marketing – should be focused as one of the key areas of expertise. Incorrect strategic choices and poor organisation of operations may easily lead to a situation in which businesses lose their competitiveness and employees are made redundant. Developing the skills of the business management and their key actors is primarily the responsibility of the businesses themselves. Measures:

More opportunities for adults to update their skills Information and guidance services on work-based training must be

available from one place More places for apprenticeship training Implementation of labour market federations’ proposals concerning the

reform of vocational education and training as well as the financing system of vocational education and training

Guaranteed secondary level study place for all, and in particular access to vocational training

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5HousingConstructiontobeAccelerated The shortage and high price of accommodation in the metropolitan area and in other centres of growth is constraining economic growth. In spite of the housing policy outlines in the Government Programme, construction of rental accommodation has not got off in the Metropolitan area. The lack of housing is so flagrant that it is time to take to all available measures to accelerate housing construction. Production of affordable rental housing is now at the lowest level ever. In the metropolitan area, construction of new housing is only one half of what would be needed. The population in the Helsinki metropolitan area is projected to grow by as many as 250 000 inhabitants by 2030. At present, there are not enough developers in Finland to secure the production of affordable rental housing. Social housing development needs new actors. 80 % of the future workforce needs in the Metropolitan area will in the service sector. Low-wage branches are already experiencing shortage of labour because affordable accommodation is not available. Many people have fallen into the inactivity trap and are forced to carefully calculate whether it is worth their while to move to the metropolitan area for work, when housing swallows up the major part of their wages. Urban planning is failing in the metropolitan area. Municipalities are trying to attract wealthy people capable of buying their own homes, and are not welcoming people who need to rental accommodation. Self-interest rules and nobody is willing to shoulder the general responsibility for sensible land use. The Helsinki region urgently needs a metropolitan administration, the most important task of which is to draw up a detailed development plan for the metropolitan area. Insufficient building plot supply is one of the major obstacles to housing construction. In the metropolitan area, the taxation floor for unbuilt building plots must be raised. Some other growth centres, too, are facing similar housing policy problems as the Helsinki region, although in a smaller scale. To enhance steering, the Government needs to bring housing, land use and transport under one and the same Ministry. Sanctions must be imposed on municipalities, if they fail to fulfil their duties concerning statutory land use plans. In the future, municipalities must be obligated to draw up land use plans for housing construction correspondingly in connection with large-scale Government transport investments. Housing and fiscal policies promoting owner-occupancy are problematic from the point of view of labour market mobility. Big mortgages bind people to their homes, restricting labour mobility. Housing policy emphasis must, in the long run, be shifted towards rental accommodation.

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Measures: Housing, land use and transport under one and the same Ministry to

facilitate steering If the large non-profit housing societies commit to significant increase in

housing construction, the term of lease may be reduced from not less than 40 years to not less than 20 years

Institute a metropolitan administrative body responsible for drawing up a joint, binding land use plan for the entire metropolitan area

Raising the taxation floor for unbuilt building plots If a municipality does not reach the agreed housing construction

targets, it will be sanctioned Land under state ownership will be surveyed, and suitable areas

conveyed to housing construction at cost price Building regulations will be revised and outdated regulations – e.g.

regulations on the number places for parking and bomb shelters – will be repealed

Home mortgage interest deduction may be lowered if corresponding funds will be used to promote the construction of rental accommodation

Increasing the volume of social housing construction

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6EfficientTransportStrengthensCompetitiveness Due to export orientation, long distances, thin product flows and secluded location, Finland is one of the most transport-dependent economies in the world. Transport costs constitute a greater part of the businesses’ cost structure than in most competing countries. Efficient transport strengthens Finland’s competitiveness. The transport network must be developed as a whole and it must be seen as an investment in competitiveness, not as one item in operational expenses. The level of allocation to annual maintenance of traffic routes must be raised by at least 100 million euro. Furthermore, we need a one-off infrastructure package of altogether 100 million euro to subsidise small investments like e.g. reinforcement of bridges near mines and railway yard arrangements.

RegulationofShippingonaGlobalBasis Due to the efforts to save the Baltic Sea and achieve the climate targets, environmental regulation will play an ever growing role in shipping industry. The more stringent regulations directly affect the competitiveness of export industries. 90 % of Finnish exports and 70 % imports are transported by sea. The Government must provide an overall assessment of the impact of future environmental regulation. Environmental regulation of shipping must take place in the framework of the International Maritime Organisation (IMO). EU must not create regional systems which weaken the continent’s competitiveness. The Baltic Sea S emission restrictions are more stringent than at many other sea areas, and are therefore increasing the cost of shipping. The Government must make additional decisions to promote adaptation to the Sulphur Directive. The Government must support environmental investment aboard the ships, and economic incentives must be allocated to forerunners. The Government must reduce fairway dues in such a way that incentive to carry freight aboard ships enforced for ice will be maintained. The use of ships registered in tax havens and ships of lower ice classes should no be encouraged. Availability of alternative fuels must be secured once the directive enters into force. Keeping the Helsinki-Vantaa airport as a major hub in air traffic between Asia and Europe is of great significance to Finland. Domestic connections are important to export industries, because a great part of the export products are manufactured in the provinces. This underlines the importance of efficient regional airports.

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VersatileEnergyProductionFinland’sStrength Finland has pursued a wise energy policy to this day. The share of renewable energy of the entire Finnish energy production is one of the highest in the world. Versatility, reasonable pricing and low emissions are features that should, in the future, too, be strengthened in the country’s energy policy. It would also be advisable to strive for energy self-sufficiency. Also energy efficiency should be increased throughout the society. The investments in energy efficiency made in Finland already should be taken into account in a fair manner in international treaties. The Emissions Trading System should, in the long term, assure incentives for increasing energy efficiency in a sensible manner, i.e. primarily where increasing efficiency is easiest. The emissions trade mechanism should not be interfered with by political decisions, and free emission allowances should not be withdrawn from trade and certainly not permanently. Increasing the share of renewable energy is obligated by EU, and it is common sense also from the industrial policy point of view. Finland must exploit its strong points in relation to renewable energy forms. The greatest potential obviously lies in the development of forest-based energy forms. Burning processable wood is in no way sensible, but the forest-based energy products of the newest generation are promising and would offer our forest-based industry a new line of business to develop. Developing new renewable energy forms could, at the stage of their establishment, be partly based on public subsidies, but permanent subsidizing automats must not be created. We need to see to it that basic energy production remains adequate. Increased hydropower generation does not seem like a realistic option and using coal-fired power plants is not advisable. That is why it is necessary to expand nuclear power. Measures:

Raising the level of allocation to annual maintenance of traffic routes by 100 million euro

Collecting small investments in transport most important to businesses into a one-off 100 million euro infrastructure package to be implemented in 2013 and 2014

Developing more cost-effective methods for infrastructure construction Securing Helsinki-Vantaa Airport as an air traffic hub between Asia and

Europe and creating an efficient network of provincial airports Providing an overall assessment of the impact of future environmental

regulation Securing versatile and reasonably priced energy production.

Developing forest-based renewable energy

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7Well‐functioningMarkets–FairCompetition In several sectors, markets are not fully functional in Finland. Housing construction, food production and trade are examples of this. The high price level, which is cutting employees’ purchasing power, is at least partly explained by restraints to competition. It is important to avoid and to remove barriers to competition in the markets. Contravention of competition rules must be appropriately sanctioned. Personal criminal sanctions should be introduced particularly in cases of outrageous bidding cartels. It should be made sure that consumers have a real chance to be compensated for losses caused by restraints to competition – for example right to collective actions. At present, consumers do not have adequate chances for collective actions. The division of labour between public and private services has not as yet been carefully considered in Finland. In an ideal situation, public authorities would have a clear understanding of the entity of the service production in a way that would make it possible for them to manage the service chain. In this case, it would be possible to systematically complement the public service production with private services, if necessary. The present way of operation has opened private actors an opportunity to skim off the cream or even to establish private monopolies. Costs are saved by reducing the quality or by compromising the position of the personnel.

AuthoritiesMustShortenProcessingTimes Investigations by competition authorities take too long. To secure a rapid and a thorough process, the competition authorities and the Market Court must be adequately resourced. Also zoning and licensing procedures, e.g. duration of environmental impact assessments and related complaint procedures, affect competitive conditions. Zoning and licensing procedures often lasting too long, must be speeded up.

EfficientRegulation Regulation and the so-called administrative burden have an influence on the operational conditions and competition of businesses. Their harmful effects must be reduced without sacrificing the original goals. Developing electronic services and improving cooperation between authorities in a way that will speed up the services to businesses, will bring the best results. When preparing legislation, the economic consequences and the administrative burden accrued to businesses must be considered more carefully.

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Small businesses should not be granted unreasonable privileges. Favouring some businesses always takes place at the expense of others: relieving small businesses from certain duties means, from another point of view, that larger businesses are more strained by them. This may also become an obstacle to the growth of small businesses. Proposals aiming at exempting small and medium-sized businesses from the obligation of labour and social legislation are of particular concern. The risk is that the protection of the employees in the small and medium-sized enterprises will be deteriorated and competition between businesses extorted. Measures:

Introducing personal criminal sanctions for contravention of competition rules.

More resources to competition authorities. Improving consumers’ chances to collective actions. Increasing the efficiency of zoning and licensing procedures.

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8InnovationmorePreciousthanGold Investing in Research and Development by companies, particularly the ICT companies, well-functioning cooperation between enterprises and research institutions as well as high educational level of the people have been the strong points of the Finnish innovation scheme. During the last few years, Finnish companies have, however, increasingly outsourced their R&D. This trend must be stopped. The financing goal for R&D is set to 4 per cent in the Government Programme. Upholding this is goal is difficult particularly now, when Nokia’s research expenditure has collapsed and there is no way to fix that by using public money. New ways have to found to attract private money to knowledge-intensive companies in Finland.

MoreAttentiontoImpactonEmploymentinPublicCompanies Company and productivity growth is promoted by public support to businesses, amounting to 600 million euro annually. Direct research and development subsidies have, for their part, promoted company profitability in Finland. Adequate subsidies, channelled directly to a large target group for research and development, best guarantee the spreading of subsidies in a way that will also benefit others and not only the subsidised enterprises. Access to R&D subsidies must be promoted for companies operating in the Finnish market – including services companies – as well as public sector actors. In the future, when granting subsidies, their impact on employment in Finland must be considered more carefully.

Developmentofworkinglifeisinnovationpolicy The Government aims at developing Finnish working life in a way that it will rank among the best in Europe. SAK and STTK are fully committed to this goal. Development of working life is a part of broad-based innovation policy, for which also the Finnish Funding Agency for Technology and Innovation, Tekes ,must allocate adequate funding. A special Finnish asset could be for example a knowledge network for work organisation development, striving for a qualitative and sustainable production growth.

High‐levelResearchanAssetinGlobalEconomy It is difficult to do well in the global economy without top-level expertise and research. The emphasis in research funding must shifted from financing individual researchers towards supporting universities and their research units.

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At the same time, the incentives available to universities of applied sciences must be improved so that they can focus on applied and regional research. Encouraging Finnish universities and universities of applied sciences to promote international networking of researchers is also a matter of great importance. Measures:

When making decisions on subsidising R&D, more emphasis must be put on their impact on employment

The goal in R&D funding is set at 4 per cent. Innovation support scheme must present more versatile support to

businesses. Subsidies must be directed more to develop working life.

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9TaxationandOwnershiptoPromoteGrowth In the last few years, Finland has been forced to raise the total tax rate to secure sustainability of public finances. The focus in taxation has been justifiably shifted towards taxation of capital, wealth and harmful consumption. But the path of tax increases is not far from coming to an end. Neutrality should be the main goal in taxation policy. It promotes economic activity most efficiently. Broad tax base and low rates form a well-functioning combination. Additionally, fairness and capacity to pay taxes are important considerations in taxation policy. Tax revenues are best increased by promoting high employment rate and by improving development of productivity development. Efforts to repel shadow economy also need to be continued.

TaxationofIncometoPromoteEmployment Growth will, in the future, be increasingly based on knowledge. From the point of view of promoting growth, taxation of labour must be discussed in parallel with taxation of business. Taxation of labour could be developed more in a way that it would promote employment, thereby also adding revenues. Taxation of earned incomes is about to tighten further in the next few years, due to increasing social security contributions and tightening of local taxation. The effects of the tightening income taxation must be alleviated by Government measures. Coordination of wage and taxation settlements will be necessary in the future, too. To promote employment, taxation of earned income in the low and medium income groups may be moderately reduced. In Finland, taxation of earned income is, where wage-earners are concerned, already at the EU-15 level, and public finances do not allow great changes unless other taxation will, at the same time, be raised. Room for the above reforms can be made by trimming tax deductions and by increasing indirect taxation.

BusinessesMustStandforaFairPartofTaxes Recently, businesses have intensified their demands on reducing the level of their taxation. Businesses do, however, benefit from public facilities and services. For this reason, they must be prepared to pay their fair share for the maintenance and development of Finnish society. Making corporate tax information public in the autumn 2012 is an important reform from the point of view of transparency. International tax competition is speeding up, as countries are competing for investments and corporations. There is a threat that countries will cut corporate

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taxation one by one, with the result that nobody benefits. In the end, this may result in a situation that rates are cut to a minimum and not one corporation moves its operations or relocates. Finland should, first and foremost, look for international solutions to prevent harmful tax competition instead of taking active part in aggressive competition. In practice, Finland has striven to keep corporate taxation competitive in comparison to its main competitors. Recent decisions in Finland have deviated from the traditional policy of emphasizing neutrality of taxation. R&D deduction, business angel incentive and the projected fiscal incentive for innovation are all focused precision measures for businesses. Corporate tax rate has been reduced moderately. Fiscal incentives may be a well-functioning solution, if they are a part of a wider industrial policy. Fiscal incentives do, however, also in part subsidise operations which would also take place without them. It would be advisable to assess the impact of this form of support. Competitiveness of corporate taxation may be enhanced also without tax rate cuts for example by developing group taxation or by removing the division between different sources of income. On the other hand, tax base may be broadened by limiting interest deductions to countries that can be regarded as tax havens or in real estate investments. A tax incentive for innovation income combined with a reform of business tax legislation could be a cost-effective response to international tax competition. If corporate tax will be lowered, the effect on public finances may be alleviated by raising the taxation of dividends. The present system of dividend taxation serves as an encouragement to turning earned income into dividend income. Owner-entrepreneurs deserve tax incentives in the future, too, although, in the opinion of SAK and STTK, they could be reduced. Corporate and capital taxation should be developed in a way that would encourage investment and improve neutrality on the various forms of company financing.

NoMoreIncreasesinFuelandEnergyTaxes Corporate competitiveness is also influenced by indirect taxation. Tightening the fuel and energy taxes from the level that has been set now is not justified, as time is needed to adapt to the increases already made. In the short term, competitiveness can be boosted by making a new assessment of the price increases decided upon during the last few years. Setting up a temporary system for tax returns concerning diesel fuel would support both export and domestic markets.

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Increasing health-related food taxes are worth considering, as along with added tax revenue they may also benefit public health. Taxation of consumption is not, from the point of view of employment, not as harmful as taxation of labour. Value added taxes must not, however, be increased further, as it would weaken employees’ purchasing power.

StateOwnershipPolicystillNecessary The state should assume a more active role in the development of Finnish economy and production. The state’s role as owner must be maintained particularly in corporations of strategic importance. In the future, state ownership must be considered more and more from the perspective of stabilising entrepreneurship, employment and emergency supply. The state must take a more active role as a venture capitalist – particularly as an early stage capital investor. State enterprises must not be sold to cover a need for quick money. If a decision on selling a state enterprise is made, it must be based on expert knowledge and careful consideration. Profits from sales must be used to generate enterprises and fields of business in industrial and service sectors for creation of new jobs.

DevelopingtheCapitalMarket In general, the state should finance investments in infrastructure itself, since credit is available to states at the lowest rates. Involving private funding in investments, for example mining project, should, however, be promoted by developing capital markets. The possibilities for developing a bond market for Finns should be investigated. Funds lying in low-yield bank accounts would be attracted to Finnish state bonds, and the funds raised this way would be used to future investments supporting growth, e.g. infrastructure. Simultaneous creation of an aftermarket for the bonds would add their attractiveness in the eyes of the citizens considering the investment. Additionally, it should be examined whether the pension funds would be ready and willing to be involved in infrastructure investment provided that the boundary conditions on productive and secure investment of pension funds are fulfilled. Measures:

A high tax rate is not harmful as such. It is possible to increase job supply by developing income taxation. Corporate taxation will kept competitive with low tax rate and broad tax

base

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State must take a more active role in risk financing of growth companies in the fields of new technology and services

Involving private funds in investment projects will be promoted by developing capital markets

In developing pension fund capital adequacy requirements, care is taken not to impede investment in Finland

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10HopeandAreasofGrowthStillExist! The operational capacity of the Finnish economy is undermined by two problems – we are finding it hard to restart after the financial crisis on 2009, and on the other hand, Finland is, along with other developed nations, loosing markets to rising economies. This is due to the structural problems of the country’s economy. In the ongoing economic policy debate, several remedies based on changing the foundations of the economic and industrial policies, have been brought up. It could also be possible to return to the growth path where employment and competitiveness will be reinforced, by developing the strengths that are already there. Finland has a lot of strengths to base the reinforcement of the economy on. Finland scores well in competitiveness rankings and is among the top countries. These rankings measure actual competitiveness using various indicators. The actual success of Finnish exports does not correlate to the figures shown by these indicators: Finland is not able to fully exploit the capacity it has. The public sector in Finland has been criticized for being over-sized. It must, however, be noted that the broad public sector creates a well-functioning infrastructure enabling good competitiveness and efficient enterprise. We hold the solutions in our hands. Finland is capable of prompt decision-making and creative problem solving. The rapidly changing operational environment allows Finland a competitive advantage. Public and private indebtedness in Finland is under control, and this offers more room for manoeuvre. The ongoing crisis is not entirely without positive sides: the euro crisis keeps the exchange rates favourable and the crisis the interest rates low. Unemployment will not explode, either, because the age composition alleviates open unemployment. Finally, a few growth areas may be brought to the forefront. The North and particularly the next-door neighbour Russia are raised to the forefront – even in the turmoil of globalisation, it is not always necessary to reach out very far.

TheArcticisaGreatSourceofNaturalResources For Finland, its location at the borderline of East and West is an opportunity. Russian membership in the WTO will offer a stronger protection for Finnish corporations investing in Russia and enhance the opening of Russia to the West. Along with East and West, also the opportunities in the North are opening up. In addition to Russia, also other countries in the North are key actors here. 30 per cent of the unexploited gas and 13 per cent of the unexploited oil resources are to be found in the Arctic. 5 – 10 new oil rigs will start operations in the Arctic area within the next ten years. Finland possesses an internationally unique chain of skills and expertise in know-how related to the maritime conditions in the North.

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It is necessary for Finland to draw up a business strategy for the northern dimension. This strategy will be based on clean technology and arctic know-how in mining, tourism, logistics and energy production. To bring forth the transport and logistics strategy for the northern dimension, we need to found a fund, and acquire funding from the European and the Scandinavian Investment Banks as well as project funding from the European Cohesion Fund.

PotentialinTourism Tourism is one of the fastest growing industries in the world. In Finland, tourism employs more than 150 000 people. Due to the unstable situation in Europe, it is advisable, in the short term, to direct the main efforts to the fastest growing countries, i.e. China and Russia. In Finland, tourism is a growth area particularly because of the Russian tourists. Visa liberalisation between EU and Russia should therefore be promoted. When the Russians no longer need a visa, the border traffic will grow considerably. It is, therefore, also important to improve the capacity of border crossing. Furthermore, sustainable arctic tourism can also be commercialized in cooperation with the Russians. Arctic tourism will require high-level services showing consideration to local cultures, local population and the natural environment.

MiningcanbeSustainable The Finnish mining cluster will be developed to be the best and the most environmentally friendly in the world, by investment in innovation. In the next ten years, 3 – 4 billion euro will in all likelihood, be invested in mining in Finland. According to estimates, the need for workforce will be more than 5000 skilled people. One mining job additionally generates a 2 – 3 fold number of other jobs. Adequate training in mining must be provided to make sure that the balance of domestic workforce will be maintained. The authorities must see to it that mining is developed in a sustainable manner and taking natural values into account. Domestic ownership in mining must be increased. A domestic mining fund, having adequate resources and risk taking capacity to be able to finance and launch new mining projects and create a new success cluster in mining and ore processing, must be founded in Finland. The aim must be set at raising the level of processing. The state must take an active role in this project. The growth of transport due to mining must be taken into account in traffic route management and maintenance. In the major traffic and transport arrangements called for by mining in northern Finland, Nordic cooperation could be pursued.

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Forest‐basedSectortoNewGrowth At present the forest industry, which has been the mainstay of our economy, only utilizes about one half the annual growth of the forests. Investment to new products should therefore be prioritized in the forest-based sector. As fossil energy and material reserves are declining, exploitation of materials, as well as the way of life, must be changed in a radical way globally. Finland has a great potential for developing bio-economy. The forest-based industry has the capacity to expand to the production of composites, bio fuels and bio chemicals as well as to services business activities. Financing, training and research programmes of forest-based industry must be developed. The most promising new markets for the forest-based sector are to be found in wood construction. The demand for green wood products is expected to increase globally, as the concerns related to global warming and depletion of non-renewable natural resources are increasing. In Finland, too, the volume of wood construction as well the exports in this field should be promoted.

SafeFoodisanAdvantageintheWorld The quality and safety of Finnish food products are among the best in the world. Global warming and depletion of water resources in the areas where the major part of food is currently produced, will create great potential for Finnish food export. Climate change will, very likely, improve the farming conditions and volumes of production in Finland. Greenhouse gas emissions and diffuse pollution of agricultural origin brought about by food production must, however, be reduced. It would be advisable to add resources to research and development in food industries. Special attention in this field should be paid to small and medium-sized enterprises to boost their research activities and diversity. Finland also has potential for increased tourism based on food safety and sustainable production.

DemandforCleanTechnologyisGrowing The ambitious EU climate targets as well as the targets for production of renewable energy and reducing greenhouse gas emissions create new demand. Obligations to save energy and to use materials efficiently will shape the modes of production, industrial structures and energy policies in the entire world. Finland must take a place in the forefront, when solutions to world environmental problems are sought by the use of high technology. Knowledge clusters should be built around the key companies in clean technology of various fields, to promote exports and internationalisation.

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Companies should be encouraged to specialize in environmental and energy technologies. On the other hand, Finland already has considerable expertise: the total turnover of Finnish clean-tech companies is estimated to be about 20 billion euro, and the businesses employ about 50 000 people. The business is growing by about 10 per cent annually. Measures to reduce emissions and to improve energy efficiency should be taken at all workplaces, employers and employees in cooperation.