(FINNBAY) – Helsinki, 15 March 2013. The Secretary-General of the Organization for Economic Co-operation and Development (OECD), Mr. Angel Gurría, was in Helsinki to deliver a keynote speech at the Finnish Government’s mid-term review. He presented the brochure Finland – Fit for the Future, suggesting a series of structural reforms Finland should undertake in order to achieve long-term sustainable growth and preserve the country’s comprehensive welfare state arrangements in the face of demographic ageing.
No Room for Complacency
During his keynote, Mr. Gurría highlighted the fact that Finland’s functionality in working is related to its ignorance of its weaknesses in several areas as opposed to accepting them and finding an efficient way to tackle them. He said, “Some of the most successful Finnish industries over the past decades, such as electronics and forestry, are facing heightened international competition. Overall, output is still below its 2008 level. Hence, Finland needs to speed up structural reforms to boost productivity, both in the private and public sectors.”
Tight Regulations Blocks Efficiency
Network industry needs open reforms as the regulations are too tight reflecting a high share of public ownership in the transport and utilities sectors. In this sense, criticism towards China’s tight regulations in telecommunication and network industries are redundant. He said, “Fostering competition in these sectors is a crucial challenge. Zoning and planning restrictions are also holding back the development of the retail sector and could be loosened without any significant impact on the environment. Construction regulations tend to increase costs and discourage entry into the market, limiting consumer choice and weakening housing supply responsiveness.”
Weak Entrepreneurship and R&D Policies
Government support for Research and Development (R&D), entrepreneurship and start-ups must also be improved. OECD experience shows that this support cannot bear best fruit if it comes in the form of direct support to firms, as identifying the most relevant projects to support is difficult and costly. He noted that “R&D tax credits were a much more effective instrument to promote innovation.”
Inefficient Tax Policies
Finland’s tax structure could also be made more employment-friendly. Progress in this direction has been made by focussing recent tax hikes on VAT, green taxes and taxes on health-damaging items (such as alcohol, tobacco, sugar and soft drinks) rather than on taxes on labour income. Going forward, a better balance between tax increases and spending restraint would enhance the attractiveness of producing and creating jobs in Finland. Limiting public expenditure growth without affecting the quality of essential services such as education and health care and weakening social safety nets will require productivity gains in the public sector.
High Quality Public Services are Unsustainable
Finally, Mr. Gurría said, “it will be crucial to ensure the sustainability of the provision of high-quality public services, especially in health care, where economies of scale and scope are required. The ambitious plan for municipal reform can make a great contribution. We know that this is quite a challenging reform, not least in terms of political economy. But it is critical to the sustainability of the welfare system and the improvement of the health of Finns, which on average is not as good as in most other Nordic countries and is more unequal.”
Neighbouring countries, such as Denmark and Norway, have moved to address similar challenges, which provides opportunities to share experiences among OECD members.