With output close to its potential, Finland is in a more favourable cyclical position than the euro area on average. The pick-up in world trade and a revival in business investment are expected to become increasingly important as drivers of growth, which should average about 3 per cent a year to 2006. A moderate wage settlement would allow cuts in labour taxation without compromising aggregate fiscal objectives. However, efficiency gains in the public sector and greater private service provision are required to create room for further tax cuts. Additional reforms, particularly a tightening of conditions applying to early retirement schemes, are needed to achieve the government’s employment target. ...