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2010 OECD Economic Surveys: Finland 2010

image of OECD Economic Surveys: Finland 2010

OECD's periodic survey of Finland's economy.  This 2010 edition includes chapters on overcoming the crisis, sustainable public finances, coping with the jobs crisis and preparing for ageing, and rising inequalities. It finds that the crisis hit Finland harder than most other OECD countries, worsening the fiscal outlook. This calls for a stronger fiscal framework.  Employment has held up relatively well, but rigidities in the labour market could complicate recovery. Increasing inequalities challenge Finland's social model and may be aggravated by the crisis.

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Paving the way for sustainable public finances

The costs of the recession and ageing are a challenge to fiscal sustainability. The estimated fiscal sustainability gap has increased from 3 to 8% of GDP due to a sizeable permanent stimulus and lower potential output. A consolidation plan should be articulated now to ensure a smooth exit from stimulus once the recovery firms. Consolidation should encompass efficiency-enhancing tax measures such as an upward harmonisation of the value added tax (VAT) and higher property taxes, and constrain rising expenditures in municipalities. As discussed in Chapter 3, sustainability would also benefit from pension reforms that include tightening of benefits and eligibility conditions which would lower overall spending and boost labour supply. Tuition fees and a switch from grants to loans in tertiary education would also alleviate expenditure pressures (Chapter 1). A major overhaul of the municipal system could increase efficiency in service provision. Consolidation would be facilitated by revising the currently over-targeted fiscal framework and linking it more to long-term sustainability targets. This should include a lengthening in the fiscal planning horizon and linking structural annual deficit targets to long-term sustainability targets as well as setting up a fiscal council to monitor fiscal policies.

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