COMMISSION STAFF WORKING DOCUMENT Assessment of the 2013 national reform programme and stability programme for FINLAND Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on Finland’s 2013 national reform programme and delivering a Council Opinion on Finland’s 2013 stability programme for 2012-2017
Date: 2013-05-29
Institutions: European Commission
Subjects: Finland, competitiveness, economic recession, innovation, labour market, pay cut, population ageing, price of energy, research and development

EUROPEAN 
COMMISSION 

Brussels, 29.5.2013  
SWD(2013) 376 final 

COMMISSION STAFF WORKING DOCUMENT 

Assessment of the 2013 national reform programme and stability programme for 
FINLAND 

Accompanying the document 

Recommendation for a COUNCIL RECOMMENDATION  

on Finland’s 2013 national reform programme and delivering a Council Opinion on 
Finland’s 2013 stability programme for 2012-2017 

{COM(2013) 376 final} 

EN 

   EN 

 
 
 
 
  
 
CONTENTS 

Executive summary .................................................................................................................... 3 

1. 

2. 

2.1. 

2.2. 

3. 

3.1. 

3.2. 

3.3. 

3.4. 

3.5. 

4. 

5. 

Introduction .................................................................................................................. 5 

Economic developments and challenges...................................................................... 6 

Recent economic developments and outlook............................................................... 6 

Challenges .................................................................................................................... 6 

Assessment of policy agenda ....................................................................................... 9 

Fiscal policy and taxation............................................................................................. 9 

Financial sector .......................................................................................................... 15 

Labour market, education and social policies ............................................................ 15 

Structural measures promoting growth and competitiveness..................................... 18 

Modernisation of public administration ..................................................................... 19 

Overview table ........................................................................................................... 26 

Annex ......................................................................................................................... 29 

2 

 
 
 
EXECUTIVE SUMMARY 

Economic Outlook 

The Finnish economy recovered rapidly after the crisis of 2009, but contracted by 0.2 % 
again in 2012. According to the Commission’s 2013 spring forecast, growth will remain 
sluggish also in 2013, at 0.3%, but increase to 1% in 2014. The labour market is generally 
healthy,  with  unemployment  at  7.7  %  in  2012,  though  this  is  forecast  to  rise  above  8%  in 
2013 and 2014. Being a small open economy with exports accounting for about 40% of GDP, 
Finland is very sensitive to developments in world markets. Unit labour cost growth reached 
3.6% in 2012, and while it is expected to be more moderate in 2013 and 2014 according to 
current trends it will still outpace productivity growth.  

The  headline  budget  deficit  was  1.9%  of  GDP  in  2012,  and  is  projected  to  improve 
steadily to 1.8% in 2013 and to 1.5% 2014. Finland’s structural deficit (excluding one-off 
and temporary measures) was -0.7 % in 2012, and is projected to improve to -0.6% in 2013 
and -0.5% in 2014. Finland's medium-term objective (MTO), as set in the stability programme 
2013,  is  a  structural  deficit  of  0.5%  of  GDP.  In  2012,  the  MTO  was  a  structural  surplus  of 
0.5%, which it failed to meet. According to the assessment, the new MTO is expected to be 
met by 2014. 

Key Issues 

Finland  has  made  substantial  progress  on  measures  taken  to  address  the  2012  CSRs, 
including  by  implementing  the  planned  fiscal  consolidation  measures.  Comprehensive 
reforms  of  the  municipal  structure,  healthcare  and  social  services  have  been  prepared,  the 
youth guarantee has been extended, access to early retirement has been reduced, the national 
competition  authority  has  been  reformed  and  temporary  tax  incentives  have  been  offered  to 
support research and investments. All of these reforms must now be effectively implemented.  

One of Finland’s main policy challenges is the loss in competitiveness over the course of 
the last decade, during which its current account went from a surplus into a deficit. Over the 
past five years it lost 23% of its share in world exports. In April 2013 the Commission's in-
depth review of Finland found that the country was experiencing macroeconomic imbalances. 

In  the  short  term,  the  main  challenge  is  to  attract  new  investments  to  the  Finnish 
economy,  in  order  to  improve  employment  and  productivity  and  to  replace  the 
industries that have declined over recent years. The economy should take more advantage 
of  the  country’s  excellent  research  system  to  create  innovative  products  and  services  and 
diversify towards less energy intensive sectors. Agreement between social partners on wage 
developments  should  also  take  due  account  of  recent  and  prospective  competitiveness 
developments.  

A  longer  term  challenge  is  presented  by  Finland's  ageing  population.  To  address  this  it 
will be important to improve labour market participation (particularly of older workers, long-

3 

 
 
term unemployed and the young) and the sustainability of pension and healthcare systems. In 
the case of healthcare systems, efficiency could be strengthened by continuing to pursue the 
restructuring of the municipal system. 

•  Public finances: Although Finland has strong public finances, age-related costs have 
forced expenditure upwards (the Commission forecasts healthcare spending will grow 
by 1% of GDP and spending on long-term care will double by 2060). The challenge is 
to  limit  the  growth  of  pension,  long-term  care  and  healthcare  spending  without 
undermining the adequacy of pensions or the quality of healthcare and long-term care. 
Reforms to the municipal authorities and social and healthcare service should help to 
improve productivity and efficiency of spending in these areas.  

•  Labour market: Finland's ageing population poses important challenges and remedial 
action  is  required  sooner  rather  than  later,  especially  as  the  effects  of  structural 
reforms  take  time  to  materialise.  Finland  should  take  steps  to  improve  the 
employability  of  older  workers,  reduce  early  exit  pathways  and  align  the  statutory 
retirement  age  with  life  expectancy.    Youth  unemployment  (18.8  %)  and  long-term 
unemployment  (a  quarter  of  all  unemployed)  are  not  particularly  high  in  Finland 
compared  with  other  Member  States,  but  are  significant  because  of  the  shrinking 
working-age  population.  The  mismatch  between  the  skills  of  workers  leaving 
shrinking sectors and the skills required in expanding ones is likely to induce longer 
periods of unemployment.  

•  Competition  in  product  and  service  markets:  Regulatory  barriers  in  Finland's 
product  and  service  markets  are  limiting  competition  in  some  sectors  and  keeping 
prices high. The Finnish Government has made some positive changes to competition 
legislation and institutions in the past year, but to improve the situation for businesses 
and consumers, more action is still needed, particularly to strengthen competition law 
fines.   

•  Competitiveness and innovation: While Finland invests a high proportion of its GDP 
in  research  and  development  (3.78  %  of  GDP  in  2011),  it  results  in  fewer  than 
expected marketable products, while corporate R&D expenditure is concentrated in a 
few sectors and companies, leaving the country vulnerable to shocks in these sectors. 
The  system  as  a  whole  lacks  does  not  support  research  in  new  or  emerging 
technologies, or in areas beyond the scope of current strategies and support schemes. 

•  Wages and energy represent significant costs for businesses and have impact on 
their  competitiveness.  Real  wage  increases  have  exceeded  productivity  growth  and 
are projected to also outstrip productivity growth in 2013 and 2014. Finland's energy 
intensity  in  industry  is  high  compared  to  its  Nordic  neighbours  and  other  euro  area 
Member  States.  Improving  energy  efficiency  could  enhance  the  competitive  position 
of these industries.  

4 

 
 
1.  INTRODUCTION 

In  May  2012,  the  Commission  proposed  a  set  of  country-specific  recommendations  (CSRs) 
these 
for  economic  and  structural  reform  policies  for  Finland.  On 
recommendations,  the  Council  of  the  European  Union  adopted  five  CSRs  in  the  form  of  a 
Council  Recommendation 
in  July  2012.  These  CSRs  concerned  public  finances, 
administrative  reform,  labour  market,  competition  and  competitiveness.  This  Staff  Working 
Document assesses the state of implementation of these recommendations in Finland. 

the  basis  of 

The document assesses policy measures in light of the findings of the Commission’s Annual 
Growth Survey 2013 (AGS)1 and the second annual Alert Mechanism Report (AMR),2 which 
were  published  in  November  2012.  The  AGS  sets  out  the  Commission’s  proposals  for 
building the necessary common understanding of the priorities for action at national and EU 
level in 2013. It identifies five priorities to guide Member States to renewed growth: pursuing 
differentiated, growth-friendly fiscal consolidation; restoring normal lending to the economy; 
promoting growth and competitiveness for today and tomorrow; tackling unemployment and 
the social consequences of the crisis; and modernising public administration. The AMR serves 
as an initial screening device to determine whether macroeconomic imbalances exist or risk 
emerging in Member States. The AMR found positive signs that macroeconomic imbalances 
in Europe are being corrected. To ensure that a complete and durable rebalancing is achieved, 
Finland  and  13  other  Member  States  were  selected  for  a  review  of  developments  in  the 
accumulation and unwinding of imbalances.3 

Against  the  background  of  the  2012  Council  Recommendation,  the  AGS  and  the  AMR, 
Finland  presented  updates  of  its  national  reform  programme  (NRP)  and  of  its  stability 
programme  on  18  April  2013.  These  programmes  provide  detailed  information  on  progress 
made since July 2012 and on the future plans of the government. The information contained 
in  these  programmes  provides  the  basis  for  the  assessment  made  in  this  Staff  Working 
Document. 

The  programmes  submitted  went  through  a  consultation  process  involving  the  national 
parliament’s Grand Committee and presentation to the social partners. 

Overall assessment 

The  analysis  in  the  Staff  Working  Document  leads  to  the  conclusion  that  Finland  has 
made substantial progress on measures taken to address the Council’s CSRs. 

Finland  has  implemented  the  planned  fiscal  consolidation  measures.  Nevertheless,  the 
worsening  economic  climate  made  it  difficult  to  achieve  the  expected  results  in  terms  of 
moving towards Finland’s medium-term budgetary objective (MTO). 

Comprehensive reforms of the municipal structure, healthcare and social services have been 
prepared, the youth guarantee4 has been extended, early exit pathways from the labour market 

1 COM(2012) 750 final. 
2 COM(2012) 751 final. 
3  13  in-depth  reviews  were  published  on  10  April  2013.  While  selected  for  an  in-depth  review  in  the  AMR, 
Cyprus  was  ultimately  not  reviewed  under  the  Macroeconomic  Imbalance  Procedure  in  view  of  the  advanced 
preparations for a financial assistance programme. 
4 See labour market section for details on the guarantee. 

5 

 
 
 
                                                 
have been reduced, the national competition authority has been reformed and tax incentives 
have been temporarily offered to support R&D and investments. 

Challenges identified in July 2012 and reflected in the AGS remain valid. In the short term, 
the main challenge is to attract new investments to the Finnish economy, in order to improve 
employment  and  productivity  and  to  replace  the  industries  that  have  declined  over  recent 
years.  The  economy  should  take  more  advantage  of  the  country’s  excellent  R&D  system  to 
create innovative products and services. 

Considering the ageing population, it is important to take steps soon to improve the supply of 
labour  and  the  sustainability  of  pension  and  healthcare  systems.  Agreement  between  social 
partners  on  wage  developments  should  take  due  account  of  recent  and  prospective 
competitiveness developments. 

The policy plans submitted by Finland address most of the challenges identified in last year’s 
Staff  Working  Document,  and  broad  coherence  between  the  two  programmes  has  been 
ensured.  The  national  reform  programme  confirms  Finland’s  commitment  to  address 
challenges  in  competitiveness,  the  labour  market  and  product  markets.  The  stability 
programme  demonstrates  Finland’s  commitment  to  improve  the  budgetary  position  towards 
the medium-term objective and ensure the long-term sustainability of public finances in line 
with the Stability and Growth Pact. 

2.  ECONOMIC DEVELOPMENTS AND CHALLENGES 

2.1. 

Recent economic developments and outlook 

Recent economic developments 

In  2012  and  early  2013,  growth  and  employment  in  Finland  were  strongly  affected  by 
the  general  weakening  of  the  European  economy  and  the  ongoing  restructuring  of  the 
main  Finnish  export  industries.  The  government  has  pressed  ahead  with  budgetary 
consolidation,  increasing  taxes  from  2013  onwards  and  announcing  additional  tax  measures 
from 2014. 

The Finnish economy recovered rapidly after the crises of 2009, but contracted by 0.2 % 
again in 2012. While private consumption, supported by a healthy labour market, remained 
strong,  public  consumption  and  exports  were  slightly  down.  Gross  fixed  capital  formation 
contracted due to a decline in construction and investment in equipment. Being a small open 
economy  with  exports  accounting  for  about  40 %  of  GDP,  Finland  is  very  sensitive  to 
developments in world markets. 

While  the  labour  market  remained  generally  strong  in  2012,  sluggish  growth  caused 
unemployment  to  increase  slightly  during  the  second  half  of  the  year.  Employers  have 
made less use of the temporary layoff support schemes and permanent payroll cuts are more 
common.  The  unemployment  rate  was  7.7 %  in  2012.  The  labour  force  will  remain  stable 
overall, with a small ageing-related decline in the working age population being offset by an 
increase in the activity rate. While the collective wage agreement for 2012 and 2013 provides 
for  moderate  real  wage  growth,  unit  labour  costs  still  appear  to  increase  faster  than  in 
competing countries with a similar product mix on the same export markets. 

Economic outlook 

According  to  the  Commission’s  2013  spring  forecast,  Finnish  economic  growth  will 
remain  sluggish  also  in  the  first  half  of  2013,  followed  by  a  gradual  upturn  in  2014. 

6 

 
 
Consumption  suffers  from  rising  unemployment,  slow  real  wage  increases  and  increased 
taxation.  While  investment  is  expected  to  improve  compared  to  the  low  level  recorded  in 
2012, it will nevertheless remain weak, particularly in construction. Along with the improving 
European economic situation, Finnish exports are forecast to increase during the second half 
of 2013 and 2014. The current collective wage agreement lasts until the end of 2013. While 
unit labour cost growth reached 3.6 % in 2012, it is expected to be more moderate in 2013 and 
2014. 

The macroeconomic scenarios presented in the stability programme and in the national reform 
programme  are  broadly  similar  to  the  Commission’s  spring  forecast.  For  2014,  the  national 
macroeconomic  scenario  forecasts  0.6  pps  higher  real  GDP  growth  than  the  Commission’s 
forecast, which generally reflects expectations of a faster recovery in exports and gross fixed 
capital  formation.  Reforms  to  extend  the  effective  retirement  age  and  the  municipal,  social 
and healthcare reforms can be expected to have a macroeconomic impact. Similarly, reforms 
to  the  taxation  of  corporate  income  and  dividends  are  expected  to  result  in  significant 
macroeconomic  impact.  However,  the  programmes  do  not  quantify  the  impact  of  these 
measures. 

2.2. 

Challenges 

Finland faces important challenges as regards its ageing population. While being mainly 
long-term  in  nature,  remedial  action  is  required  sooner  rather  than  later  especially  as  the 
effects  of  structural  reforms  take  time  to  materialise.  As  the  current  duration  of  working 
careers is insufficient to cope with the growing demographic burden, it would be important to 
speed up entry to the labour market and to prevent early exit. At the same time, the structural 
change causes increased skill mismatches and increases the risk of unemployment becoming 
more long-term in nature. While youth unemployment and long-term unemployment are not 
particularly  high  in  Finland  compared  with  the  other  Member  States,  the  challenges  are  of 
particular  significance  owing  to  the  shrinking  working-age  population.  The  long-term 
unemployed  represent  one  quarter  of  all  unemployed  persons  and  of  these,  over  40 %  have 
only basic education. The mismatch between the skills of workers leaving shrinking sectors 
and the skills required in expanding ones is likely to induce longer periods of unemployment. 
While the overall unemployment rate was 7.7 % in 2012, youth unemployment was 18.8 %.5 

Although  Finland  has  had  strong  public  finances,  ageing-related  costs  have  forced 
expenditure upwards. Commission analysis and national studies have identified a substantial 
sustainability  gap,  although  their  conclusions  on  the  exact  size  differ  due  to  different 
assessments  of  the  impact  of  ageing-related  expenditure  —  pensions,  long-term  care  and 
healthcare.  The  challenge  facing  the  society  is  to  limit  the  growth  of  expenditure  in  these 
areas  without  undermining  the  adequacy  of  pensions  or  the  service  level  in  healthcare  and 
long-term care. 

Productivity growth has not returned to its previous growth path following the economic 
crisis. Possible reasons for this include the lack of investment into the commercialisation of 
new technologies but also low competition in product and service markets. While reforms are 
currently  being  planned  for  municipal  governance  and  social  and  healthcare  sectors, 
efficiency  gains  in  public  services  such  as  healthcare,  education  and  public  administration 

5 According to the Labour Force Survey, only 9.5 % of the 15-24 age group were unemployed. In Finland full-
time students can be classified as unemployed and thus the difference between figures. 

7 

 
 
                                                 
have  been  limited.  The  Finnish  higher  education  and  public  research  system  is  somewhat 
fragmented, which makes it more difficult to focus resources. 

While Finland invests a high proportion of its GDP in R&D, the R&D effort results in 
fewer  than  expected  marketable  products.  As  also  discussed  in  the  in-depth  review  (see 
Box 1),  corporate  R&D  expenditure  is  concentrated  in  a  few  sectors  and  companies,  which 
makes  the  country  vulnerable  to  shocks  in  these  sectors.  In  an  otherwise  excellent  business 
environment, it appears that it is relatively time-consuming to establish a business in Finland.6 
The efficiency of R&D investments and the ability of the system to produce new innovative 
breakthroughs contributing to growth and jobs have not been evident. This is reflected in the 
Innovation Union Scorecard where, of all sub-dimensions, Finland’s score is lowest (in 15th 
place, just above the EU27 average) on ‘innovators’, which encompasses SMEs introducing 
product  or  process  innovations  and  SMEs  introducing  marketing  or  organisational 
innovations7 The research and innovation system has relied mostly on the supply of various 
support  schemes  and  programmes,  lacking  the  necessary  dynamism  to  support  research  and 
innovation in areas that are new, emerging or beyond the scope of current strategies.  While 
large  firms  and  leading  research  and  innovation  institutions  are  highly  internationalised,  the 
overall level of internationalisation of the research and innovation system is quite low and the 
system could gain from attracting foreign talent. 

Over the last decade, Finland’s current account went from a surplus to a deficit, as the 
country has lost 23 % of its share in world exports over the past five years. According to 
the  in-depth  review,  the  loss  of  export  market  shares  can  partly  be  attributed  to  the 
restructuring  of  the  electronics  and  forestry  industries,  but  also  coincided  with  strong  unit 
labour  cost  increases  in  2008  and  2009.  Real  wage  increases  have  exceeded  productivity 
growth also in subsequent years and are projected to also outstrip productivity growth in 2013 
and  2014  according  to  the  Commission’s  spring  forecast.  This  would  have  a  potentially 
negative  impact  on  Finland’s  external  competitiveness.  The  non-tradable  sectors,  whose 
goods  and  services  are  partly  used  as  inputs  for  the  tradable  sector,  experienced  lower 
productivity  growth  than  the  tradable  sectors.  An  important  factor  in  trade  developments  is 
also  energy  dependence.  Finland  is  characterised  by  the  dominance  of  energy-intensive 
industries which produces an overall high energy intensity. 

Box 1 — Summary of the 2013 in-depth review (IDR) under the Macroeconomic Imbalance 
Procedure (MIP) 

The main observations and findings from the analysis published on 10 April 2013 are:  

•  The  loss  in  competitiveness  is  one  of  Finland’s  main  policy  challenges.  Over  the  course  of  a 
decade Finland’s current account went from a surplus into a deficit. The country lost 23% in world 
export market shares over the past five years, and saw its unit labour cost increase significantly in 
2008 and 2009 and more moderately in the following years. 

•  The loss of export market shares is partly due to the ongoing restructuring of the electronics 
and  forestry  industries.  In  electronics,  Nokia  lost  its  dominant  position  and  closed  down  all 
assembly factories in Finland, which affected both its own employees and its subcontractors. The 
forest industry is relocating its paper and pulp manufacturing business to Asia and Latin America, 
where  demand  is  growing  and  resources  are  available.  The  other  main  industries  –  metals, 

6 Doing Business 2013, The World Bank, International Bank for the Reconstruction and Development. 
7 Innovation Union Scoreboard 2011, European Commission. 

8 

 
 
 
                                                 
machinery  and  minerals  –  were  not  able  to  make  up  for  the  loss  in  exports  from  these  two 
important industries. 

•  Energy dependence will continue to affect Finland’s external balance through oil and gas price 
movements.  Energy  imports,  mostly  crude  oil, accounted  for  as  much  as  20%  of  Finland’s  total 
imports in 2011, partly due to the increased oil price. The overall high energy intensity stems from 
the dominance of energy-intensive industries in Finland, which would benefit from a reduction in 
energy usage. 

•  Finland’s declining competitiveness is also related to a relatively low translation of R&D into 
marketable  products.  Despite  high  R&D  spending  and  a  well-educated  workforce,  the  forestry 
and electronics industry still account for a large part of the business structure and the number of 
high-growth companies remains low. 

•  The  loss  in  cost  competitiveness  is  another  factor  at  play.  The  wage  increases  of  the  past  five 
years  exceed  productivity  growth  and  have  damaged  Finland’s  competitive  position, 
especially compared to major competitors such as Germany and Sweden. 

•  Debt  levels  have  increased  over  the  last  decade.  The  private  sector,  excluding  the  financial 
sector, accumulated debt of up to 179% of GDP in 2011 (non-consolidated). Public debt remains 
modest  despite  having  increased  over  the  last  decade  and  is  expected  to  stay  below  the  60% 
ceiling, at least until 2014. 

•  The level of household debt is a cause for concern, although no sudden deleveraging or instability 
of the financial sector is in sight. Based on the current health of the financial sector and on the still 
rather  low  housing  cost  overburden  rates  for  households,  no  sudden  deleveraging  is  expected  in 
the near future. 

•  The  year-on-year  growth  of  the  non-consolidated  financial  liabilities  of  the  financial  sector 
stood at 30.8% in 2011, the most rapid in the EU. The changes appear to have largely technical 
causes  but  close  monitoring  is  warranted  going  forward.  Other  potential  risks  for  the  Finnish 
financial sector stem from the high concentration within the sector and the funding structure.  

3.  ASSESSMENT OF POLICY AGENDA 

3.1. 

Fiscal policy and taxation 

Budgetary developments and debt dynamics 

The  stability  programme  objectives  are  to  balance  central  government  finances  and 
bring the central government debt-to-GDP ratio on a declining path by the end of this 
parliamentary  term.  The  stability  programme  sets  a  medium-term  objective  (MTO)  of  -
0.5 % of GDP for the general government structural balance, which reflects the objectives of 
the Stability and Growth Pact. In the 2012 stability programme, the MTO was set at +0.5 % of 
GDP, which was more ambitious than required by the Stability and Growth Pact. According 
to  the  forecast  presented  in  this  stability  programme,  the  general  government  financial 
position  will  strengthen  but  remain  in  deficit  in  the  programme  period.  Central  government 
and general government debt relative to GDP will, however, start to decline at the end of the 
programme period. The deficit target set for central government finances will not be achieved. 

The  target  year  for  achieving  the  MTO  in  the  stability  programme,  2014,  does  not 
correspond to the target year set in the previous stability programme. Last year, the then-
applicable  MTO  of  +0.5 %  of  GDP  was  projected  to  be  reached  in  2013  but  this  will  not 
happen.  The  Finnish  government’s  medium-term  budgetary  strategy  intends  to  improve  the 

9 

 
 
structural balance8 from -0.9 % of GDP in 2013 to -0.6 % of GDP in 2014, -0.6 % of GDP in 
2015, -0.7 % of GDP in 2016 and -0.6 % of GDP in 2017. Given that the deviation from the 
MTO is just 0.1 % of GDP and that the Commission’s spring forecast estimates that Finland 
should achieve a structural deficit of -0.5 %, it is indeed likely that the MTO will be reached 
by 2014. 

The  main  reason  for  missing  the  2012  stability  programme  targets  was  lower-than-
expected  economic  growth.  The  2012  stability  programme  predicted  a  deficit  of  -1.1 %  of 
GDP in 2012 and of -0.5 % of GDP in 2013. This was reliant on achieving 0.8% GDP growth 
in 2012 and 1.5% GDP growth in 2013. The year 2012 resulted in a deficit of -1.9% of GDP, 
as  real  GDP  declined  by  0.2%.  Consequently,  tax  revenues  turned  out  lower  than  forecast 
while expenditures occurred as foreseen. The 2013 stability programme fiscal scenario is in 
line with the Commission’s spring forecast. For 2014, the spring forecast projects somewhat 
higher expenditure, mainly in the areas of employee compensation and social payments. The 
Finnish programme does not rely on temporary or one-off measures to generate revenue or cut 
expenditure. 

The  general  government  headline  balance  is  projected  to  improve  steadily  over  the 
forecast period. The biggest improvement, 0.6 % of GDP, will occur between 2013 and 2014, 
after which it will continue at a slower pace. Finland’s primary balance was -0.8 % in 2012, 
and is projected to decline to -0.9 % in 2013 before gradually improving over the programme 
horizon. Primary surplus will be achieved in 2015 and the programme aims at a 0.8 % primary 
surplus in 2017. Improvement in the general government balance will be achieved by means 
of general expenditure controls through a system of central government expenditure ceilings 
and specific tax measures announced in March 2013. Central government is the main driving 
force  in  efforts  to  improve  the  general  government  balance.  Local  government  shows  a 
relatively  stable  deficit  (fluctuating  between  -1.0 %  of  GDP  and  -1.2 %  of  GDP  over  the 
forecast horizon) and social security funds are in surplus. The surplus will decline from 2.1 % 
of  GDP  in  2013  to  1.8 %  of  GDP  in  2017  as  outflows  from  the  funds  increase  over  the 
forecast period. 

8  Cyclically  adjusted  balance  net  of  one-off  and  temporary  measures,  recalculated  by  the  Commission  on  the 
basis of the information provided in the programme, using the commonly agreed methodology. 

10 

 
 
 
                                                 
  Revenue 

•   

Box 2. Main measures 

Main budgetary measures 

2012 

•   

2013 

Expenditure 

•  Increase in VAT rate by 1pp (+) 
•  Effective increase in income tax rates (+) 
•  Introduction of YLE tax (=) 
•  Introduction of a bank tax (+) 

Total +0.75 % of GDP 

•  Use of expenditure ceilings to ensure that 
the  central  government  expenditure  does 
not grow in real terms 

•  Decrease in corporate income tax rate (-) 
•  Increased taxation of dividends (+) 
•  Increased  excise 

taxes  on  alcohol, 

•  Use of expenditure ceilings to ensure that 
the  central  government  expenditure  does 
not grow in real terms 

2014 

tobacco and sweets (+) 

•  Total +0.5 % of GDP 

•   

•   

2015 

•  Early  withdrawal  of  tax  deductions  on 
R&D  and  increased  depreciation  rates, 
anticipated to last until 2016 (-) 

2016 

•   

  Note: The budgetary impact in this table is the impact reported in the programme, i.e. by the national 

authorities. A plus sign indicates that revenue/expenditure increases as a consequence of the 
measure. The degree of detail reflects the information made available in the stability programme and, 
where available, in a multiannual budget.  

• 

Risks to the scenario stem mainly from risks to the growth forecast. As the economy is in 
the process of being restructured and ICT and forestry sectors, which are suffering diminished 
exports,  are  being  replaced  by  other  sectors,  developments  in  industrial  production  and 
exports  over  the  coming  years  are  difficult  to  forecast.  The  government  has  announced  a 
reduction  in  the  corporate  income tax rate from  2014,  which  is  expected to lead  to stronger 
investment and wage growth, partially offsetting the loss in tax revenues through the dynamic 
effects. The extent and timing of these effects is similarly difficult to forecast. If the economy 
takes longer than anticipated to respond to the tax cut, revenues might fall short of the 2014-
2015 expectations. 

The  ex-post  assessment  shows  that  the  (recalculated)  structural  balance  deteriorated 
from  2011  to  2012.  Regarding  the  expenditure  benchmark,  since  Finland  did  not  reach  its 
MTO in 2011, net expenditure growth in 2012 needs to be at or below the lower reference rate 
of  0.5 %for  2012.  Finland’s  net  expenditure  increased  by  0.4 %,  which  remains  below  the 
lower  reference  rate.  Considering  that  Finland  posted  negative  real  GDP  growth  in  2012,  it 
can  be  considered  to  be  overall  compliant  with  the  provisions  of  the  preventive  arm  of  the 
SGP. 

11 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
In  2013,  Finland’s  (recalculated)  structural  balance  is  forecast  to  improve  by  0.1pps 
from -1 % to -0.9 %. In light of Finland’s large negative output gap, this small improvement 
is  deemed  adequate.  Because  Finland  is  not  predicted  to  reach  its  MTO  in  2012,  net 
expenditure  growth  from  2012  to  2013  needs  to  be  at  or  below  the  lower  reference  rate  of 
0.5 % for 2013. Finland’s net expenditure is projected to increase by 0.6 %, corresponding to a 
deviation  of  the  expenditure  benchmark  of  only  0.1 %  of  GDP.  Overall  for  2013,  the 
programme anticipates compliance with the preventive arm of the Stability and Growth Pact, 
as the structural balance is forecast to improve. 

In  2014,  Finland’s  (recalculated)  structural  balance  is  forecast  to  move  from  -0.9 %  of 
GDP  in  2013  to  -0.6 %  of  GDP  in  2014.  According  to  the  information  provided  in  the 
programme,  the  growth  rate  of  government  expenditure,  net  of  discretionary  measures, 
deviates  by  0.3 %  of  GDP  from  the  lower  reference  rate  under  the  expenditure  benchmark. 
Taking  into  account  that  the  deviation  from  the  MTO  is  just  0.1 %  of  GDP  and  that  the 
Commission’s  spring  forecast  estimates  that  Finland  should  achieve  a  structural  deficit  of 
0.5 %, it is likely that the MTO will be reached by 2014. 

In  2015  and  2016,  Finland’s  (recalculated)  structural  balance  is  projected  to  remain 
close  to  Finland’s  medium-term  objective  for  the  structural  balance  of  -0.5 %  of  GDP. 
The overall assessment of Finland’s budgetary developments, with the structural balance as a 
reference, including an analysis of expenditure net of discretionary revenue measures, shows 
that  Finland  complies  with  the  required  adjustment  towards  the  MTO  over  the  programme 
period. 

The general government gross consolidated debt will continue to grow over the coming 
years and, consequently, government debt is expected to reach 57.5 % of GDP by 2015 
according to the programme, which is close to the 60 % reference value. According to the 
Commission’s  forecast,  general  government  debt  will  be  slightly  higher  in  2013  and  2014 
compared  with  the  programme,  but  the  difference  is  small  (0.4 %  of  GDP  in  2014).  The 
programme anticipates subsequent reductions in the relative debt level — of 0.5 % of GDP in 
2016  and  2017.  Since  the  debt-to-GDP  ratio  is  below  the  reference  rate,  the  debt  reduction 
benchmark  does  not  apply.  Medium-term  debt  projections  (see  Graph  below  Table  V  in 
annex) indicate that full implementation of the programme debt would first lead to decreasing, 
then increasing debt, remaining however below the 60% reference value by 2020. 

Long-term sustainability 

Finland is at medium sustainability risk in the medium term and at high risk in the long 
term due to the budgetary impact of the cost of ageing, but appears not to be at risk of 
fiscal stress in the short term. Risks would be lower if the structural primary balance were to 
revert  to  the  higher  values  of  the  past,  such  as  the  average  for  the  period  1998-2012.  The 
focus,  therefore,  should  be  on  containing  age-related  expenditure  growth  further  so  as  to 
contribute to the sustainability of public finances in the medium and long term. 
An  independent  study  of  the  Finnish  pension  system9  concludes  that  if  the  present 
system remains unchanged, either pension benefits will become inadequate or the system 
will  become  unsustainable.  Problems  in  the  pension  system  include  making  inadequate 
adjustment for a delayed start to drawing a pension and taking inadequate account of changes 
in  family  structure.  Improving  life  expectancy  should  translate  into  longer  working  careers, 

9 Barr, N, The pension system in Finland: Adequacy, sustainability and system design, 2013. 

12 

 
 
                                                 
but although the current system provides incentives to work longer, the majority of workers 
choose not to use them. Proposed policies include reducing pensions at the earliest eligibility 
age, gradually increasing the earliest eligibility age and possibly indexing the eligibility age to 
life expectancy. 

According  to  the  2012  Ageing  Report  2012  reference  scenario,  Finland’s  public 
healthcare  expenditure  is  set  to  increase  significantly  from  6.0%  of  GDP  to  7.0%10  of 
GDP  by  2060.  Among  the  many  measures  being  proposed  is  the  consolidation  of  reform 
efforts  already  being  made  by,  for  example,  increasing  hospital  efficiency,  enhancing  the 
supply  of  follow-up  care  for  long-term  care  patients  so  as  to  reduce  the  unnecessary  use  of 
acute  care  settings  for  these  patients,  improving  the  organisation  and  management  of  health 
care or introducing medical best practices systematically.11 
Long-term care accounted for 2.5 % of GDP in 2010.12 Based on the 2012 Ageing Report 
reference  scenario,  the  expenditure  could  increase  to  5.1%13  by  2060.  The  current  and 
projected  levels  of  spending  can  be  explained  by  the  focus  on  relatively  costly  institutional 
care, high coverage rates in terms of population and relatively high unit costs in institutional 
care. A stronger focus on independent living and cost-control would help reduce the need for 
institutional care and help continue to alleviate future spending pressures in long-term care. 

Fiscal framework 

Finland ratified  the Fiscal Compact at the end of 2012 and has adopted the  structural 
budget  balance  rule  in  its  legislation.  Finland’s  fiscal  framework  is  currently  tied  to 
multiannual expenditure ceilings. The system is linked to parliamentary terms, and experience 
with the framework suggests that governments abide by the rules. Every year the government 
decides  on  central-government  spending  limits  for  the  remaining  years  of  its  term,  defining 
the  multiannual  financial  framework.  Subsequent  yearly  decisions  on  annual  ceilings  are 
taken on the basis of this framework. 
Spending limit decisions are taken in late March each year.14 The fiscal rule sets annual 
limits  to  government  expenditure  for  the  remainder  of  the  parliamentary  period.  However, 
neither  balanced  budget  requirements  nor  limits  to  annual  deficits  are  set  by  the  rule. 
According  to  the  decision,  central  government  expenditure  included  in  the  spending  limits 
should decrease in real terms in 2014 and 2015. This policy undertaken by the government is 
in line with the growth-friendly fiscal consolidation recommendation  of the  Annual Growth 
Survey. It provides an ambitious target to control the costs of the budget while maintaining 
enough  flexibility  to  respond  to  changes  in  the  economic  environment.  The  framework 
includes  built-in  automatic  stabilisers,  as  some  expenditure  falls  outside  the  scope  of  the 
limits. 

10 If the non-demographic drivers are considered i.e. Ageing Working Group (AWG) risk scenario is considered, 
then public expenditure on healthcare is projected to increase to 7.5% of GDP 
11 ASISP (2012), Annual National Report 2012 –— Pensions, Health Care and Long-term Care –— Finland. 
12  Lipszyc,  B;,  Etienne, S;,  Xavier, A.,  '‘Long-term  care:  need,  use  and expenditure  in  the  EU-27'’, Economic 
Papers 469,   2012. 
13 If the AWG risk scenario is considered, then public expenditure on long-term care is projected to increase to 
5.4% of GDP 
14 The most recent decision is from 27 March 2013. 
 http://www.vm.fi/vm/fi/04_julkaisut_ja_asiakirjat/03_muut_asiakirjat/20130327Valtio/name.jsp  

13 

 
 
                                                 
 
Social  security  funds  and  municipalities  currently  operate  outside  the  system  of 
expenditure  limits,  except  for  the  fact  that  government  transfers  to  the  municipalities 
are subject to central government expenditure limits. Municipalities are subject to a rule 
that requires a balanced budget over a four-year period but are free to decide on expenditure 
growth that can be financed by increasing local taxes. However, municipalities are the most 
affected  by  the  increasing  ageing-related  expenditure,  as  the  majority  of  medical  and  social 
services are provided by them. Thus it appears necessary to encourage better integration of all 
expenditure  (including  local  expenditure)  to  ensure  coherence  between  the  plans  of  all  sub-
levels of government and their compatibility with the medium-term objectives. A civil service 
working  group  has  been  established  to  analyse  ways  of  improving  the  macroeconomic 
steering  of  local  government,  including  setting  the  spending  limits  of  local  government 
finances. 

Tax system 

In 2011, the overall tax burden in Finland was 43.4 % of GDP, the 5th highest in the EU 
after  Denmark,  Sweden,  Belgium,  and  France.  Direct  taxes,  in  particular  on  personal 
income,  represent  the  most  significant  category  of  revenue.  As  of  2013,  VAT  rates  were 
increased  across  the  board  by  one  percentage  point  without  changing  the  structure  of  the 
system  (standard  rate  and  two  reduced  rates).15  The  expected  additional  annual  tax  revenue 
from  the  rate  increases  is  EUR  750  million.  Further  increases  of  excise  taxes  will  be 
introduced in the beginning of 2014. 

The prevailing trend in labour taxation in relation to GDP has been modestly downward 
for  over  a  decade  until  2011.  The  drop  in  the  implicit  tax  rate  on  labour  has  indeed  been 
quite significant, from 44.1 % in 2001 to 39.6 % in 2011. Yet, the proportion of labour taxes 
of GDP remains among the six highest in the EU. In 2012, however, the government decided 
to forego the index adjustments to the progressive state income tax scales in 2013 and 2014. It 
also introduced a new top income class to the scale, thus raising the highest marginal tax rate 
from 29.75 % to 31.75 % applicable from 2013. At the same time, there have been increases in 
a  number  of  social  contributions  and  the  municipal  income  tax  rates  have  continued  to 
increase,  bringing  the  average  rate  to  19.38 %  in  2013  (up  from  19.25 %  in  2012).  Thus, 
although  the  government  has  taken  measures  to  ease  the  labour  tax  burden  of  low-income 
earners by increasing allowances, the declining trend of labour taxation seems to have come 
to an end as the effective tax rate on labour is increasing. 

From the beginning of 2014, corporate income tax will be lowered from 24.5 % to 20 %. 
At the same time, taxation of dividends will be tightened. It is expected that the reform will 
provide additional incentives for investment, as the reduction in tax rate is significant. 

The  taxable  values  of  real  estate  are  out-dated  and  disconnected  from  real  prices.  In 
2012 the government decided to increase asset transfer taxation of real  estate  from 1.6 % to 
2.0 %  as  of  March  2013.  Although  this  measure  will  contribute  to  consolidation  needs,  the 
asset transfer tax has drawbacks in that it is deemed to be quite distortive and raises the cost 
of labour mobility. A recurrent tax on property is considered to be less detrimental to growth 
and  preferable  to  transaction  taxes  on  immovable  property.  The  recurring  property  tax 
revenues,  in  relation  to  GDP  are  currently  low  in  Finland.  In  March  2013  the  government 
announced its intention to bring the tax valuations of real estate better in line with real prices, 

15 The standard VAT rate is 24 % since 1 January 2013. A reduced rate of 14  % is applied to food and restaurant 
services. A reduced rate of 10 % applies to hotels, medicines, books, newspapers and tickets to cultural events. 

14 

 
 
                                                 
thus increasing property taxation in the coming years. The impact and details of this measure 
remain to be seen. 

In 2011, environmental taxes accounted for 7.2 % of all taxes. In GDP terms, revenues are 
higher  than  the  EU  average  (FI:  3.1 %,  EU:  2.4 %  in  2011).  There  could  be  further 
opportunities  to  increase  the  environmental  benefits  of  these  taxes  and  to  phase  out 
environmentally harmful subsidies still in existence. 

3.2. 

Financial sector 

The financial sector remains resilient relative to many other national financial sectors in 
the euro area. The banking sector did not need government support during the crisis and has 
been seen as stable (the ’safe haven’ phenomenon). Exposure to risks in countries undergoing 
the  crisis  is  limited,  as  are  non-performing  loans.  Furthermore,  the  banking  system  has 
remained  profitable  overall  with  an  average  return  on  equity  of  around  10 %,  resulting  in 
improved  solvency  —  the  average  capital  adequacy  ratio  is  around  14 %.  Since  the  mid-
1990s, housing has become significantly more expensive in inflation-adjusted terms. Analysis 
suggests16  that  house  prices  for  Finland  are  close  to,  but  above,  the  long-term  average. 
However,  house  price  increases  seem  to  be  levelling  off.  Although  still  rising  in  2010, 
deflated house prices fell slightly in 2011 and remained stable in the first half of 2012. Led by 
the  increases  in  housing  loans,  the  private  sector  accumulated  gross  debt  of  179 %  of  GDP 
(non-consolidated)  in  2011.  The  year-on-year  growth  of  the  non-consolidated  financial 
liabilities of the financial sector amounted to 30.8 %, by far the highest growth rate among EU 
Member  States.  The  high  growth  resulted  mainly  from  the  safe-haven  effect  leading  to 
inflows of foreign banks’ deposits, re-deposited with the Bank of Finland. 

In  2012,  the  Council  Recommendation  for  Finland  did  not  contain  a  CSR  as  regards  the 
financial  sector  policies.  As  the  sector  is  healthy,  no  substantial  reforms  have  been 
undertaken. 

The  Finnish  government  has  decided  to  reduce  gradually  the  incentives  encouraging 
debt-financed house purchases by lowering the share of mortgage interest payments that 
can  be  deducted  from  taxable  income.  This  should  help  to  reduce  upward  pressures  on 
housing prices. A working group considered macro-prudential measures to limit the growing 
indebtedness and ensure a high quality of lending, and proposed binding loan-to-value ratios 
for the banks. However, the  proposal has been disregarded and will not be implemented  by 
the government. Potential  issues  that could warrant analysis and measures  that  have  not yet 
been  addressed  include  the  structural  features  of  the  Finnish  banking  sector  (dominant 
position  of  one  foreign-owned  bank;  a  relatively  large  derivative  portfolio)  and  the  trends 
observed recently (important inflows of foreign bank deposits). 

Access to finance 

The Finnish government has taken steps to improve the access to finance for small and 
medium-sized  enterprises  (SMEs)  and  high  growth  companies.  This  has  been  done 
through the injection of additional funds into Finnvera.17 For high-growth firms, public sector 
involvement in the venture capital markets is again being reorganised, with all public venture 

16 European Commission (2012a), ’Assessing the dynamics of house prices in the euro area’, in Quarterly report 
on the euro area, vol. 11, No 4. 
17  Finnvera  is  the  state-owned  financial  institution  for  SMEs,  providing  loans,  loan  guarantees,  equity 
investments and export-credit guarantees. 

15 

 
 
                                                 
capital financing being channelled through the Finnish Funding Agency for Technology and 
Innovation (Tekes). Finland has also introduced the accelerator programme (Vigo) to provide 
funding  and  other  support  for  high-growth  firms.  This  programme  has  been  able  to  direct 
EUR  60  million  of  private  risk  capital  to  new  enterprises.18  In  2013,  the  government  also 
introduced a tax-credit scheme for business angel investors that invest in start-up enterprises. 
The measure is expected to have a positive impact on the formation of new enterprises. 

3.3. 

Labour market, education and social policies 

The labour market generally performs well in Finland and the most pressing challenges 
relate  to  the  ageing  of  the  population.  The  number  of  people  leaving  the  labour  force 
annually exceeds the number of people entering the labour market. To maintain the supply of 
labour,  it  is  important  to  speed  up  entry19  and  to  prevent  early  exit  of  workers.  The  policy 
agenda is now focused on retirement issues, and on long-term and youth unemployment. 

The  2012  Council  recommendations  to  Finland  contained  a  CSR  to  improve  the 
employment  rate  of  older  workers,  including  by  reducing  early  exit  pathways,  and  to 
increase  the  effective  retirement  age  taking  into  account  the  improved  life  expectancy. 
The  Commission  concludes  that  Finland  has  made  some  progress  on  measures  taken  to 
address  this.  Steps  taken  in  2012  are  in  the  right  direction  overall,  but  no  breakthrough  has 
been achieved. In the period 2013-15 Finland will take relevant measures to reduce early exit 
pathways. However, some pathways such as the ’unemployment pathway20’ to retirement still 
remain. The employment rate of the 60–64 age group was a mere 41.8 % in 2011.21 Moreover, 
despite the flexible retirement age of 63–68 years introduced in the 2005 pension reform, the 
number  of  people  retiring  in  2011  on  a  statutory  earnings-related  pension  at  63  was  almost 
twice as high as those who retired at 64 or 65 combined. Recent report by the Prime Minister's 
Office concludes that the objectives of the 2005 reform were not met in terms of the increased 
expected retirement age22. The life-expectancy coefficient in pension calculations is a strong 
economic incentive to work longer to earn a higher pension. However, since life expectancy is 
increasing faster than was anticipated in 2005, the coefficient also has a strong impact on the 
adequacy  of  pensions.  Linking the pensionable age to life expectancy would cover both the 
adequacy and sustainability side of the pension equation. 

Discussions are on-going in relation to the pension reform planned for 2017. They cover 
survivor’s  pensions,  the  starting  age  for  pension  accrual,  early  retirement  schemes  and 
retirement ages. In addition, the government has set up a high-level group to assess the results 
of the 2005 reform to serve as a basis for the  discussions. Initiating the discussions on new 
pension  reform  is  a  relevant  measure,  but  its  anticipated  implementation  by  2017  seems 
insufficiently ambitious, as this deadline extends beyond the current parliamentary term and 
thus the proposals by the outgoing government could be subject to review or reversal. 

Disability  is  still  the  most  important  factor  shortening  working  careers  in  Finland.  In 
order to tackle the issue and to extend working careers by improving the quality of working 
life, Finland introduced a new National Working Life Development Strategy at the beginning 

18 http://www.tem.fi/files/35626/TEMrap_4_2013.pdf . 
19 Entry into the labour market is delayed by the long duration of studies. 
20  Under  certain  conditions,  older  unemployed  persons  will  receive  unemployment  allowances  beyond  the 
normal 500 day period, until retirement. 
21 The employment rate of people aged 55–64 rose by 15 pps, from 42 % to 57 % between 2000 and 2011. 
22 Uusitalo, R; Nivalainen, S 'Vuoden 2005 eläkeuudistuksen vaikutus eläkkeellesiirtymisikään' Valtioneuvoston 
Kanslian raporttisarja 5/2013 

16 

 
 
                                                 
of 2013. Although the strategy is relevant and ambitious, underpinning it with implementing 
measures in work places and labour markets remains a challenge. This is also an issue for the 
employment of older workers: unemployment is again increasing in the over-50s age group, 
after having fallen for many years. 

The 2012 Council recommendations for Finland also contained a CSR to implement the 
on-going measures to improve the labour market position of young people and the long-
term unemployed, with a particular focus on skills development. The Commission comes 
to the conclusion that Finland has made substantial progress on measures taken to address this 
CSR. However, the underlying policy challenges remain. A pilot programme to address long-
term unemployment was launched in September 2012. Primary responsibility for managing an 
individual’s  employment  support  will  be  transferred  to  the  municipality  once  a  person  has 
been  unemployed  for  12  months.  Their  chances  of  employment  will  be  assessed,  their 
progress  monitored,  and  participation  in  wage-subsidised  work  and  training  increased.  In 
addition, Finland introduced a strategy on structural change and the functionality of the labour 
market to ensure that, as major structural changes continue, employees will be able to transfer 
quickly from one job to another. 

In 2013 Finland introduced a stronger youth guarantee: all young people under 25 and 
all  recent  graduates  under  30  would  be  provided  with  a  job  or  training,  study  place, 
workshop  placement  or  rehabilitation  within  three  months  of  unemployment.  In  2012 
and  2013,  1 700  study  places  are  being  introduced  in  vocational  training  in  regions  where 
there have been fewer study places for this age group. The guarantee is complemented by a 
skills programme in 2013-16, which creates additional study places for those 20-29 year olds 
who have only the basic school education, and are very often not in employment, education or 
training.  The  guarantee  is  an  ambitious  partnership  with  shared  responsibility  between  the 
authorities, labour market partners and young people. 

The  measures  on  long-term  and  youth  unemployment  conform  to  the  priorities  of  the 
2013  Annual  Growth  Survey  and  are  reaffirmed  in  the  2013  national  reform 
programme.  They  are  relevant  and  ambitious.  As  regards  credibility,  it  remains  to  be  seen 
whether the budget of the youth guarantee is indeed sufficient in relation with the measures 
that are planned. In addition, the key actors responsible for implementing the two measures — 
Public  Employment  Services  and  municipalities  —  are  going  through  a  major  reform  that 
could  affect  the  implementation.  Permanent  improvement  in  job-relevant  skills  and  labour 
market  position  of  the  target  groups  will  be  achieved  only  if  both  measures  are  rigorously 
implemented. 

The  2012  Council  recommendations  for  Finland  also  contained  a  CSR  to  continue  to 
align  wage  and  productivity  developments,  whilst  fully  respecting  the  role  of  social 
partners  and  being  in  line  with  national  practices.  The  Commission  comes  to  the 
conclusion  that  Finland  has  made  limited  progress  on  measures  taken  to  address  this  CSR. 
The current labour market agreement comes to an end in 2013 but the labour market partners 
have not yet reached an agreement on its follow-up. If the new agreement continues along the 
same  lines  as  the  current  one,  wage  growth  will  still  exceed  productivity  growth.  Without 
measures to trigger productivity growth or wage moderation, compensation per employee is 
forecast to continue outpacing productivity growth in 2013 and 2014. In conclusion, thus far 
the response to the recommendation has not been ambitious, relevant or credible, but it should 
be  recognised  that  the  key  to  finding  a  solution  rests  with  the  employer  and  employee 
organisations in Finland. 

17 

 
 
Social exclusion 

In-work  poverty  in  Finland  is  the  lowest  in  the  EU.  The  government’s  overall  policy 
objective is to reduce social exclusion through labour market integration. There are however 
people at risk of social exclusion, such as elderly women with low pension earnings and those 
on disability pensions, for whom labour market inclusion is not an option to reduce the risk of 
poverty. The risk is also higher among young people and people with migrant background — 
groups for which labour market integration is an option. In this context, the persistent gender 
pay gap (at 19.4 % above the EU average of 16.4 %) has a negative impact on the income of 
female  pensioners.  Long-term  unemployment  also  increases  the  risk  of  exclusion.  The 
government has announced a programme to prevent exclusion, poverty and health problems. 

Education and training 

Finland  has  less  early  school  leavers  than  the  EU  on  average.  Nevertheless,  Finland  is 
above its Europe2020 target and no improvement has been achieved for over a decade. Early 
school leaving increases the risk of labour market exclusion, which can further translate into 
social  exclusion,  in  particular  for  disadvantaged  people,  such  as  those  with  a  migrant 
background. 

Participation in lifelong learning in Finland was 23.8 % in 2011, the 3rd highest in the 
EU.  However,  for  55-64  year  olds  it  was  only  13.5 %  and  for  the  low-skilled,  only  10.7 %. 
Given the demographic challenges, older and low-skilled workers would benefit from targeted 
measures  aimed  at  keeping  them  active  longer  on  the  labour  market.  Moreover,  retraining 
policies in traditional industries may need to pay special attention to older incumbent workers, 
also  so  as  to  prevent  skills  shortages  in  a  climate  of  changing  production  processes.  As 
regards  the  tertiary  attainment  rate,  Finland  has  reached  both  its  national  and  the  EU 
headline target for 2020, with 45.4 % in Finland as against an EU average of 35.5 % in 2012. 

3.4. 

Structural measures promoting growth and competitiveness 

Finland  has  continued  to  lose  export  market  share,  indicating  potential  problems  in 
competitiveness. The situation is puzzling, as the business environment in Finland is reputed 
to be among the best in the world23 and R&D expenditure (3.78 % of GDP in 2011) is still the 
highest in the EU and remains close to Finland’s national 4 % target for 2020. With regard to 
the business  environment, there  may  be room for further improvement in specific areas, for 
instance  by  reducing  the  length  of  start-up  procedures.  According  to  the  ‘Doing  Business 
201324’ report, Finland ranks 49th regarding the ease of starting a business while it is 11th in 
the overall ranking. The efficiency of the Finnish research and innovation system in turning 
investments  in  R&D  into  scientific  and  technological  excellence  is  a  critical  issue  as  is  the 
system’s  ability  to  convert  R&D  investment  into  new  innovative  products  and  services. 
Although Finland is an innovation leader showing an above average innovation performance 
in  the  EU,25  its  capacity  to  generate  high-growth  innovative  enterprises  is  weaker  than  the 
majority of other EU Member States. 

The 2012 Council Recommendations for Finland contained CSRs to continue the efforts 
to  diversify  the  business  structure,  broaden  the  innovation  base  and  to  continue  to 

23 IMD World Competitiveness Yearbook 2012, World Economic Forum, Global competitiveness report 2012. 
24 Doing Business 2013 —– Smarter Regulation for Small and Medium Sized Enterprises. A co-publication of 
the World Bank and the International Finance Corporation. 
25 Innovation Union Scoreboard 2012. 

18 

 
 
                                                 
improve  competition  in  product  and  service  markets  in  the  retail  sector,  as  well  as 
increasing the competition neutrality between private and public undertakings. Finland 
was  recommended  to  take  further  steps  to  ensure  that  competition  law  fines  have  a 
sufficiently  deterrent  effect.  Finland  received  no  CSRs  on  environment  protection,  transport 
or in relation to energy. 

The  Commission  concludes  that  Finland  has  made  substantial  progress  on  measures 
taken  to  address  this  CSR.  Finland  has  undertaken  ambitious  measures  in  these  areas,  but 
taking  into  account  the  scope  of  the  measures  and  their  slow  effect,  efforts  need  to  be 
continued. The 2013 budget includes a new temporary initiative for tax incentives for R&D 
investment  and  a  new  temporary  initiative  for  investors  in  start-up  enterprises.  Industrial 
enterprises can increase the depreciation rates of their investments for tax purposes until 2015. 
However,  the  tax  incentives  will  be  withdrawn  already  from  2015  and  replaced  with  a 
generally lower corporate income tax rate. Such rapid shifts in tax policy can undermine the 
credibility of the policy. Additional resources have been made available for Finnvera. In the 
area  of  competition,  the  government  has  proposed  an  amendment  to  the  Competition  Act 
regarding the dominant market position in  the  food retail trade (if the market share exceeds 
30 %).  Other  objectives  are  to  maintain  a  level-playing  field  between  the  public  and  private 
sector, and reduce legislative obstacles to competition in various fronts. Efforts should now be 
directed  towards  fully  implementing  the  agreed  programme  for  healthy  competition.  The 
sooner  the  new  Competition  and  Consumer  Authority  becomes  integrated  and  fully 
operational  the  better.  The  Commission  will  continue  to  monitor  these  reforms  and  their 
implementation. 

Research and innovation 

The  structural  competitiveness  problems  of  the  Finnish  economy  have  been  widely 
recognised  and  in  2012  the  Council  recommended  that  Finland  continue  its  efforts  to 
diversify  its  business  structure,  and  to  strengthen  productivity  growth  and  external 
competitiveness.  The  policy  response  has  been  relevant,  as  it  seeks  to  benefit  more  from 
high-value-added parts of the value chains, in particular services and ICT. Besides making the 
most of the extensive ICT know-how throughout the economy, the renewal of the industrial 
landscape can be speeded up through policy measures designed to attract more foreign direct 
investment. The government has undertaken several actions to achieve the goals outlined, but 
it  is  too  early  to  say  whether  these  are  sufficient  to  turn  the  economy  around.  A  temporary 
R&D  tax  incentive  for  SMEs  and  cooperatives  aimed  at  improving  the  leverage  effect  of 
public investment is the most significant measure taken in financial terms. 

The  Team  Finland  network  promotes  Finland  and  its  interests  abroad:  Finland’s 
external economic relations, the internationalisation of Finnish businesses, the country’s 
brand,  and  inward  investments.  At  the  heart  of  the  Team  Finland  network  are  three 
Ministries  (the Ministry of Employment and the  Economy,  the  Ministry  for  Foreign  Affairs 
and the Ministry of Education and Culture) together with publicly-funded bodies and Finnish 
offices abroad (including diplomatic missions, the offices of Finpro and Tekes, and national 
culture  and  science  institutes),  all  operating  under  the  ministries’  guidance.  A  total  of 
72 teams  have  been  set  up  in  different  countries  and  they  bring  together  all  Finnish 
authorities,  publicly-funded  organisations  and  other  key  parties  with  ties  to  Finland.  Each 
team has its own work programme and coordinator with information on the network’s local 
activities and services. An evaluation of the success of the effort has not been carried out. 

19 

 
 
Several policy objectives have been introduced to improve the research and innovation 
system, in line with the government’s research and innovation guidelines for 2011-2015. 
At  the  end  of  2012,  the  government  published  an  action  programme  for  research  and 
innovation policy ‘Growth through Expertise’ that aims to enhance the quality and impact as 
well  as  the  internationalisation  of  the  Finnish  research  and  innovation  system.  The  need  to 
increase  the  number  of  high-growth  innovative  firms  was  recognised.  The  digital  service 
economy  is  expected  to  provide  Finland  with  opportunities  for  growth:  all  renewal 
opportunities for structural change that the ICT sector offers have to be exploited. The extent 
to which service firms and the public sector will be capable of exploiting innovations from the 
ICT  sector  —  and  highly  skilled  human  resources  that  are  available  due  to  layoffs  —  will 
determine their effectiveness and growth. In spring 2013 the government made a decision to 
launch a new research and innovation action programme. The Academy of Finland will fund 
the  programme  to  the  tune  of  EUR  10  million  annually.  The  programme  measures  will  for 
their  part  support  the  implementation  of  the  European  Research  Area.  On  the  whole,  the 
short-term impact of the actions taken is very difficult to identify and to measure. 

In  2012,  a  series  of  evaluations  of  the  Finnish  research  and  innovation  system  were 
carried  out  providing  valuable  information  for  further  reforms.26  The  report  on  the 
Strategic  Centres  for  Science,  Technology  and  Innovation  (SHOKs)  concludes  that  the 
concept  of  these  centres  needs  further  improvement,  e.g.  the  interests  of  small  companies 
could be better taken into account and the centres should compete to maintain their status. The 
position  of  the  centres  in  the  innovation  system  needs  to  be  better  defined  and  the  external 
peer  review  processes  at  project  level  should  be  extended  across  the  SHOKs.27  A  report  on 
long-term  perspectives  is  also  under  preparation  and  is  expected  to  be  submitted  to  the 
Finnish  parliament  in  2013.  The  practical  impact  of  the  strategic  programmes  on  clean 
technology,  the  bioeconomy,  forestry  sector  and  the  welfare  sector  will  need  to  be  closely 
monitored  and  the  necessary  adjustments  made,  but  the  ambitions  are  significant.  For 
example, the Finnish Strategic Programme for the Cleantech Business aims to create at least 
40 000  new  jobs  by  2020  and  to  double  the  turnover  of  the  sector.28  Ultimately  the  policy 
measures can be deemed successful only if they result in a positive current account balance, 
improving terms of trade, growth and jobs. 

The government has introduced a range of other measures to improve the performance 
of  the  system.  It  has  recently  made  non-sensitive  data  gathered  by  public  authorities  freely 
available with the aim of promoting the emergence of innovative start-ups. Several measures 
have also been introduced to enhance the efficiency of the public research sector. According 
to a recent evaluation, the university reform that took effect in 2010 has had a positive impact 
especially on the strategic management of universities. The ongoing reforms of polytechnics 
and public research institutions as well as the revised funding model  for  universities should 
raise the quality and impact of the work of the public research performers. The reforms should 
also provide the actors with the necessary incentives to increase the internationalisation of the 
Finnish public research sector and to specialise in key research fields where the country can 
compete internationally. These reforms together with further efforts in areas such as research 
infrastructures and knowledge transfer between the public and private sector will be critical to 

26 The assessment of the Strategic Centres of Science, Technology and Innovation (SHOKs), the reform of the 
central  government’s  research  institutes  as  well  as  the  evaluations  of  TEKES  and  Finnvera  (Export  Credit 
Agency of Finland). 
27 Licence to SHOK, p. 27, http://www.tekes.fi/u/Licence_to_SHOK.pdf. 
28 Europe 2020 Strategy — Finland’s National Programme, Spring 2013, p. 36. 

20 

 
 
                                                 
raising the quality, impact and the international profile of the Finnish public research system. 
In 2012 a research infrastructure policy was launch and additional funding was granted. The 
national road map of research infrastructures will be updated in 2013. 

In  2012,  the  government  introduced  new  measures  that  will  enhance  the  role  of  large 
metropolitan  regions  in  implementing  the  national  innovation  strategy.  The  measures 
should  promote  the  coordinated  use  of  private  and  public  resources  in  the  metropolitan 
regions. Research and innovation (R&I) continue to be the priorities for the next period of the 
EU Structural and Investment Funds (2014-20). Based on the preparatory documents, in the 
next period Finland intends to focus on improving R&I infrastructure and capacity, promoting 
business R&I investment and a range of innovative actions, through smart specialisation,29 as 
well  as  on  supporting  technological  and  applied  research,  pilot  lines  and  early  product 
validation. 

Overall,  in  order  for  Finland  to  maintain  its  strong  research  and  innovation 
performance, a continuous policy commitment will be needed to carry out the reforms, 
monitor  their  impact,  and  make  the  necessary  adjustments  in  a  rapidly  changing 
environment. Measures such as the government’s ‘ICT 2015 working group’ report point in 
the right direction. The report identified four critical directions that should be followed to re-
establish  Finland’s  technological  lead  in  ICT.  These  included  the  rapid  development  of  a 
common  architecture  for  all  public  services;  a  10-year  programme  on  ICT-related  research, 
development  and  innovation;  a  funding  programme  for  high-growth  enterprises;  and  a 
governmental expert group to ensure long-term development. The government has established 
a  steering  group  under  the  Prime  Minister  to  ensure  the  implementation  of  these  proposals, 
and concrete actions are already being taken on the national service architecture and financing 
of growing firms (EUR 55-70 million for 2014-2017).30 

Competition policy 

The  retail  grocery  sector  is  particularly  concentrated  and  its  structure  enables  the 
largest players to further strengthen their position. The retail sector in Finland contributes 
3.9 %  to  the  GDP  and  employs  6.6 %  of  the  workforce  (over  160 000  people).  Given  the 
economic  importance  of  the  sector,  the  smooth  functioning  of  its  regulatory  framework  is 
essential.  In  September  2012,  a  new,  broad-based  programme  on  promoting  healthy 
competition  was  launched.  According  to  the  programme,  the  supervision  of  the  grocery 
sector,  which  is  concentrated,  should  be  sharpened  so  that  practices  in  this  sector  can  be 
assessed under the rules in the competition act which prohibit abuses of a dominant position. 
It is proposed that a new section, 7a, be added to the Competition Act (948/2011), according 
to which a grocery trade operator would be considered to occupy a dominant market position 
if  its  market  share  in  Finland  exceeded  30 %.The  Finnish  competition  authority,  while 
supporting measures to strengthen competition in the retail sector, has raised concerns about 
automatically  finding  an  operator  to  have  a  dominant  position  once  they  exceed  a  specified 
threshold,  a  practice  that  differs  substantially  from  the  assessment  of  the  other  sectors.  One 
interesting aspect in competition policy is the issue of the location of the stores of the state-
owned retail alcohol monopoly, as their presence can increase retail turnover of supermarkets 
by  30 %.  There  have  been  some  signs  that  the  locations  of  the  Alko  outlets  have  tended  to 

29  Smart  specialisation  means  identifying  the  unique  characteristics  and  assets  of  each  country  and  region, 
highlighting each region’s competitive advantages, and rallying regional stakeholders and resources around an 
excellence-driven vision of their future. 
30 NRP p. 33. 

21 

 
 
                                                 
favour the retail grocery duopoly. The government has declared that it will influence, through 
its ownership position, the location decisions of sales outlets of Alko. 

Concerns have been raised that the municipal zoning rules and procedures make it very 
difficult  to  open  new  large  stores,  in  particular  as  the  two  dominant  players  have 
acquired  most  of  the  potential  sites.  The  programme  on  healthy  competition  includes 
objectives for the removal of unnecessary and disproportionate restrictions on competition in 
legislation,  but  this  should  be  achieved  without  undermining  the  environmental  objectives. 
Legislation on city planning and construction and its practical application by authorities is a 
key area, in particular in the capital and other densely populated regions, given the importance 
of  location  for  a  number  of  activities  such  as  the  retail  grocery  trade  combined  with  the 
scarcity  of  such  locations  in  these  regions.  Measures  to  increase  competition  in  this  area 
include  an  action  programme  on  construction  and  changes  to  the  land  use  and  construction 
act. Pharmacies and waste management are also targeted under the programme. 

At  the  institutional  level,  the  Competition  Authority  was  merged  with  the  Consumer 
Agency in January 2013. This measure should help increase the impact of competition and 
consumer  policies  in  Finland.  However,  it  could  also  bring  benefits  in  terms  of  efficiency, 
although merging the different cultures could take some time and effort to complete. 

In response to the recommendation to increase competition neutrality, an amendment to 
the  competition  act  is  under  preparation  to  ensure  greater  neutrality  of  competition 
between  private  firms  that  compete  with  public  undertakings  in  selling  goods  and 
providing  services.  According  to  the  programme  on  healthy  competition,  the  Competition 
and Consumer Authority’s scope of jurisdiction will be extended to cover the supervision of 
competition  neutrality  related  to  the  supply  of  goods  and  services  that  can  be  considered 
economic activity within the public sector. The Authority should attempt, via negotiation in 
the first instance, to eliminate practices and structures that jeopardise competition neutrality. 
If  results  are  not  achieved  through  negotiation,  the  Authority  should  have  the  power  to  ban 
certain  activities  or  impose  obligations  to  ensure  equitable  operating  preconditions  in  the 
market.  The  government  will  regularly  assess  the  progress  of  the  programme,  deciding  on 
additional  measures  as  necessary.  Quarterly  progress  reports  will  be  submitted  to  the  to  the 
Cabinet Committee on Economic Policy The government announced that the Competition and 
Consumer  Authority’s  budget  will  be  strengthened  accordingly.  In  this  context,  an 
amendment of the local government act is also in preparation. It would require municipalities 
to incorporate their commercial activities to remove the privileges that these activities benefit 
from  (tax  exemption  and  protection  from  bankruptcy)  to  achieve  greater  competition 
neutrality  between  private  and  public  undertakings.  These  initiatives  are  ambitious  and 
credible and are likely to have a significant, positive impact over the coming years. 

The  general  level  of  competition  law  fines  in Finland is not sufficiently deterrent. This 
may influence the success of the Finnish leniency programme.31 This is recognised by the 
government that has declared its intention to launch a survey in 2013 on means to strengthen 
the  competition  enforcement  regime.  This  is  a  relevant,  but  not  yet  sufficiently  ambitious 
response to the recommendation to take further steps to ensure that competition law fines are 
sufficiently deterrent. 

31 Under this, participants in a cartel may obtain immunity from or reduction fines provided that they reveal their 
participation in the cartel to the competition authority in a timely manner. 

22 

 
 
                                                 
These  measures  seem  to  go  some  way  to  address  the  recommendations  of  2012,  even 
though it is still too early to assess the full impact of the reforms. 

Environment 

Under  the  Europe  2020  Strategy,  Finland  has  committed  itself  to  reduce  its  emissions 
not  covered  by  the  EU’s  Emission  Trading  System  (ETS)  by  16 %  between  2005  and 
2020. Based on the latest inventory data, in 2011 Finland reduced its (non-ETS) greenhouse 
gas emission by 9 % compared with 2005. The updated national energy and climate strategy 
concludes that Finland will meet its 2020 target with existing measures. 

Finland  has  engaged  upon  a  strategy  consisting  of  increasing  the  taxation  on 
environmental pollution and increasing the statutory requirements for energy efficiency. 
The country has put in place a number of greenhouse gas reduction measures, laid out in its 
long-term National Climate and Energy Strategy, and is continuously updating most of them 
through  legislation,  making  them  progressively  more  stringent.  An  update  of  the  National 
Energy  and  Climate  Strategy  was  submitted  in  late  March  2013.  The  strategy  focuses  on 
improving energy efficiency and increasing the share of renewables to reduce greenhouse gas 
emissions  by  80 %  by  2050.  Measures  include  the  tightening  of  building  energy  efficiency 
requirements, support for renewable energy, increasing the energy efficiency of road transport 
and  decreasing  oil  consumption  by  20 %  by  horizon  2020,  mainly  from  road  transport  and 
heating.  In  some  areas  additional  measures  could  be  foreseen:  there  is  currently  no 
disincentive for incineration, potentially leading to lost opportunities in recycling and the re-
use of materials. The energy tax on peat is taxed at much lower rate (on a per-unit-of-energy 
basis) compared to coal or natural gas, thus favouring this fuel despite the negative impacts of 
burning  and  harvesting  it,32,33.34  Environmental  taxes  are  not  indexed  in  Finland.  The 
government  is  committed  to  phasing  out  environmentally  harmful  subsidies,  but  contrary  to 
this objective, the refund system on energy tax payments for industry was extended in 2011 so 
that  85 %  of  energy  taxes  paid  are  refunded  when  the  taxes  paid  exceed  0.5 %  of  the  value 
added (previously 3.7 %) The subsidy could amount to EUR 120 million in 2012.35 

Energy policy 

Finnish energy policy is broadly in line with the main European policy guidelines and no 
recommendations  were  issued  in  2012.  Energy  policy  highlights  the  security  of  supply 
issues  from  a  national  perspective.  The  new  Energy  and  Climate  strategy  aims  to  create  a 
carbon-neutral country by 2050, building on energy efficiency and renewable energy but also 
nuclear energy. 

The  electricity  market  in  Finland  is  integrated  into  the  wholesale  electricity  market 
within  the  Nordic  countries  and  also  interconnected  with  the  Russian  Federation  and 
Estonia.  For  gas,  Finland  is  connected  only  to  the  Russian  transmission  system. 
Diversification  of  its  natural  gas  supply  options  through  an  LNG  terminal  or  a  pipeline 
interconnection with the Baltic States could make Finland less dependent on gas imports from 
Russia.  Electricity  self-sufficiency  is  only  expected  to  be  achieved  after  the  much-delayed 
Olkiluoto 3 nuclear reactor is completed. 

32 http://www.oecd.org/site/tadffss/FIN.pdf . 
33 For instance, see http://www.stat.fi/tup/khkinv/nir_2008_un_20080418.pdf, Table 3.2_6, p. 57-58. 
34 According to the Finnish River Basin Management Plans. 
35 Source: http://www.tem.fi/?s=2686&xmid=4787&C=97986. 

23 

 
 
                                                 
Finland has committed to reaching a target of 38 % of renewable energy sources in its 
final energy consumption and a 20 % share of renewable energy in the transport sector 
by 2020. Due to the high reliance on biomass to achieve its targets, the country needs to give 
special attention to sustainable biomass mobilisation. Also, Finland should complete the legal 
obligations  under  the  Renewable  Energy  Directive.  Finland  has  adopted  new  renewable 
energy measures since the adoption of the Renewable Energy Directive. Most importantly, it 
has adopted a feed-in premium, the Act on Production Support to Electricity from Renewable 
Energy Sources, which provides financial support to wind power, hydro power, biogas, other 
biomass sources, and CHP (combined heat and power). However, Finland still lacks effective 
measures to increase the use of renewable energy in the heating sector such as a measure that 
obliges buildings to use renewable energy sources. 

Finland’s  energy  intensity  is  high  compared  to  its  Nordic  neighbours  and  other  euro 
area  members.  The  industry  accounts  for  almost  half  of  the  final  energy  consumption. 
Within the manufacturing sector, the forestry industry is by far the largest energy consumer, 
followed  by  the  metal  and  the  chemical  industry.  High  energy  intensity  means  that  rising 
energy  prices  translate  into  increased  production  costs  for  Finnish  industries.  Although  the 
overall  high  energy  intensity  stems  from  the  dominance  of  energy-intensive  industries  in 
Finland, an improvement in the energy efficiency could enhance the competitive position of 
these  industries  by  lowering  the  cost  of  inputs.  Finland  has  set  a  national  energy  efficiency 
target to lower the consumption of energy from 323 TWh in 2010 to 310 TWh in 2020. 

3.5.  Modernisation of public administration 

Finland has continued to make progress in developing its public administration. Building 
on the success of the central government’s regional administration,36 progress has been made 
in  preparing  the  reform  of  the  municipalities,  social  and  healthcare  services.  While  Finland 
scores well on the quality of public administration, the number of independent municipalities 
still  appears  large  compared  to  the  population,  leading  to  possible  inefficiencies  in 
administration and service provision. Central government is implementing an efficiency and 
productivity programme and preparing to launch a network of citizen service points by 2014 
in the framework of  the ‘Customer service 2014’ project. 

The  2012  Council  Recommendations  for  Finland  contained  a  CSR  concerning  taking 
measures  to  achieve  productivity  gains  and  cost  savings  in  public  service  provision, 
including  structural  changes  and  efficiency-enhancing  territorial  administrative 
reforms,  also  in  order  to  respond  to  the  challenges  arising  from  an  ageing  population. 
The Commission has concluded that  Finland  has  made some progress  on measures taken to 
address the CSR. 
Ageing-related expenditure falls mainly under the auspices of the local municipalities.37 
It has been acknowledged that the municipalities should be large enough for services to 
be efficiently organised. The government has prepared a reform proposal on the municipal 
sector and also social and healthcare sectors. This is an ambitious and credible measure, as the 
draft law has already been submitted to the national parliament. The government has decided 
to  improve  the  efficiency  of  municipal  authorities  by  providing  financial  incentives  for 
voluntary  mergers,  possibly  resorting  to  forced  mergers  in  the  case  of  financially-troubled 

36 Assessment report provided by the government to the Parliament in February 2013, NRP p. 22. 
37 Municipalities are responsible for healthcare services and services provided to elderly persons, such as nursing 
homes and daycare. 

24 

 
 
                                                 
municipalities.  All  municipalities  not  fulfilling  certain  criteria  for  a  ‘healthy’  municipality 
have to assess the costs and benefits of the mergers by July 2014. The minimum size of the 
new emerging municipalities is set at 20 000 inhabitants with certain exceptions. The impact 
of  the  municipal  reform  on  productivity  and  costs  in  public  service  provision  will  only  be 
revealed  over  time.  The  goal  is  to  have  stronger  and  more  efficient  structures  for  public 
service provision in order to improve the productivity of these services. It remains to be seen 
whether the voluntary nature of the reforms is enough to bring about the change. 

The preparatory work on the reform of the social and healthcare service structure has 
been completed by a special working group. This group recommended the creation on 20-
30  social  and  health  care  districts.  Municipalities  with  at  least  20 000  inhabitants  would  be 
allowed  to  continue  to  independently  organise  their  provision  of  basic  services.  However, 
municipalities  with  less  than  20 000  inhabitants  would  lose  this  right.  In  order  to  guarantee 
equal level of services, some of the social and healthcare services currently provided by the 
municipalities would instead be provided by the social and healthcare districts responsible of 
providing all statutory services. Municipalities with a minimum of 50 000 inhabitants would 
guarantee these statutory services. In addition, every social and health care district belongs to 
one of the five special responsibility areas which aims to ensure an equal level of centralised 
services  and  an  efficient  use  of  resources.  These  recommendations  are  being  turned  into 
legislative proposals during 2015. The social and health care districts should be operational by 
1  January  2017.  Assessment  of  the  ambitiousness  of  the  reform  can  be  delivered  after  draft 
legislation is published. 

The  Finnish  government  has  implemented  an  action  plan  to  reduce  the  administrative 
burden on businesses by 25 % by 2012, but an external evaluation38 has indicated that 
not  much  progress  beyond  the  starting  point  has  been  made  (except  in  public 
procurement).  The  effect  of  the  proposed  municipal  reorganisation  on  public  procurement 
remains to be seen, but one danger is that the larger municipalities will put bigger lots out to 
tender, thus favouring bigger firms and disadvantaging SMEs. Furthermore, the complexity of 
the  public  procurement  legislation  can  also  lead  to  municipalities  favouring  as  few  lots  as 
possible.  There  are  no  incentives  for  the  municipalities  to  refer  any  observed  collusive 
behaviour  among  tenderers  to  the  Competition  and  Consumer  Authority  either.  The  public 
sector  could  benefit  from  more  efficient  investments  in  IT,  as  so  far  there  have  been  few 
productivity  improvements,  indicating  a  need  for  increased  efficiency  in  deployment  and 
additional structural and managerial changes. 

Overall,  the  progress  in  reforming  the  public  administration  has  been  limited  and, 
taking into account the challenges of an ageing population and diminishing labour force, 
more ambitious measures might be needed. 

38 Deloitte 2012, https://www.tem.fi/files/32917/TEMrap_15_2012.pdf  

25 

 
 
                                                 
4.  OVERVIEW TABLE 

2012 commitments 

Summary assessment 

Country-specific recommendations (CSRs) 

CSR  1:  Preserve  a  sound  fiscal  position  in  2012  and 
beyond by correcting any departure from the MTO that 
ensures  the  long-term  sustainability  of  public  finances. 
To  this  end,  reinforce  and  rigorously  implement  the 
budgetary  strategy,  supported  by  sufficiently  specified 
measures,  for  the  year  2013  and  beyond,  including 
meeting  the  expenditure  benchmark.  Continue  to  carry 
out annual assessments of the size of the ageing-related 
sustainability  gap  and  adjust  public  revenue  and 
expenditure in accordance with the long- term objectives 
and  needs.  Integrate  the  local  government  sector  better 
in the system of multi-annual fiscal framework including 
through measures to control expenditure. 

The Commission comes to the conclusion that 
Finland has made some progress on measures taken 
to address the CSR. The general government deficit 
reached 1.9 % of GDP in 2012 and in its spring 
forecast the Commission predicts a 1.8 % deficit for 
2013. The structural balance was -0.7 % in 2012 and 
is forecast to be -0.6 % in 2013 and -0.5 % in 2014. 
Finland did not meet its MTO (0.5 %) in 2012, but 
due to the negative growth, the improvement in 
structural balance was not achievable.  
Finland is carrying out an assessment of the 
sustainability gap. 
No measures to establish expenditure ceilings have 
been proposed at general government level, but 
local government expenditure is being adjusted 
through the adjustment of central government 
transfer payments to the municipalities which are 
subject to central government expenditure ceilings. 

CSR  2:  Take  further  measures  to  achieve  productivity 
gains  and  cost  savings  in  public  service  provision, 
including  structural  changes  and  efficiency-enhancing 
territorial  administrative  reforms,  also  in  order  to 
respond  to  the  challenges  arising  from  an  ageing 
population. 

is 

of  municipalities 

The  Commission  comes  to  the  conclusion  that 
Finland has made some progress on measures taken 
to  address  the  CSR.  Reform  on  the  number  and 
structure 
progressing. 
Legislation currently being proposed for adoption in 
July 2013 establishes criteria for municipalities that 
should consider and analyse mergers. There will be 
financial  incentives  for  mergers  but  no  forced 
mergers are envisaged. Merging municipalities will 
have  interim  periods  during  which  the  number  of 
staff  will  not  be  reduced,  etc.  The  reform  is  not 
expected 
results. 
Furthermore,  reform  on  health  and  social  services 
being planned. 

immediate 

produce 

to 

CSR 3: Implement the ongoing measures to improve the 
labour  market  position  of  young  people  and  the  long-
term  unemployed,  with  a  particular  focus  on  skills 
development. 

26 

The  Commission  comes  to  the  conclusion  that 
Finland has made substantial progress on measures 
taken  to  address  the  CSR.  The  measures  to  reduce 
long-term  and  youth  unemployment  (the  latter 
undertaken under a fully-fledged Youth Guarantee) 
are  relevant,  ambitious  and  credible.  However,  the 
underlying  policy  challenges  remain.  As  regards 
older  workers,  it  is  not  clear  what  measures  are 
being envisaged either in the National Working Life 
Development  Strategy  or  outside  it.  Since  no 

 
 
 
 
concrete  initiatives  or  numbers  have  been  set,  it  is 
difficult to assess relevance, ambition or credibility. 
Early  exit  pathways,  such  as  the  ‘unemployment 
pathway’, remain. 

CSR 4: Continue enhancing competition in product and 
service  markets,  especially  in  the  retail  sector,  by 
ensuring  the  effective  implementation  of  the  new 
Competition Act and the new programme on promoting 
healthy  competition.  Continue  to  further  opening  the 
municipal  procurement  of  services 
to  competitive 
bidding and by ensuring competition neutrality between 
private  and  public  undertakings.  Take  further  steps  to 
ensure  that  competition  law  fines  are  sufficiently 
deterrent. 

The  Commission  comes  to  the  conclusion  that 
Finland has made some progress on measures taken 
to  address  the  CSR.  To  improve  competition,  a 
programme to promote healthy competition was set 
up, aimed at increasing competition on the domestic 
market. Furthermore, on 1 January 2013 the Finnish 
Competition  and  Consumer  Authority  came  into 
operation.  Furthermore,  a  legislative  proposal  on 
dominant market position has been under discussion 
at government level since September 2012. 

The  Commission  comes  to  the  conclusion  that 
Finland has made some progress on measures taken 
to address the CSR. 

CSR  5:  In  order  to  strengthen  productivity  growth  and 
external  competitiveness,  continue  efforts  to  diversify 
the  business  structure,  in  particular  by  hastening  the 
introduction  of  planned  measures 
the 
innovation  base  while  continuing  to  align  wage  and 
productivity  developments  fully  respecting  the  role  of 
social partners and in line with national practices. 

to  broaden 

in 

in  relation 

to  diversification  of 

the  right 
The  government’s  measures  are 
direction 
the 
business  structure.  The  adequacy  of  the  response 
can  be  measured  and  evaluated  once  there  is  more 
data  available  (e.g.  on  the  impact  on  exports  and 
export  market 
of 
competitiveness  and  the  need  to  facilitate  the 
restructuring in the ICT sector are ongoing issues in 
the public policy debate. 

share).  The 

problem 

The  current  wage  agreement  comes  to  an  end  in 
2013,  but  the  labour  market  partners  have  not  yet 
reached  an  agreement  on  its  follow-on.  There  has 
not been an ambitious, relevant or credible response 
to 
the  wage 
component. 

the  recommendation  as  regards 

Employment rate target: 78 % 

Europe 2020 (national targets and progress) 

73.8 % (2011) 

74.0 % (2012) 

The  average  annual  employment  growth  required  to 
reach  the  target  is  0.2 %  in  2011-2020.  This  will 
depend  on  economic  climate  but  will  also  require 
national efforts. The NRP provides a target until 2015: 
74.5 %. 

R&D target: 4.0% 

3.87% (2010) 

27 

 
 
 
 
 
  
 
Greenhouse gas (GHG) emissions target:  
-16 % (compared to 2005 emissions, ETS emissions not 
covered by this national target) 

3.78% (2011) 

Change  in  non-ETS  greenhouse  gas  emissions 
between 2005 and 2011: -9%. 

to 

the 

latest  national  projections 
According 
submitted  to  the  Commission  and  when  existing 
measures  are  taken  into  account,  the  target  is 
expected to be achieved by a narrow margin: -16 % 
in 2020 compared to 2005. 

Renewable energy target: 38 % 
Share of renewable energy in the transport sector: 10 % 

Share  of  total  renewable  energy  in  gross  final 
energy consumption was 31.8 % in 2011 and 0.4 % 
in the transport sector.  

Energy efficiency - reduction of energy consumption in 
Mtoe: 310 TWh in final energy consumption in 2020. 
This implies reaching the level of 35.86 Mtoe primary 
consumption and 26.66 Mtoe final energy consumption. 

Finland has set a national energy efficiency target to 
lower the consumption of energy from 323 TWh in 
2010 to 310 TWh in 2020. 2011 level was 320 TWh 

Early school leaving target: 8 % 

Tertiary education target: (42 %, narrow national 
definition) 

Risk of poverty or social exclusion target: Reduction the 
number of persons at risk to 770 000 

Finland  performs  significantly  better  than  the  EU 
average for the early school-leaving rate. In Finland 
it  was  8.9 %  v.  an  EU  average  of  12.8 %  in  2012. 
However, it tends to be significantly higher among 
people  with  migrant  background  and  the  trend  is 
moving  upwards.  The  overall  rate  of  ESL  has 
remained fairly stable for the last decade. 

For  the  period  2011-2012  the  early  school-leaving 
rate has decreased by 0.9 pps. 

The  same  applies  to  the  tertiary  attainment  rate, 
with 45.8 % in Finland as against an EU average of 
35.8 %  in  2012.  Finland  has  reached  both  its 
national and the EU headline target for 2020. 

For  the  period  2011-12  the  tertiary  attainment  rate 
has decreased by 0.2 pps. 

920 000 

(2011)

According to the NRP, achieving the target requires 
reducing the number of people at risk of poverty or 
social exclusion by around 150 000. The NRP 2013 
acknowledges  that  this  will  be  challenging  as 
poverty is increasing, in particular in urban areas. 

28 

 
 
 
 
 
5.  ANNEX 

Table I. Macroeconomic indicators 

Core indicators
GDP growth rate
Output gap 1
HICP (annual % change)
Domestic demand (annual % change) 2
Unemployment rate (% of labour force) 3
Gross fixed capital formation (% of GDP)
Gross national saving (% of GDP)
General Government (%  of GDP)
Net lending (+) or net borrowing (-)
Gross debt
Net financial assets 
Total revenue 
Total expenditure
  of which: Interest
Corporations (%  of GDP)
Net lending (+) or net borrowing (-)

1995-
1999

2000-
2004

2005-
2009

2010

2011

2012

2013

2014

4.5
0.0
1.1
4.3
12.9
18.6
23.4

-1.5
52.3
17.3
55.1
56.6
3.8

3.1
0.7
1.8
2.9
9.2
19.4
27.2

4.3
43.3
35.8
53.4
49.1
2.2

0.9
1.1
1.8
1.2
7.5
20.5
24.9

2.9
38.8
63.1
53.2
50.3
1.4

3.3
-3.2
1.7
2.9
8.4
18.9
20.1

-2.5
48.6
65.5
53.0
55.5
1.1

2.8
-1.2
3.3
4.4
7.8
19.6
19.7

-0.8
49.0
54.0
53.9
54.7
1.1

-0.2
-2.0
3.2
-1.7
7.7
19.4
17.9

-1.9
53.0
n.a
53.7
55.6
1.0

0.3
-2.2
2.4
0.3
8.1
19.2
17.5

-1.8
56.2
n.a
54.5
56.3
1.0

1.0
-1.8
2.2
0.9
8.0
19.4
17.6

-1.5
57.7
n.a
55.2
56.7
1.0

6.3

4.8

3.4

5.3

2.2

4.5

4.0

3.4

n.a
n.a
8.6
20.7

n.a
n.a
8.8
19.9

n.a
n.a
8.8
21.4

-3.0
n.a
41.7
3.8
22.7
4.5

-148.4
2.5
10.7
25.1

-130.5
3.7
8.7
21.9

-100.7
5.4
11.0
21.9

-140.4
1.5
11.5
24.6

-166.3
3.2
10.9
26.4

-0.8
67.1
42.0
4.1
22.7
6.5

-0.3
53.2
38.5
3.5
23.3
5.2

-2.6
62.7
39.8
4.1
20.1
4.8

-1.8
67.0
38.3
4.5
20.1
4.7

-2.2
54.6
41.4
4.0
22.2
5.3

Net financial assets; non-financial corporations
Net financial assets; financial corporations
Gross capital formation
Gross operating surplus
Households and NPISH (%  of GDP)
Net lending (+) or net borrowing (-)
Net financial assets
Gross wages and salaries
Net property income
Current transfers received
Gross saving
Rest of the world (%  of GDP)
Net lending (+) or net borrowing (-)
Net financial assets
Net exports of goods and services
Net primary income from the rest of the world
Net capital transactions 
Tradable sector
Non tradable sector
  of which: Building and construction sector
Real effective exchange rate (index, 2000=100)
Terms of trade goods and services (index, 2000=100)
Market performance of exports (index, 2000=100)
Notes:
1 The output gap constitutes the gap between the actual and potential gross domestic product at 2005 market prices.
2 The indicator on domestic demand includes stocks.
3  Unemployed persons are all persons who were not employed, had actively sought work and were ready to begin working immediately or within two weeks. 
The labour force is the total number of people employed and unemployed. The unemployment rate covers the age group 15-74.

-1.2
-11.6
-0.7
0.5
0.1
39.8
46.5
5.9
106.1
92.3
93.3

1.7
-4.2
1.3
1.5
0.1
40.2
46.8
5.9
105.6
94.1
95.9

-1.5
n.a
-0.6
-0.1
0.1
39.2
46.9
5.9
104.9
90.4
91.0

5.0
76.1
7.8
-2.3
0.1
46.3
40.4
4.9
104.0
111.8
95.4

3.6
13.8
3.9
0.7
0.1
43.1
44.0
6.1
102.7
96.8
103.1

7.3
60.7
8.2
-0.1
0.1
46.4
40.8
5.3
95.5
105.9
103.2

-1.5
n.a
-1.1
0.1
0.2
n.a
n.a
n.a
109.3
89.3
88.4

-1.4
n.a
-0.9
0.0
0.2
n.a
n.a
n.a
108.0
89.9
89.9

-2.3
n.a
42.1
3.9
23.4
5.2

-2.6
n.a
41.9
3.8
23.2
4.8

Source :
Commission services’ 2013 spring forecasts (COM); Stability programme (SP).

29 

 
 
 
Table II. Comparison of macroeconomic developments and forecasts 

Real GDP (% change)
Private consumption (% change)
Gross fixed capital formation (% change)
Exports of goods and services (% change)
Imports of goods and services (% change)
Contributions to real GDP growth:
- Final domestic demand
- Change in inventories
- Net exports
Output gap1
Employment (% change)
Unemployment rate (%)
Labour productivity (% change)
HICP inflation (%)
GDP deflator (% change)
Comp. of employees (per head, % change)
Net lending/borrowing vis-à-vis the rest of 
the world (% of GDP)

2012
COM SP
-0.2
-0.2
1.6
1.6
-2.9
-2.9
-1.4
-1.4
-3.7
-3.7

2013
COM SP
0.4
0.6
-2.5
0.7
0.5

0.3
0.7
-1.5
0.5
0.6

2014
COM SP
1.6
1.0
2.8
3.8
3.3

1.0
0.8
1.8
3.1
2.9

2015
SP
2.1
1.6
3.0
4.1
3.5

2016
SP
1.7
1.7
1.9
5.0
4.6

2017
SP
1.6
1.7
1.9
5.0
4.6

0.5
-2.2
1.0
-2.0
0.3
7.7
-0.5
3.2
2.8
3.0
-1.5

0.5
-1.7
1.0
-1.8
0.4
7.7
-0.6
3.2
2.8
2.9
-1.5

0.3
0.0
0.0
-2.2
-0.4
8.1
0.7
2.4
1.9
3.3
-1.4

0.3
0.0
0.1
-1.9
-0.5
8.2
1.0
2.7
2.5
2.5
-1.0

0.9
0.0
0.1
-1.8
0.2
8.0
0.8
2.2
1.9
3.4
-1.5

1.3
0.1
0.2
-1.3
0.1
8.1
1.4
2.4
2.3
2.7
-0.6

1.6
0.2
0.2
-0.5
0.7
7.9
1.4
1.8
2.2
2.5
-0.4

1.6
-0.1
0.2
0.0
0.2
7.7
1.4
2.0
2.2
3.0
-0.3

1.6
-0.1
0.2
0.3
0.3
7.6
1.4
2.0
2.2
3.0
-0.2

Note:
1In percent of potential GDP, with potential GDP growth recalculated by Commission services on the basis of the programme scenario 
using the commonly agreed methodology.

Source :
Commission services’ 2013 spring forecasts (COM); Stability programme (SP).

30 

 
 
 
Table III. Composition of the budgetary adjustment 

(% of GDP)

Revenue
of which:
- Taxes on production and imports
- Current taxes on income, wealth, etc.
- Social contributions
- Other (residual)
Expenditure
of which:
- Primary expenditure

of which:

Compensation of employees
Intermediate consumption
Social payments
Subsidies
Gross fixed capital formation
Other (residual)
- Interest expenditure
General government balance (GGB)
Primary balance
One-off and other temporary measures
GGB excl. one-offs

Output gap

2

Cyclically-adjusted balance

2

3
Structural balance (SB)
Change in SB
Two year average change in SB 

2012

2013

2014

2015

2016

2017

COM COM SP
54.4
54.5
53.7

1
COM
55.2

14.3
15.9
13.0
10.5
55.6

14.6
16.3
13.0
10.6
56.3

14.6
16.3
12.9
10.6
56.3

14.9
16.4
13.1
10.8
56.7

SP
54.8

14.7
16.4
13.0
10.7
56.1

SP
54.7

14.4
16.5
13.0
10.8
55.6

SP
54.9

14.3
16.6
13.0
11.0
55.5

SP
54.9

14.1
16.7
13.0
11.1
55.4

54.6

55.3

55.3

55.7

55.1

54.5

54.3

54.1

14.3
11.6
21.3
1.4
2.6
3.3
1.0
-1.9
-0.8
-0.1
-1.8

-2.0

-0.8

-0.7
-0.7
0.0

14.4
11.9
21.8
1.4
2.6
3.2
1.0
-1.8
-0.8
0.0
-1.8

-2.2

-0.6

-0.6
0.1
-0.3

14.3
11.9
21.8
1.4
2.6
3.3
1.0
-1.9
-0.9
0.0
-1.9

-1.9

-0.9

-0.9
-0.1
-0.4

14.5
12.0
22.1
1.3
2.6
3.3
1.0
-1.5
-0.5
0.0
-1.5

-1.8

-0.5

-0.5
0.1
0.1

14.2
11.9
21.9
1.3
2.6
3.2
1.0
-1.3
-0.3
0.0
-1.3

-1.3

-0.6

-0.6
0.3
0.1

13.9
11.8
21.9
1.3
2.5
3.1
1.1
-0.9
0.2
0.0
-0.9

-0.5

-0.6

-0.6
0.0
0.1

13.8
11.9
22.0
1.2
2.4
3.1
1.2
-0.7
0.5
0.0
-0.7

0.0

-0.7

-0.7
0.0
0.0

13.6
11.9
22.2
1.2
2.3
3.0
1.3
-0.5
0.8
0.0
-0.5

0.3

-0.6

-0.6
0.0
0.0

Change: 
2012-2017

SP
1.2

-0.2
0.8
0.0
0.6
-0.2

-0.5

-0.7
0.3
0.9
-0.2
-0.3
-0.3
0.3
1.4
1.6
0.1
1.3

2.3

0.2

0.1
-
-

3

5

0.3

0.51

0.4
0.1

0.5
0.1

0.5
0.1

0.4
0.3

0.1
-0.2

 (% GDP)

Structural primary balance
Change in structural primary balance
Expenditure benchmark
Applicable reference rate4
Deviation
Two-year average deviation (% GDP)
Notes:
1On a no-policy-change basis.
2Output gap (in % of potential GDP) and cyclically-adjusted balance according to the programme as recalculated by Commission services 
on the basis of the programme scenario using the commonly agreed methodology.
3Structural (primary) balance = cyclically-adjusted (primary) balance excluding one-off and other temporary measures.

0.5
0.1

0.7
0.1

0.4
-

-0.13

1.45

0.78

0.51

0.78

0.78

-0.4

-0.3

-0.2

n.a.

n.a.

n.a.

0.4

0.3

0.2

0.2

0.1

0.4

0.0

0.2

0.2

0.2

0.1

-
-

-

4 Reference medium-term rate of potential GDP growth. The (standard) reference rate applies from year t+1, if the country has reached its 
M TO in year t. A lower  rate applies as long as the country is adjusting towards its M TO, including in year t.The reference rates applicable 
to 2014 onwards have been updated in 2013. 
5 Deviation of the growth rate of public expenditure net of discretionary revenue measures and revenue increases mandated by law from the 
applicable reference rate. The expenditure aggregate used for the expenditure benchmark is obtained following the commonly agreed 
methodology. A positive sign implies that expenditure growth exceeds the applicable reference rate. 

Source :
Stability programme (SP); Commission services’ 2013 spring forecasts (COM); Commission services’ calculations.

31 

 
 
  
 
Table IV. Debt dynamics 

(% of GDP)

1
Gross debt ratio
Change in the ratio
Contributions 2 :

1. Primary balance

2. “Snow-ball” effect

Of which:

Interest expenditure

Growth effect

Inflation effect

3. Stock-flow adjustment

Of which:

Cash/accruals diff.

Acc. financial assets

Privatisation

Val. effect & residual

Gap to the debt benchmark5,6
Structural adjustment7
To be compared to:
Required adjustment8
Notes:

Average
2007-2011

42.1

1.9

-2.0

0.1

1.2

-0.3

-0.8

3.8

2012

53.0

4.0

0.8

-0.2

1.0

0.1

-1.4

3.4

0.8

-0.1

1.0

-0.1

-1.0

2.5

2013

2014

COM

56.2

3.1

SP

56.3

3.3

COM

57.7

1.5

SP

57.3

1.0

2015
SP

57.5

0.2

2016
SP

57.0

-0.5

2017
SP

56.5

-0.5

0.9

-0.5

1.0

-0.2

-1.3

2.9

0.0

2.1

-0.2
-0.7

4

SP

n.r.

n.r.

0.5

-0.6

1.0

-0.5

-1.0

1.6

2014

COM / 
SP3
n.r.

n.r.

0.3

-1.1

1.0

-0.9

-1.2

1.8

0.0

2.1

-0.2
-2.4

4

SP

n.r.

n.r.

-0.2

-1.2

1.1

-1.2

-1.2

1.7

0.0

2.1

-0.2
-2.8

-0.5

-1.0

1.2

-0.9

-1.3

1.0

0.0

2.1

-0.2
-3.2

-0.8

-0.8

1.3

-0.9

-1.2

1.1

0.0

1.9

-0.2
-3.0

2015

2016

2017

SP

n.r.

n.r.

SP

n.r.

n.r.

SP

n.r.

n.r.

n.r.

n.r.

n.r.

n.r.

n.r.

n.r.

2013

2012

n.r.

n.r.

n.r.

COM / 
SP3
n.r.

n.r.

n.r.

1End of period.
2The snow-ball effect captures the impact of interest expenditure on accumulated debt, as well as the impact of real GDP growth and 
inflation on the debt ratio (through the denominator). The stock-flow adjustment includes differences in cash and accrual accounting, 
accumulation of financial assets and valuation and other residual effects. 

3 Assessment of the consolidation path set in SP assuming growth follows the COM  forecasts.
4Assessment of the consolidation path set in the SP assuming growth follows the SP projections.
5Not relevant for M ember Sates that were subject to an EDP procedure in November 2011 and for a period of three years following the 
correction of the excessive deficit.
6Shows the difference between the debt-to-GDP ratio and the debt benchmark. If positive, projected gross debt-to-GDP ratio does not 
comply with the debt reduction benchmark.
7Applicable only during the transition period of three years from the correction of the excessive deficit for EDP that were ongoing in 
November 2011.

8Defines the remaining annual structural adjustment over the transition period which ensures that - if followed – M ember State will 
comply with the debt reduction benchmark at the end of the transition period, assuming that COM  (SP) budgetary projections for the 
previous years are achieved.

Source :

Stability programme (SP); Commission services’ spring 2013 forecasts (COM); Commission services’ calculations.

32 

 
 
 
 
 Table V. Sustainability indicators 

S2

of which:

Initial budgetary position (IBP)

Long-term cost of ageing (CoA)

of which:

Pensions

Health care

Long-term care

Others

S1 (required adjustment)*

of which:

Initial budgetary position (IBP)

Debt requirement (DR)

Long-term cost of ageing (CoA)

S0 (risk for fiscal stress)**

Debt,  % of GDP (2012)

Age-related expenditure, % of GDP (2012)

FI

EU27

No-policy 
change 
scenario 

Programme 
(SCP) 
scenario

No-policy 
change 
scenario 

Programme 
(SCP) 
scenario

6.2

1.3

4.9

2.1

0.7

1.9

0.3

2.1

-0.3

-0.2

2.6

6.3

2.1

4.2

1.5

0.6

1.8

0.3

2.6

-0.2

-0.2

3.0

3.0

0.8

2.2

1.0

0.9

0.6

-0.4

2.2

0.0

1.9

0.3

0.13

53.0

28.0

:

87.0

25.8

1.3

-0.9

2.2

1.1

0.8

0.6

-0.3

0.5

-1.8

1.9

0.4

Note: 
The 'No-policy change' scenario depicts the sustainability gap under the assumption that the budgetary position evolves 
according to the Commissions' spring 2013 forecast until 2014. The 'Programme (SCP)' scenario depicts the sustainability gap 
under the assumption that the budgetary plans in the programme are fully implemented.
* The required adjustment of the primary balance until 2020 to reach a public debt of 60% of GDP by 2030.              
** The critical threshold for the S0 indicator is 0.44. 

Source : 
Commission services; 2013 stability programme.                                                                                                                               

(% of GDP)

Gross debt as % of GDP - FI - Medium term debt projections

120

100

80

60

40

20

0

0
9
9
1

2
9
9
1

4
9
9
1

6
9
9
1

8
9
9
1

0
0
0
2

2
0
0
2

4
0
0
2

6
0
0
2

8
0
0
2

0
1
0
2

2
1
0
2

4
1
0
2

6
1
0
2

8
1
0
2

0
2
0
2

2
2
0
2

4
2
0
2

6
2
0
2

8
2
0
2

0
3
0
2

COM no-policy change scenario

COM + Shock ( -1p.p. in the short-term/long-term interest rate on maturing and new debt from 2015)

COM + Shock (+1p.p. in the short-term/long-term interest rate on maturing and new debt from 2015)

COM consolidation scenario (0.5% per year on SB) in order to achieve MTO

COM consolidation scenario (1% per year on SB) in order to achieve MTO

SCP scenario

33 

 
 
 
 
Table VI. Taxation indicators  

Total tax revenues (incl. actual compulsory social contributions, % of GDP)

44.7

43.8

42.9

42.8

42.5

43.4

2002

2006

2008

2009

2010

2011

Breakdown by economic function (% of GDP)1
     Consumption

              of which:

              - VAT

              - excise duties on tobacco and alcohol

             - energy

             - other (residual)

     Labour employed

     Labour non-employed

     Capital and business income

     Stocks of capital/wealth
     p.m.  Environmental taxes 2
3
VAT efficiency
     Actual VAT revenues as % of theoretical revenues at standard rate

13.4

13.5

12.8

13.3

13.2

14.0

8.1

1.4

2.0

1.9

8.7

1.0

1.8

2.1

8.4

0.9

1.7

1.8

8.7

1.1

1.8

1.7

8.5

1.1

1.8

1.8

8.9

1.1

2.1

1.9

20.9

20.2

20.3

21.1

20.1

20.1

2.4

6.7

1.3

3.1

2.4

6.3

1.3

3.0

2.3

6.2

1.3

2.7

2.5

4.6

1.3

2.6

2.5

5.2

1.4

2.8

2.6

5.3

1.4

3.1

58.2

60.6

57.9

55.5

52.0

54.8

Note: 
1 Tax revenues are broken down by economic function, i.e. according to whether taxes are raised on consumption, labour or capital. See European Commission 
(2013) Taxation trends in the European Union, for a more detailed explanation.

2 This category comprises taxes on energy, transport and pollution and resources included in taxes on consumption and capital.

3 The VAT efficiency is measured via the VAT revenue ratio. The VAT revenue ratio is defined as the ratio between the actual VAT revenue collected and the 
revenue that would theoretically be raised if VAT was applied at the standard rate to all final consumption. A low ratio can indicate a reduction of the tax base due 
to large exemptions or the application of reduced rates to a wide range of goods and services ('policy gap') or a failure to collect all tax due to e.g. fraud ('collection 
gap'). See European Commission (2012), Tax reforms in EU M ember States, European Economy 6/2012 and Taxation Papers 34/2012 for a more detailed 
explanation.

Source: Commission

34 

 
 
 
Table VII. Financial markets indicators 

Total assets of the banking sector (% of GDP)

213.4

231.8

268.7

340.1

308.7

2008

2009

2010

2011

2012

Share of assets of the five largest banks (% of total assets)

Foreign ownership of banking system (% of total assets)
Financial soundness indicators:
              - non-performing loans (% of total loans)1)
              - capital adequacy ratio (%) 2)
              - return on equity (%) 2)
Bank loans to the private sector (year-on-year % change)

Lending for house purchase (year-on-year % change)

Loan to deposit ratio

CB liquidity as % of liabilities
Banks' exposure to countries receiving official financial assistance  (% of GDP)3)
Private debt (% of GDP)
Gross external debt (% of GDP)4)
            - Public
            - Private

Long term interest rates spread versus Bund (basis points)*

Credit default swap spreads for sovereign securities (5-year)*
Notes: 

1) Latest data (June 2012). Nonperforming loans reported net of specific provisions.
2)  Latest data (June 2012).
3) Covered countries are CY, EL, ES, LV, HU, IE, PT and RO.
4) Latest data 2012Q3.

* M easured in basis points.

Source :

82.8

69.5

0.4
13.6

12.2

11.6

8.8

82.6

67.1

0.6
14.6

10.0

0.9

6.4

83.8

…

0.6
14.4

9.2

5.6

6.8

80.9

…

0.5
14.2

10.1

8.5

6.6

…

…

0.5
15.2

11.5

7.1

5.6

143.7

142.9

143.5

142.3

139.8

1.1

0.0

0.8

0.0

0.1

1.1

0.4

0.8

0.7

0.4

93.5

104.0

105.2

106.9

114.2

28.8
51.6

0.3

28.7

37.9
52.5

0.5

38.3

43.3
52.0

0.3

29.5

45.9
47.1

0.4

49.2

48.6
51.5

0.4

56.6

Bank for International Settlements and Eurostat (exposure to macro-financially vulnerable countries), IMF (financial soundness indicators), 
Commission (long-term interest rates), World Bank (gross external debt) and ECB (all other indicators).

35 

 
 
 
Table VIII. Labour market and social indicators 

Labour market indicators
Employment rate
(% of population aged 20-64)
Employment growth 
(% change from previous year)
Employment rate of women
(% of female population aged 20-64)
Employment rate of men 
(% of male population aged 20-64)
Employment rate of older workers 
(% of population aged 55-64)
Part-time employment (% of total employment, 
15 years and more)
Part-time employment of women  (% of women employment, 15 
years and more)
Part-time employment of men  (% of men employment, 15 years 
and more)
Fixed term employment (% of employees with a fixed term 
contract, 15 years and more)
Transitions from temporary 
to permanent employment
Unemployment rate1 (% of labour force, 
age group 15-74)
Long-term unemployment rate2 (% of labour force)
Youth unemployment rate 
(% of youth labour force aged 15-24)
Youth NEET rate (% of population aged 15-24)

Early leavers from education and training (% of pop. 18-24 with at 
most lower sec. educ. and not in further education or training)

Tertiary educational attainment (% of population 30-34 having 
successfully completed tertiary education)
Formal childcare (from 1 to 29 hours; % over the population less 
than 3 years)
Formal childcare (30 hours or over; % over the population less 
than 3 year)
Labour productivity per person employed (annual % change)

Hours worked per person employed  (annual % change)
Labour productivity per hour worked (annual % change; constant 
prices)

Compensation per employee (annual % change; constant prices)

Nominal unit labour cost growth (annual % change)

Real unit labour cost growth (annual % change)

2007

2008

2009

2010

2011

2012

74.8

75.8

73.5

73.0

73.8

74.0

2.2

72.5

77.2

55.0

14.1

19.3

9.3

2.6

73.1

78.4

56.5

13.3

18.2

8.9

-2.6

72.4

74.7

55.5

14.0

19.0

9.2

15.9

15.0

14.6

0.4

6.9

1.6

1.4

6.4

1.2

2.3

8.2

1.4

16.5

16.5

21.5

7.0

9.1

7.8

9.8

9.9

9.9

-0.1

71.5

74.5

56.2

14.6

19.6

10.0

15.5

1.9

8.4

2.0

21.4

9.0

10.3

1.1

71.9

75.6

57.0

14.9

19.6

10.6

15.6

5.0

7.8

1.7

0.3

72.5

75.5

58.2

15.1

20.1

10.3

15.6

:

7.7

1.7

20.1

18.8

8.4

9.8

8.6

8.9

47.3

45.7

45.9

45.7

46.0

45.8

6.0

20.0

3.1

-0.1

3.2

0.6

0.5

-2.4

5.0

21.0

-2.2

-1.0

-1.2

1.4

6.7

3.7

6.0

21.0

-6.1

-0.9

-5.2

0.8

9.0

7.4

8.0

6.0

20.0

20.0

3.4

0.3

3.1

1.3

-1.6

-2.0

1.7

0.2

1.5

0.3

1.8

-1.3

:

:

-0.5

-0.5

0.0

0.2

3.6

0.7

Notes:
1 Unemployed persons are all persons who were not employed, had actively sought work and were ready to begin working immediately or within 
two weeks. The labour force is the total number of people employed and unemployed.

2 Long-term unemployed are unemployed persons for at least 12 months.

Sources: 
Commission (EU Labour Force Survey and European National Accounts) 

36 

 
 
 
Expenditure on social protection benefits (% of 
GDP)
Sickness/Health care

Invalidity

Old age and survivors

Family/Children

Unemployment

Housing and Social exclusion n.e.c.

Total

of which:  means tested benefits
Social inclusion indicators
At-risk-of-poverty or social exclusion1 
(% of total population)
At-risk-of-poverty or social exclusion of children 
(% of people aged 0-17)
At-risk-of-poverty or social exclusion of elderly 
(% of people aged 65+)
At-Risk-of-Poverty rate2 (% of total population)
Severe Material Deprivation3  (% of total population)
Share of people living in low work intensity households 4 (% of 
people aged 0-59)
In-work at-risk-of poverty rate (% of persons employed)
Impact of social transfers (excluding pensions) on reducing 
poverty
Poverty thresholds, expressed in national currency at constant 
prices5
Gross disposable income (households)
Relative median poverty risk gap (60% of median equivalised 
income, age: total)

2006

2007

2008

2009

2010

6.70

3.24

9.67

2.96

2.19

0.27

25.58

1.22

6.48

3.10

9.45

2.86

1.91

0.24

24.58

1.10

6.79

3.20

9.63

2.94

1.80

0.42

25.36

1.06

7.56

3.62

11.40

3.33

2.41

0.49

29.54

1.27

7.50

3.59

11.65

3.30

2.45

0.52

29.74

1.31

2007

2008

2009

2010

2011

17.4

15.1

23.1

13.0

3.6

8.7

5.0

17.4

15.1

23.9

13.6

3.5

7.3

5.1

16.9

14.0

23.1

13.8

2.8

8.2

3.7

16.9

14.2

19.5

13.1

2.8

9.1

3.7

17.9

16.1

19.8

13.7

3.2

9.8

3.9

55.0

50.2

47.3

51.5

50.0

11222

11691

11915

11939

12004

97668

103509

106576

111065

115039

14.1

15.7

15.1

13.8

13.5

Notes:
1 People at-risk-of poverty or social exclusion (AROPE): individuals who are at-risk-of poverty (AROP) and/or suffering from severe 
material deprivation (SM D) and/or living in household with zero or very low work intensity (LWI).
2 At-risk-of poverty rate (AROP): share of people with an equivalised disposable income below 60% of the national equivalised median 
income. 
3 Share of people who experience at least 4 out of 9 deprivations: people cannot afford to i) pay their rent or utility bills, ii) keep their 
home adequately warm, iii) face unexpected expenses, iv) eat meat, fish, or a protein equivalent every second day, v) enjoy a week of 
holiday away from home once a year, vi) have a car, vii) have a washing machine, viii) have a colour tv, or ix) have a telephone.
4 People living in households with very low work intensity: share of people aged 0-59 living in households where the adults (excluding 
dependent children) work less than 20% of their total work-time potential during the previous 12 months.

5 For EE, CY, M T, SI, SK, thresholds in nominal values in Euros; HICP -  index 100 in 2006 (2007 survey refers to 2006 incomes)

Sources: 
For expenditure for social protection benefits ESSPROS; for social inclusion EU-SILC.

37 

 
 
 
Table IX. Product markets performance and policy indicators 

Performance indicators

Labour productivity1 total economy (annual 
growth in %)
Labour productivity1 in manufacturing (annual 
growth in %)
Labour productivity1 in electricity, gas, steam and 
air conditioning supply (annual growth in %)
Labour productivity1 in the construction sector 
(annual growth in %)
Total number of patent2 applications per million of 
labour force

Policy indicators

Enforcing contracts 3 (days)
Time to start a business 3 (days)
R&D expenditure (% of GDP)
Tertiary educational attainment 
(% of 30-34 years old population)
Total public expenditure on education 
(% of GDP)

Product market regulation4, Overall
(Index; 0=not regulated; 6=most regulated)
Product market regulation4, Retail
(Index; 0=not regulated; 6=most regulated)
Product market regulation4, Network Industries 5
(Index; 0=not regulated; 6=most regulated)

2003-
2007

2.7

8.3

2.3

0.1

2008

2009

2010

2011

2012

-2.2

-6.1

3.4

-6.6

-19.9

13.5

1.7

2.7

-0.5

-0.5

-8.2

0.3

-6.0

-3.2

9.7

6.8

-2.2

n.a.

2.0

-2.6

499.8

457.5

451.1

436.8

n.a.

n.a.

2003-
2007
243

17

3.5

2008

2009

2010

2011

2012

235

14

3.7

375

14

3.9

375

14

3.9

375

14

3.8

375

14

n.a.

44.5

45.7

45.9

45.7

46.0

45.4

6.25

6.10

6.81

6.84

n.a.

n.a.

2007

2008

2009

2010

2011

2012

n.a.

n.a.

1.2

3.1

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

2.2

n.a.

n.a.

n.a.

n.a.

n.a.

Notes:
1 Labour productivity is defined as gross value added (in constant prices) divided by the number of persons employed.
2 Total number of patent applications to the European Patent Office (EPO) per million of labour force
3 The methodologies, including the assumptions, for this indicator are presented in detail on the website 
http://www.doingbusiness.org/methodology. 

4 The methodologies of the product market regulation indicators are presented in detail on the website 
http://www.oecd.org/document/1/0,3746,en_2649_34323_2367297_1_1_1_1,00.html. The latest available product market 
regulation indicators refer to 2003 and 2008, except for Network Industries.
5 Aggregate Energy, Transport and Communications Regulation (ETCR).
*figure for 2007.

Source :
Commission, World Bank - Doing Business  (for enforcing contracts and time to start a business) and OECD (for the 
product market regulation indicators). 

38 

 
 
 
Table X. Green Growth 

Green Growth performance

Macroeconomic
Energy intensity 
Carbon intensity 
Resource intensity (reciprocal of resource productivity)
Waste intensity 
Energy balance of trade 
Energy weight in HICP
Difference between change energy price and inflation 
Environmental taxes over labour taxes
Environmental taxes over total taxes

Sectoral 

Industry energy intensity 
Share of energy-intensive industries in the economy
Electricity prices for medium-sized industrial users**
Gas prices for medium-sized industrial users***
Public R&D for energy 
Public R&D for the environment
Recycling rate of municipal waste
Share of GHG emissions covered by ETS*
Transport energy intensity
Transport carbon intensity
Security of energy supply
Energy import dependency
Diversification of oil import sources 
Diversification of energy mix
Share renewable energy in energy mix

kgoe / €
kg / €
kg / €
kg / €
% GDP
%
%
ratio
ratio

kgoe / € 
% GDP
€ / kWh
€ / kWh
% GDP
% GDP
ratio
%
kgoe / €
kg / €

%
HHI
HHI
%

2002-
2006

0.25
0.53
1.38
n.a.
-2.1%
n.a.
n.a.
13.7%
7.1%

0.37

12.6
n.a.
n.a.

n.a.
n.a.
41.3%
n.a.

n.a.
n.a.

n.a.
n.a.
n.a.
n.a.

2007

2008

2009

2010

2011

0.23
0.47
1.33
n.a.
-2.6%
7
2.1
12.3%
6.3%

0.30

12.6

0.06
0.02
0.08%
0.02%
44.4%
54.3%
0.41
1.15

53.0%
0.51
0.21
22.9%

0.22
0.42
1.32
0.49
-3.5%
8
13.6
11.9%
6.3%

0.29

11.7

0.07
0.03
0.09%
0.01%
46.8%
51.5%
0.39
1.08

54.2%
0.54
0.21
25.0%

0.23
0.44
1.21
n.a.
-2.5%
7
-4.6
11.1%
6.1%

0.29

10.6

0.07
0.03
0.11%
0.02%
49.5%
52.0%
0.41
1.11

54.0%
0.61
0.21
23.3%

0.24
0.48
n.a.
0.66
-3.0%
8
8.6
12.4%
6.7%

0.31
n.a.
0.07
0.03
0.09%
0.02%
50.3%
55.4%
n.a.
n.a.

48.3%
0.67
0.21
24.8%

0.22
n.a.
n.a.
n.a.
-3.9%
8
17.2
n.a.
n.a.

n.a.

n.a.
0.08
0.04
0.12%
0.02%
n.a.
52.4%
n.a.
n.a.

53.8%
n.a.
0.21
25.4%

Country-specific notes: 
The year 2012 is not included in the table due to lack of data.
General explanation of the table items:
Source: Eurostat unless indicated otherwise; ECFIN elaborations indicated below
All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2000 prices)
          Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR)
          Carbon intensity: Greenhouse gas emissions (in kg CO2 equivalents) divided by GDP (in EUR)
          Resource intensity: Domestic M aterial Consumption (in kg) divided by GDP (in EUR)
          Waste intensity: waste (in kg) divided by GDP (in EUR)
Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP  
Energy weight in HICP: the share of the "energy" items in the consumption basket used in the construction of the HICP
Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual %-change)
Environmental taxes over labour or total taxes: from DG TAXUD's database "Taxation trends in the European Union"
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2005 EUR) 
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP
Electricity and gas prices medium industrial users: consumption band 500  - 2000M Wh and 10000 - 100000 GJ;  figures excl. VAT.
Recycling rate of municipal waste: ratio of municipal waste recycled over total municipal waste
Public R&D for energy or for the environment: government spending on R&D (GBAORD) for these categories as % of GDP
Share of GHG emissions covered by ETS: based on greenhouse gas emissions as reported by M ember States to EEA (excl LULUCF)
Transport energy intensity: final energy consumption of transport activity (kgoe) divided by transp industry gross value added (2005 EUR)
Transport carbon intensity:  greenhouse gas emissions in transport activity divided by gross value added of the transport sector
Energy import dependency: net energy imports divided by gross inland energy consumption incl. energy consumption international bunkers

Diversification of oil import sources: Herfindahl index (HHI), calculated as the sum of the squared market shares of countries of origin 

Diversification of the energy mix: Herfindahl Index over natural gas, total petrol products, nuclear heat, renewable energies and solid fuels

Share renewable energy in energy mix: %-share in  gross inland energy consumption, expressed in tonne oil equivalents

*Provisional data (15 April 213). Commission Services and EEA.

** For 2007 average of S1 & S2 for DE, LU, NL, FI, SE & UK. Other countries only have S2.

*** For 2007 average of S1 & S2 for IT, NL, FI, SE & UK. Other countries only have S2.

39