COMMISSION STAFF WORKING DOCUMENT Assessment of the 2014 national reform programme and stability programme for FINLAND Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on Finland’s 2014 national reform programme and delivering a Council opinion on Finland’s 2014 stability programme
Date: 2014-06-02
Institutions: European Commission
Subjects: Finland, budget deficit, economic disparity, economic growth, economic reform, economic stabilisation, financial control, industrial restructuring, social situation, stability programme, structural adjustment













EUR-Lex - 52014SC0427 - EN











|



52014SC0427

COMMISSION STAFF WORKING DOCUMENT Assessment of the 2014 national reform programme and stability programme for FINLAND Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on Finland’s 2014 national reform programme and delivering a Council opinion on Finland’s 2014 stability programme /* SWD/2014/0427 final */









Contents
Executive summary. 3
1............ Introduction. 5
2............ Economic situation and outlook. 5
3............ Challenges and assessment of policy
agenda. 6
3.1......... Fiscal policy and taxation. 6
3.2......... Financial sector 13
3.3......... Labour market, education and social
policies. 14
3.4......... Structural measures promoting sustainable
growth and competitiveness. 18
3.5......... Modernisation of public administration. 24
4............ Conclusions. 25
Overview table. 26
Annex... 30

Executive summary

Finland
is emerging from a recession that has lasted for two years. The
mild recovery forecast for 2014-15 is conditional on the improving external
demand situation, as domestic demand remains weak. Real GDP growth is
forecast to be 0.2 % in 2014 and unemployment is expected to keep rising.
Industrial restructuring is continuing and the economy is re-orienting itself
towards service sectors. The ageing of its population has implications for Finland’s work-force and its public finances.
Overall,
  Finland has made some progress in addressing the 2013 country-specific
recommendations. It is in the process of
translating an ambitious reform agenda into concrete policy measures. The
reform agenda was proposed in August 2013 and encompasses measures to balance
public finances, reform the pension system, improve the labour market, and
boost growth. In March 2014, ambitious consolidation measures were announced
for the 2015 budget, together with stimulus measures to be financed by the sale
of government-owned assets. However, not all of the reforms announced have been
described in detail yet or channelled into legislative proposals, so it is
difficult to draw conclusions as to the success of those reforms. The government
has recognised the fiscal sustainability gap and has proposed comprehensive
measures to deal with the problem. A pension reform is scheduled for 2017,
meaning that the legislative package needs to be ready by the end of 2015.
Social partners have been entrusted with the task of preparing the details of
the reform. The direction of the reform has been outlined in a comprehensive
report by an expert group. Substantial progress has been made on the fiscal
framework, as new legislation has provided the central government with
additional powers to control fiscal policy targets of local governments and the
sub-sectors of social security funds. These reforms are reflected also in the
National Reform Programme, which provides information also on the progress
towards the Europe 2020 targets.
Remaining
challenges are mainly related to improving productivity, growth, and
competitiveness. Moreover Finland needs to fully utilise its potential labour
supply to counterbalance the effects of population ageing.
·                        
Competitiveness:
  Finland’s exports have lost significant market share over the last decade. The
structural change in the industry sector needs to be facilitated to enable the
creation and growth of new enterprises in order to fill the void being created
by the decline of the electronics and forestry sectors. Finland’s research and development potential needs to be fully harnessed by companies
producing marketable goods and services.
·                        
Labour market:
Long-term labour supply is still the key labour market challenge, as the number
of people leaving the labour market is now higher than the number entering. As
a result, it is increasingly important to include as many available workers as
possible to the labour market. Careers need to be extended, and youth and
long-term unemployment needs to be addressed. In particular, it would appear
possible to better involve older and low-skilled workers in the labour market
by providing incentives to work, improving working conditions, and providing
targeted measures to increase their participation in lifelong learning
programmes.
·                        
Sustainability of public finances: Finland’s
debt to GDP ratio is now approaching the 60 % level and is expected to exceed
this in 2015. In the short term, deficits are set to remain below 3 % of GDP
and the structural deficit to remain close to the medium-term objective. In the
medium and long term, ageing-related costs will weigh on the budget. The
efficiency of public services has not kept pace with productivity developments
in the private sector.
·                        
Competition needs to be further improved
on the domestic market in the sectors shielded from external competitions.
Retail trade is dominated by few players and the prices of non-tradable
services are high, which has a detrimental effect on, competitiveness.

1.        
Introduction

In
May 2013, the Commission proposed a set of country-specific recommendations
(CSRs) for economic and structural reform policies for Finland. On the basis of these recommendations, the Council of the European Union adopted five
CSRs in the form of a Council Recommendation in July 2013. These CSRs concerned
public finances, administrative reform, labour market, competition and competitiveness.
This staff working document (SWD) assesses the state of implementation of these
recommendations in Finland.
The
SWD assesses policy measures in light of the findings of the Commission’s 2014
Annual Growth Survey (AGS)[1],
and the third annual Alert Mechanism Report (AMR),[2] which
were published in November 2013.
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 2014. 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 15 other   Member States were selected for a review of developments in the accumulation
and unwinding of imbalances. These in-depth reviews were published on 5 March
2014 along with a Commission Communication.[3]
In
light of the 2013 Council Recommendation, the AGS, the AMR and the in-depth
review, Finland presented a national reform programme (NRP) and a stability
programme on 17 April 2014. These
programmes provide detailed information on progress made since July 2013 and on
the government’s future plans. The information included in these programmes
provides the basis for the assessment made in this staff working document.
The
programmes have undergone a consultation process involving the national
parliament and stakeholders.

2.        
Economic situation
and outlook

Economic situation
In 2013 and early 2014, growth and employment in Finland were
strongly affected by continued weakness in the euro area and ongoing structural
changes in the economy. In 2013, Finland’s economy was in
recession for the second year. Real GDP dropped 1.4 % after having decreased by
1 % in 2012. The decline in GDP was broad-based, affecting consumer spending,
exports and particularly investments. Net external demand had a positive effect
on growth due to the strong decline in imports. This partly offset the negative
effect of the strong decline in domestic demand. Unemployment continued to
climb gradually, ending the year at 8.2 %, a level last recorded in 2010 when
the economy was just recovering from the 2009 crisis. The general government deficit
was -2.1%.
Economic outlook
Economic activity
started improving in the middle of 2013 but declined again in the last quarter. Leading
indicators still do not point to a recovery in domestic demand in the first
half of 2014. An improving economic outlook for Finland’s main export markets
indicates an export-driven recovery in 2014. In the Commission 2014 spring
forecast growth is projected to remain tepid in 2014, reaching 0.2 % for the
year as a whole, before increasing to 1.0 % in 2015.
Moderate wage
growth and persistent unemployment are affecting disposable income, limiting
the growth of private consumption. Gross fixed capital formation is
forecast to pick up only gradually as equipment investment is held back by low
capacity utilisation, and the limited number of building permits indicates
sluggish construction activity for 2014. Supply conditions continue to be
influenced by industrial restructuring. New products and services in sectors
such as chemicals and metals are gradually replacing lost production in ICT and
the paper industry.
Exports are
forecast to increase over 2014-15, even though Finland is projected to lose
further export market share. The moderate wage agreement is a first
step in restoring cost competitiveness. In turn, weak domestic demand will limit
imports, generating a positive growth contribution from net exports.
Consequently, it is expected that the current account balance will continue to improve.

Risks to the
economic outlook are balanced and relate mainly to developments in export
markets.
Of these, risks related to the situation on the Russian market are most
prominent. Risks arising from financial market conditions appear limited and
funding costs remain low.
The stability
programme and the NRP share the same underlying macroeconomic outlook, based on
the Finland's Ministry of Finance March forecast. The forecast
does not differ substantially from the Commission's forecast for 2014 and 2015,
although the economic growth is forecast to be somewhat higher in both years. The
programmes do not include a quantified macro impact of the structural reforms. 

3.        
Challenges and assessment of policy agenda
3.1.                
Fiscal policy and taxation 

Budgetary
developments and debt dynamics
The objective of the
stability programme is to stay at or above the MTO and reducing the general
government deficit from -2.1% of GDP in 2013 to ‑1.1% in 2015.
  Finland’s Medium Term Objective (MTO) is a structural deficit of -0.5%, this
remains unchanged from last year’s programme and it is in line with the
objectives of the Stability and Growth Pact. 
Although the general
government deficit is planned to start diminishing later than previously
foreseen, the deficit is now expected to decline faster.
  Finland’s general government deficit was 2.1% of GDP in 2013[4]. In
the stability programme in April 2013, the deficit was planned to be 1.9%. For
the current year, the government balance is forecast to stay broadly stable at
-2.0% of GDP in the Stability Programme. The central government budget for
2014, adopted in December 2013, was in line with the Draft Budgetary Plan
(DBP). The budget was not modified after the Commission issued an opinion
highlighting the risk of a significant deviation from the requirements of the
preventive arm of the Stability and Growth Pact during the DBP assessment. The
deficit in 2014 is planned to be -2.0%, higher compared to the deficit planned
in the 2013 Stability Programme, where an improvement to -1.3% of GDP was foreseen
for 2014. In the 2013 DBP, the deficit was planned to reach -1.9% of GDP in
2014. 
Although the Commission
2014 spring forecast predicts lower economic growth for 2014 and 2015 than the
stability programme, the forecasts on revenues and expenditures are similar.
In both the Commission spring forecast and the national forecast economic
growth is driven by the net exports. Consumption and investments are expected
to remain weak in 2014 and recover only in 2015. For 2014, the Commission spring
forecast expects revenues to be marginally lower and expenditure higher than in
the stability programme. Partly the difference is due to different growth
forecast, and the Commission forecast uses more updated data regarding the
revenues and expenditures in 2013. The difference for expenditure is largely
due to the expected developments in the compensation of public employees where
the stability programme foresees a larger decrease than the Commission
forecast. 
According to the
programme, the general government balance is set to stabilise and improve over
the programme horizon. In 2014, it is
foreseen that the deficit will be the same as in 2013, while from 2015 onwards
the deficit is expected to decline, reaching a surplus of 0.3% of GDP in 2018.
The expected improvement is envisaged to be front-loaded, with an improvement
of 0.9% of GDP in 2015 while being smaller thereafter. According to the
previous programme, the deficit was planned to be stable in 2013 and a gradual
improvement was set to start already from 2014. As real GDP growth was 1.9 pps.
lower for 2013 than forecast in the 2013 stability programme, the deficit
target was not achieved. As a result, the nominal deficit increased in 2013
while the structural deficit improved.
     || Box 1. Main measures Main budgetary measures ||   
   || Revenue || Expenditure ||   
   || 2013 ||   
   || ·      Measures increasing the central government tax revenue (+0.7% of GDP) || ·      Central government expenditure cuts (-0.2% of GDP) ||   
   || 2014 ||   
   || ·      Measures increasing the central government tax revenue (+0.7% of GDP) || ·      Central government expenditure cuts (-0.5% of GDP)   ||   
   || 2015 ||   
   || ·      Measures increasing the central government tax revenue (+1.1% of GDP) || ·      Central government expenditure cuts (-1.6% of GDP) ||   
   || 2016 ||   
   || ·      Measures increasing the central government tax revenue (+1.4% of GDP) || ·      Central government expenditure cuts (-1.6% of GDP) ||   
   || 2017 ||   
   || ·      Measures increasing the central government tax revenue (+1.4% of GDP). || ·      Central government expenditure cuts (-1.8% of GDP) ||   
   || Note: The budgetary impact in the table is the impact reported in the programme, i.e. by the national authorities. A positive sign implies that revenue / expenditure increases as a consequence of this measure. ||   
   
The current programme
sets a more ambitious target for the deficit reduction as from 2015 than the
2013 programme. Previously, the deficit was seen
to be -0.5% of GDP in 2017, while in the new programme public finances are
expected to be balanced by 2017. The reason for the improvement in 2015 is the
consolidation measures decided in March 2014. The government decided on
numerous specific measures regarding fiscal consolidation that are taken into
account in the stability programme. The measures announced are clearly defined
and the announcement is credible, taking the form of official guidance for the
ministries for the preparation of the draft budgets for 2015. Measures in the
structural policy programme have a less direct impact in 2014 and 2015 but will
have a significant influence in the medium to long term. 
The deficit reduction is
envisaged to be achieved by revenue increases and expenditure control.
General government revenues are expected to increase from 56.0% of GDP to 57.3%
by 2017 and expenditure is planned to be reduced from 58.1% of GDP to 57.3%.
The planned revenue increase is based mainly on increasing revenues from taxes
on income and wealth. On the expenditure side, the emphasis is on the reduction
of the compensation of employees (as share of GDP) and gross fixed capital
formation. The role of one-off measures is not significant. 
Risks
to the attainment of the programme target are mainly related to the
macroeconomic outlook. The Commission 2014 spring forecast
expects 0.3 pp. lower growth in 2014 and 0.4 pp lower growth in 2015. Risks to
growth relate mostly to the external developments. Main downside risks are
developments in Russia, which is among Finland's most important trading
partners.
Finland's recalculated
structural balance[5]
was at the MTO in 2013 and no adjustment would be required in 2014.
However, according to the programme, Finland would deviate from the MTO in 2014
by -0.2 pp, ending the year with a structural balance of -0.7% of GDP. Due to a
large output gap, the preventive arm allows for Finland to undertaken an
adjustment of less than the benchmark 0.5pp of GDP in 2015 – the minimum
requirement is therefore a tightening of 0.1% in 2015. However the
programme plans to achieve an improvement of 0.4 pp, which is above the 0.2 pp
it would take to reach the MTO. Consequently, Finland would achieve the MTO in
2015 with a small margin for possible adverse developments. From 2016 onwards, Finland plans to over-achieve the MTO. According to the information provided in the
stability programme, the growth rate of government expenditure, net of
discretionary revenue measures, in 2014 will not exceed the reference
medium-term rate of potential GDP growth of 0.78%. The growth rate of
government expenditure, net of discretionary revenue measures, in 2015 is
expected to contribute to an annual structural adjustment towards the MTO by
0.3% of GDP. This is because the growth rate of these expenditures is below
0.6%, the applied lower reference rate under the expenditure benchmark.[6] 
 The Commission
forecast regarding the structural balance is similar to the projections in the
stability programme and similar results are obtained regarding the compliance
with the MTO and expenditure benchmark. The Commission’s recalculations of the
data presented in the programme lead to the same conclusions.
Box
 2. Finland's status vis-à-vis the
Stability and Growth Pact
Finland
is subject to the preventive arm of the Pact and is at its Medium Term
Objective in 2013. It is not expected to reach its Medium Term Objective in
2014 but plans to return to the Medium Term Objective in 2015 and to stay at
this over the rest of the programme horizon. Therefore, it should preserve a
sound fiscal position which ensures compliance with the Medium Term Objective.
The stability programme
data and the Commission 2014 spring forecast lead to the conclusion that only
in 2014 there is a risk of a deviation from the MTO.
While during the assessment of the Draft Budgetary Plans for 2014, the
Commission 2013 Autumn Forecast suggested that there was a risk of a
significant deviation, the magnitude of possible deviation now appears lower. Finland also appears in compliance with the expenditure benchmark in 2014. 
Following an overall
assessment of Finland's budgetary plans, with the structural balance as a
reference, including an analysis of expenditure net of discretionary revenue
measures, the adjustment path towards the MTO seems to be appropriate in 2013
and 2015. A non-significant deviation from the
adjustment path towards the MTO is to be expected in 2014, but taking into
account the budgetary measures announced for 2015, it is expected to be fully
corrected in the following year. 
Finland's gross debt
ratio is on an upward path, but growing slower than forecast in the previous
stability programme and in the DBP.
According to the programme, the debt to GDP ratio will grow from 57% of GDP in
2013 to 61.4% in 2016 and then slowly start to decline. Difficult economic
conditions – as evidenced by a large output gap – play a key role in this
increase in debt. In addition, social security sector surpluses are not used to
pay down central government and local government debt, thus the stock-flow
adjustments appear to be driving the increase of debt. However, with the
expected reduction of the central government deficit through the 2014 March
consolidation measures, the decrease in debt growth seems realistic and is in
line with the Commission forecast. As according to the plans the government
debt to GDP ratio will breach the reference value of 60% in 2015, the
Commission prepares a report under Article 126(3) TFEU analysing whether or not
  Finland is compliant with the debt criterion of the Treaty.
Fiscal framework
In
2013, Finland did not receive a CSR on addressing the fiscal framework. Nevertheless,
  Finland has implemented measures to improve the fiscal framework; in particular
it ratified the Fiscal Compact at the end of 2012 and has transposed the
structural budget balance rule into national law[7]
and made specific arrangements for its implementation in the secondary
legislation[8].
Finland’s fiscal framework is currently tied to multiannual expenditure
ceilings. The framework is linked to parliamentary terms, and experience with
the framework suggests that the government broadly abides by the rules. Every
year, the government sets limits on central government spending for the
remaining years of its term, defining the multiannual financial framework. Successive
yearly decisions on annual ceilings are taken on the basis of this framework. In
February 2014, the fiscal framework was further strengthened by a decision to allow
central government to also plan and monitor expenditure in local government and
social security funds sub-sectors.
Spending limit
decisions are taken in late March each year, setting annual limits on
government expenditure for the next four years. However, neither
balanced (nominal) budget requirements nor limits on annual deficits are present
in the legislation. This policy provides an ambitious target to control the
costs of the budget while attempting to maintain 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. However, there seems to be limited flexibility to react to the
challenges arising over the course of a year. If a growth forecast is revised significantly
downwards during the year, there is no process to adjust the expenditure limits
accordingly. This was the case in 2013, when an expenditure ceiling decision
was taken based on the expectation of GDP increasing by 1.6 % in 2014. The GDP
forecast was subsequently revised downwards significantly, but no changes were
made to the expenditure ceiling decision.
The National
Audit Office has been entrusted with the responsibilities of Fiscal Council
while the Ministry of Finance remains responsible for forecasting. The
Fiscal Council monitors the fiscal rules, most importantly compliance with the
medium-term budgetary objective, but it is not giving an opinion regarding the
macroeconomic forecast underlying the stability programme or the draft
budgetary plan. The macroeconomic forecast underpinning the Stability Programme
has been prepared by the Ministry of Finance. To implement the EU directive on
budgetary frameworks and the EU regulation on the monitoring of draft budgetary
plans, which requires the independence of the forecast, a Ministry of Finance
working group has proposed amendments to existing legislation[9] to
ensure also the formal independency of forecasting tasks in Ministry of Finance,
but the amendments are currently not adopted. 
Long-term
sustainability
Finland
appears to face medium fiscal sustainability risks in the medium term. The
medium-term sustainability gap[10],
showing the adjustment effort up to 2020 required to bring debt ratios to 60%
of GDP in 2030, is at 2.1% of GDP, primarily related to the projected ageing
costs being equivalent to 2.3 pp. of GDP until 2030. In the long term, Finland appears to face high fiscal sustainability risks, primarily related to projected
ageing costs being equivalent to 4.7 pp. of GDP over the very long run. The
long-term sustainability gap[11]
shows the adjustment effort needed to ensure that the debt-to-GDP ratio is not
on an ever-increasing path, is at 6.0 % of GDP. Risks would be lower in the
event of the structural primary balance reverting to higher values observed in
the past, such as the average for the period 2004-13. It is therefore
appropriate for Finland to maintain sufficient primary surpluses and to further
contain age-related expenditure[12]
growth to contribute to the sustainability of public finances in the medium and
long term.
In
2013, Finland received a recommendation to ensure the cost-effectiveness and
sustainability of long-term care and put a stronger focus on prevention,
rehabilitation and independent living. The
analysis in this SWD leads to the conclusion that Finland has made substantial
progress on measures taken to address this recommendation (for the full CSR
assessment see the overview table in Section 4). The
recommendation was based on the results of the 2012 Ageing Report that
predicted significant increases in long-term care costs. New legislation[13] on
social and health services for older people, with a stronger focus on
prevention, rehabilitation, independent living and home care, as well as on
improving care coordination, entered into force in July 2013. This is an
ambitious, credible and relevant measure that should help to reduce the need
for institutional care and to contain the future costs of long-term care, as
according to the 2014 national reform programme, it has already resulted in
revised quality recommendations and an action plan aimed at reducing the
institutional care for the elderly. The need to reduce institutional care is
also recognised in the structural policy programme, where a specific target is
set for reducing the expenditure on institutional care. 
Finland has
recognised the sustainability gap and produced a structural policy programme
aimed at closing the gap. The policy programme aims at increasing
the labour input and potential growth of the economy, but addresses also areas
such as long-term care and pension reform (discussed in greater detail in the
following section).
Tax system
In
2013 Finland had
one of the highest tax burdens among Member States, with a structure oriented
towards direct taxes, especially personal income tax. To support consolidation
efforts and the achievement of Europe 2020 environmental targets, Finland’s tax system could be designed to be more growth and environmental friendly. 
In
2013, Finland did not receive a CSR regarding the tax system. Nevertheless,
Finland has undertaken reforms in this area, mainly fine-tuning the tax
rates in order to lower the taxation of low incomes and to increase the
taxation of high incomes. From 2014, the corporate income tax is reduced, but
dividend taxation somewhat increased. In 2014 and 2015, Finland continues to increase various consumption taxes. 
The
government programme, agreed in 2011 between the parties in the current
coalition, provides for the introduction of consolidation measures that put
equal weight on tax increases and expenditure cuts. In
practice, the bias has been more towards tax increases. This is due to
cuts in transfers to municipalities, which the central government counts as
expenditure cuts but which result in municipalities increasing taxation, based
on their rights and obligations. The municipalities mainly resort to the income
tax to increase their revenues and municipal property taxation represents only ca
6.5% of their tax revenues. The share of revenues from recurrent taxes on
immovable property in 2012 amounted to 0.7 % of GDP (EU average: 1.5 %). In
March 2014 additional flexibility to increase property taxes was provided to
the municipalities. There is an on-going evaluation of the taxable property
values. Taxes levied to the homeowners are increasing as the mortgage interest
deductibility has gradually been reduced over recent years. In 2014, the
deduction is limited to 75 % of the mortgage interest paid and the deductible
part continues to be reduced by 5 percentage points annually until it is
limited to 50%. This is expected to reduce the debt bias in housing taxation.
In
2012, environmental tax revenues accounted for 7 % of all revenues but some
aspects of environmental taxation could be reviewed in order to broaden the tax
base and increase revenues, and contribute to moving towards the emission
target for sectors not subject to emission trading system. Revenues
from environmental taxes in Finland are higher than the EU average as a
proportion of GDP (FI: 3.1 %, EU: 2.4 % in 2012). The reduction of
environmentally harmful subsidies is a key area underlined in the AGS 2014. Finland is still subsidising, through advantageous tax schemes, some industries and
activities, although the same objectives could be achieved in a less
environmentally harmful way. Finland would benefit from reducing the harmful
subsidies, as this would mitigate negative impacts on the environment and deliver
economic benefits such as additional revenues and the release of funds to support
the transition towards a resource-efficient and low-carbon economy, also
reducing the risks linked to potential energy price increases. This could
provide incentives for eco-innovation and boost the competitiveness of
businesses. The structural policy programme addresses these issues and a study
on environmentally harmful subsidies was published by the Ministry of
Environment in 2013[14].


3.2.                
Financial sector

The financial sector
continues to operate well relative to many other national financial sectors in
the euro area. The banking sector did not need
government support during the crisis. The level of non-performing loans has not
increased and remains at a low level (0.7 %). 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 %. In 2013, Finland did not receive a CSR as regards
financial sector policies.
The financial sector
is deeply integrated with the Nordic banking groups. Foreign banks account for about two thirds of the sector’s assets. Parent
bank decisions regarding, for example, accounting of derivatives or allocation
of funds between branches of international banking groups can have a
significant impact on the financial strength of branches operating in Finland
and therefore on the domestic banking market. Consequently, cross-border
cooperation between supervisors is essential to monitor the performance and
stability of the groups, in particular concerning the quality of assets and
liquidity. Implementation of the Banking Union will change the structure of
Nordic cooperation, with the ECB becoming a host supervisor for Swedish and
Danish bank subsidiaries in Finland.
Finland’s
challenges include the promotion of enterprise growth and internationalisation
also through capital provision. The availability of venture
capital in Finland has generally been good,[15]
but access to growth capital has been seen as one of the factors limiting
growth opportunities. To address this, the government is implementing its
decision to increase the availability of venture capital, in particular through
fund-of-funds investments. An amount of €230 million has been allocated for
2014-17 to leverage private equity funding — partly with asymmetric profit-sharing.
According to the 2014 national reform programme, nearly €300 million has been
invested through the Vigo accelerator programme, with less than a quarter of
public funding. To avoid excluding private investors, the government does not
seek to cover more than 10 % of the venture capital market. There is a tax
incentive for business angels for 2013-15, although in 2013 it does not seem to
have increased the investment amount. Government venture capital activities are
still divided between three organisations, which increase administrative costs
and the danger of overlaps. Taken together, the actions aimed at promoting
growth finance mean that funding problems have been addressed but it remains to
be seen whether this is enough to stimulate firm growth. 

3.3.                
Labour market[16], education and social policies

The
Finnish labour market performed relatively well during the crisis — but there
are pressing demographic challenges. The number of
people leaving the labour force each year exceeds the number entering. In view
of the ageing population, it is important to bring the full labour force
potential to the labour market. Labour market shortages exist already now in some
occupations. To maintain the supply of labour, it is important to improve entry
and prevent the early exit of workers. Lengthening working careers and tackling
youth and structural unemployment remain key challenges for Finland. As regards cost-competitiveness, Finland’s competitive position remains also challenging,
although wage developments were moderated in 2013.   
In
2013, Finland received a recommendation to take various labour market measures.
In
particular, it was recommended to take further steps to
increase the employment rate of older workers, increasing the
effective retirement age by aligning retirement age or pension benefits to
changes in life expectancy and implementing the ongoing measures to improve the
labour-market position of young people and the long-term unemployed, with
particular focus on the development of job-relevant skills. The
analysis in this document leads to the conclusion that Finland has made some progress on measures taken to address this recommendation.
Finland has made
limited progress in increasing the employment rate of elderly workers. The
employment rate of the 60–64 age group was only 42.9 % in 2012. Despite the
flexible retirement age of 63–68 years and a tripling of the accrual rate after
the age of 63, the number of people retiring in 2012 on a statutory
earnings-related pension at 63 was almost twice as high as those who retired at
64 or 65 put together. Early exit from the labour market occurs mainly through
disability or through the ‘unemployment tunnel’, i.e. extended unemployment
benefits available for the elderly unemployed. Finland has set itself the
target of raising the effective retirement age to at least 62.4 years by 2025. However,
in 2012, it was 60.9 and the Finnish Centre for Pensions estimates that, based
on present trends, it will only rise to 61.5 by 2025.[17] 
Social
partners are working on their proposal for a pension reform, to be implemented
by the new government after the general election in spring 2015. The
exact contents are not yet known. The expert group appointed by the social
partners to help prepare the reform concluded that the reforms of recent years
are insufficient to reach the target set for 2025, and that the Finnish pension
system should be better adapted to the increasing life expectancy. [18] It is recognised that the
life-expectancy coefficient that has already been introduced and the tripling
of the accrual rate after a worker reaches the age of 63 seem to have had a
limited effect on retirement practices. This is true for lower skilled workers
in particular. Moreover, life expectancy is increasing faster than previously expected
and if people fail to adjust by working longer, the adequacy of pensions will
also drop. By contrast, linking the pensionable age to life expectancy would
reconcile the sustainability and adequacy of pensions with an ageing
population.
The
pension reform would be the most important element in raising the effective
retirement age, but it is unlikely that the target can be achieved without additional
measures to improve the employability of older workers.  Professional
training and measures aimed at improving health, safety and the quality of
working life seem to be the main areas to be developed to attain the target.
Reduced work ability is among the main grounds on which 25 000 people retire annually
on a disability pension. Participation of older workers in lifelong learning is
significantly lower than for the overall population. The overall lifelong
learning participation rate is the third highest in the EU (24.3 % in 2012),
but for the 55-64 age group it is around 13.5 %. Social partners —
together with the competent ministries, the Finnish social security institution
and the Centre for Pensions — have produced a
report on the employability of people with partial work ability.[19] This
initiative goes in the right direction but needs implementing measures in
places of work. 
Some
weaknesses underlie the relatively low unemployment and high employment rates
in Finland.
Differences in regional unemployment rates are high and the government
estimates structural unemployment to be around 4.5 % in 2013. This suggests
that the capacity of the labour market to adjust to the ongoing restructuring
of traditional industries is limited. One of the factors behind regional
differences could be large differences in housing prices between the regions,
partly due to the limited availability of land in the growth regions. According
to the national reform programme, this could be addressed by forcing the
municipalities to offer opportunities for housing by modifying the planning
regulations.  
Within
the labour market, there are groups where employment rate is low. This
includes the low-skilled[20] and
the non-EU nationals.[21] Furthermore,
the share of part-time employment is low, the employment rate of people midway
through their careers (24–54) has been falling[22] since
2009.
Only about 20 % of the approximately 180 000 working-age people with
disabilities have paid work.
In
  Finland, employment rates in the lower wage categories are comparatively low.
This
could indicate that either there is a lack of offer of such jobs, or that there
are rigidities in the labour market that limit the possibilities to conclude
temporary, part-time or relatively low wage contracts. While this has obvious
beneficial impact for the very low in-work poverty, the lack of such jobs could
mean that groups such as the low-skilled or migrants will be unable to find a
job. The 'inactivity trap' is an indicator that measures the effective tax rate
facing an inactive person who contemplates to take up work. The inactivity trap
is high if taxes are high or if means-tested benefits are withdrawn at a high
rate when taking up work. In this case, inactive persons could face low
incentives to accept a job. In 2012, the effective tax rate when moving from
social assistance to work at a wage level equivalent to 67% of the average wage
reached 67 to 94% for one-earner families, depending on the number of children.
Targeted measures to increase the incentives to work would be an opportunity to
increase employment levels. From 2014, a 300-euro protected income is available
for the unemployed – providing incentive to accept work. Further measures in
the same direction appear to be necessary as also discussed in a report
analysing low-wage jobs in Finland[23]. It
is a cause for concern that the participation of low-skilled workers in life-long
learning is even lower than for older workers: only 10.7%.
The
youth unemployment rate is significantly higher than the overall unemployment
rate despite measures to improve the situation. While the
overall unemployment rate was 8.2 % in 2013, youth unemployment was 19.9 %. The
government’s structural policy programme of 2013[24] includes
welcomed initiatives to improve the employment of young people by means of measures
that should also extend working careers at the beginning by half a year. These
initiatives cover both vocational and higher education, combining vocational
upper secondary education and apprenticeship training. All in all, Finland has made substantial progress on addressing youth unemployment. The enhanced Youth
Guarantee of January 2013 is an ambitious public-private-people partnership
measure with shared responsibility between stakeholders. It is both well
targeted and realistic but requires efficient coordination (national, regional,
and local authorities, trade unions, young people and several ministries),
providing additional apprenticeship places, as well as stable long-term funding
to be successful.
The
number of people who have been unemployed for over a year is increasing as is the
number of people unemployed for over two years. Many people have
given up looking for work [25] and
they are likely to find it difficult to get back to work when the economy
starts improving, since transition rates from long-term unemployment to
employment in Finland are below the EU average.[26] This
calls for targeted activation measures.[27] By
November 2013, 6 000 persons had participated in a pilot project on long-term
unemployment, which has been running in 65 municipalities since September 2012.
While this number seems modest, the project’s most important contribution may
be the new service models and best practices that the municipalities can
benefit from, particularly since their responsibility for supporting the long-term
unemployed is being increased at a time when they are undergoing a major
reform. In addition, growing customer volumes are already challenging the public
employment services since the reform of 2013.
The
measures on long-term and youth unemployment conform to the priorities of the
2014 Annual Growth Survey and are reaffirmed in the 2014 national reform
programme. They are relevant and ambitious. As to their credibility,
a
permanent improvement in job-relevant skills and the labour market position of
the target groups, including through vocational education and targeted
activation measures, will take time and can be achieved only if the measures
are fully implemented. The steps taken go in the right direction, but no
breakthrough has been achieved and the underlying policy challenges remain.
In
2013, Finland received a CSR on aligning wages with productivity developments. The social partners reached a national wage agreement in October
2013 with modest wage increases until the end of 2015 at least. This is
an ambitious, relevant and credible measure, also in line with the priorities
of the 2014 Annual Growth Survey. It should be noted that restoring the level
of unit labour costs to the level of Finland’s main competitors will still take
time. Nevertheless, the agreement represents substantial progress in fulfilling
the recommendation to align wages and productivity.
Education
The
compulsory education age will rise to 17 in 2015 and the government plans to
make pre-school education compulsory in Finland for 6 year olds. It
remains to be seen whether raising the compulsory education age will have a
positive impact on the evolution of the number of young people not in education,
employment or training and early school leaving rates. Finland has fewer early school leavers than the EU on average but the rate has been
stagnating for almost a decade and is clearly higher among people with a
migrant background. The rate of people not in education, employment or training
was 8.6 % in 2013 and increased by only 0.2 pps between 2008 and 2012.
Finland has
maintained its high position in skills. The OECD adult
skills survey shows that the literacy and numeracy proficiency of 16–65 year
olds is one of the best in the EU.[28] In
the tests of literacy and numeracy proficiency in the EU Finland had one of the
lowest shares of low skilled adults. A large share of the population (more than
40%) shows high problem-solving skills in a technology rich environment. The
difference in scores of young people and older adults for both literacy and
numeracy is very high, with the younger generation performing much better than
older people. As to the basic skills of the 15 year olds, Finland remains one of the EU’s top performers based on the 2012 PISA survey, but its overall
performance has deteriorated significantly compared to the previous PISA surveys,, particularly in maths. Nonetheless, Finland still combines high levels of
performance with equity in education. Variations in student scores are small,
i.e. high performance is possible for almost everybody, and a strong link does
not exist between socio-economic background and student performance. Yet the
results are much worse for pupils with (particularly first-generation) migrant
backgrounds than for natives.
Recent consolidation measures with regard
to public funding of education are an issue of concern. The structural policy programme decreases expenditure on education
by about €300 million. This will particularly affect local authorities who
are in charge of education. Possible consequences include the need to
reorganise the upper-secondary school network and/or the provision of
pre-school education.
Social
policies
In
2013, Finland did not receive a CSR regarding social policies. Of
notable issues in this field, the risk of poverty for women older than 65 is
above the EU average and almost twice that for men. Both shorter working
careers and the persistent gender pay gap (18.2 %, above the national target of
15 % by 2015 and the EU-27 average of 16.2 %) have a negative impact on women’s
income and pension earnings.[29]
There are also marked differences
between socio-economic groups in health and well-being — people in the lower groups
have poorer health and shorter lives.[30]
Although the objective of health policy
since the 1980s has been to narrow health gaps, inequalities persist and have
grown somewhat, despite the Health 2015 public health programme of 2001, the 2008–11
National Action Plan to Reduce Health Inequalities, and the 2012–15 National
Development Programme for Social Welfare and Healthcare.

3.4.                
Structural measures
promoting sustainable growth and competitiveness

Finland needs to
restore growth and competitiveness, and find ways to achieve structural change and
continue the diversification of its industry. Additional
challenges include making a transition towards new, high value-added products
and services and improved competition in product markets and services. The
difficulties in the electronics, forestry and steel industries continue to be
reflected in weak exports, which have not responded well to the recent increase
in global economic activity. This industry structure is also reflected in lower
average energy efficiency than that of many competitors. The profitability of
enterprises is decreasing and turning the R&D potential into new products
is a critical issue. The problem is aggravated by high prices in the domestic
market. This is at least partly due to a lack of competition and decreases the
competitiveness of exporters, as prices for domestic services are high. The
2014 in-depth review highlights the role of non-cost competitiveness factors in
the deterioration of the trade performance. There seems to be a failure
of many Finnish firms to grow and to become international players. A limited
number of large exporting firms selling a narrow product range seem to be a
risk factor. In 2012, 1% of firms accounted to 76% of gross exports. The
Finnish companies are increasingly investing abroad while the domestic
investment is sluggish and recently Finland has not been able to attract
significant foreign direct investments. 
Box
 3: Potential impact of structural reforms
– a benchmarking exercise
Structural reforms are crucial for
boosting growth. It is therefore important to know the potential benefits of
these reforms. Benefits of structural reforms can be assessed with the help of
economic models. The Commission uses its QUEST model to determine how
structural reforms in a given Member State would affect growth if the Member
State narrowed its gap vis-à-vis the average of the three best EU performers on
key indicators such as the degree of competition in the economy or labour
market participation. Improvements on these indicators could raise Finland's GDP by about 3.1% in a 10-year period. Some reforms could have an effect even
within a relatively short time horizon. The model simulations corroborate the
analysis of Section 3.3, according to which the largest gains would likely stem
from reducing the final goods sector mark-ups and increasing the labour market
participation rates. In addition, the simulations provide rationale for
increasing incentives to accept jobs by reducing the benefit replacement rate. 
Table:
Structural indicators, targets, and potential GDP effects[31]

Source:
Commission services. Note: Simulations
assume that all Member States undertake reforms which close their structural
gaps by half. The table shows the contribution of each reform to total GDP
after five and ten years. If the country is above the benchmark for a given
indicator, we do not simulate the impact of reform measures in that area;
however, the Member State in question can still benefit from measures taken by
other Member States.[32]
*The long-run effect of increasing the share of high-skilled
labour in the population could be 0.7% of GDP and of decreasing the share of
low-skilled labour could be 1.8%. **EU average is set as the benchmark. 
In 2013, Finland received CSRs to: enhance competition in product and service markets; deliver
innovative products, services and high-growth companies in a rapidly changing
environment; continue the diversification of the industry; and continue to
improve overall energy efficiency in the economy. The analysis in this SWD leads to the conclusion that Finland has made some progress on measures taken to address these recommendations.
Research,
development and innovation
Finland is very strong in international competitiveness rankings but has
nevertheless lost export market share at the fastest pace in the EU over the 2007-12
period. Finland has traditionally been a country
with a high trade surplus, but imports grew rapidly prior to the crisis. Since
the crisis, export growth has been weak and the external balance has gone into a
deficit. The electronics, forestry and steel industries are all facing
structural adjustment problems. Other branches have not been able to compensate
for lost exports. Finnish companies are internationalising their production and
integrating into global value chains that take a toll on exports from Finland. The adjustment capacity of the economy is constrained by low productivity, weak domestic
competition in services, continuing wage-cost pressures and high energy costs,
affecting in particular the energy-intensive industries. Finnish exporters have
been able to sustain price competitiveness mainly by compressing profit
margins. The 2014 in-depth review finds that unless profit margins are
restored, incentives to invest and to translate the readily available high
innovation potential into new products and services will be lower. Adequate
conditions are necessary in helping to turn investment in R&D and
innovation into new innovative products and services, so as to improve the
competitiveness of the industries facing structural challenges and to foster
growth in other sectors.
Box 4:
Conclusions from the March 2014 in-depth review on Finland
The third
in-depth review on Finland under the Macroeconomic Imbalances Procedure was
published on 5 March 2014.[33]
On the basis of this review, the Commission has concluded that Finland continues to experience macroeconomic imbalances which require monitoring and
policy action. In particular, the weak export performance in recent years,
driven by industrial restructuring as well as cost- and non-cost-competitiveness
factors, deserves continued attention.
More
specifically, high import growth prior to the crisis and subdued exports
afterwards explain the erosion of the external balance. However, the current account
has stabilised recently and external sustainability is not a concern. The
country has continued to lose export market share rapidly, despite the recovery
in world trade. Finland’s integration into global value chains has played a
role in the declining performance of exports, while the industrial
restructuring has not yet been able to make up for the large downsizing of the
electronics, forestry and metal industries. In turn, the adjustment capacity of
the economy is constrained by low productivity and weak competitive pressures
in services, as well as increasing costs due to dynamic wage growth in the past
and high energy intensity. Exporters have had to sustain price competitiveness
mainly by compressing profit margins, which has limited their capacity to
translate the high innovation potential into new products. Non-cost factors
appear to explain most of the deterioration in competitiveness: a limited
number of large exporting firms selling a narrow product range, small companies
being less inclined to export and less efficient R&D spending. In turn,
weak investment, a declining working population and a significant drop in
productivity weigh on potential growth. As regards public finances, the
structural deficit is expected to be slightly above its medium-term objective
in 2014 while public debt is projected to increase to above 60% of GDP, partly
due to the unfavourable growth dynamics.
The in-depth
review also discusses the policy challenges stemming from these developments:
- impact of
labour costs on competitiveness;
- cost-competitiveness
in general and the profitability of firms; and
- non-price-competitiveness.
Finland has taken
action to bring about structural change. According to
the 2014 national reform programme, the policy measures to improve innovation
and productivity include the ICT 2015 programme, the Cleantech programme, the
bioeconomy strategy, strategic programme for the forest sector, action plan for
sustainable extractive industry etc. More focus is also being put on life
sciences, Arctic competencies, education, creative industries and design. The
Team Finland initiative, while seeking to be customer-driven, also tries to
proactively promote internationalisation and the sharing of best practices, in
particular in terms of organisational efficiency and working methods. Overall,
encouraging results have been achieved at firm level, including in the games
industry. The government has also decided to lower the corporate tax rate to 20 %
from 2014 onwards. The national energy and climate strategy was adopted in
March 2013, with 17 decisions promoting R&D, demonstration projects, market
competitiveness, technology commercialisation and firm internationalisation,
with a new Energy Efficiency Law in the pipeline.
While
Finland has the second highest public R&D intensity of all Member States,
it ranks sixth on the EU innovation output indicator: the efficiency of the
Finnish research and innovation system in turning investment in R&D into
scientific excellence and into new innovative products and services is a
critical issue. The main reform to address this is the
comprehensive reform of the research institutes and research funding, launched
in 2013. It marks a major restructuring of the Finnish research and innovation
landscape with a view to strengthening multidisciplinary and high-level
research of social significance. National sectoral research institutes will
gradually be combined into larger entities and a Strategic Research Council
will be established. The Council is expected to finance ‘research-seeking
solutions’ to challenges for Finnish society and promote renewal of the country’s
economic base and competitiveness. Moreover, the government has tasked the
Research and Innovation Council with preparing new guidelines for 2014-20. As
recommended by several expert evaluations, the government is introducing
improvements to the operational concept of the strategic centres of science, technology
and innovation (public-private partnerships of research groups and industry
aimed at speeding up innovation and renewing industrial clusters). In addition,
the funding model of both universities and polytechnics is being reformed with
the aim of, for example, better utilising the results of the research. Finland has made some progress in addressing the recommendation although the impact of the
actions can be measured only in the longer term.
Business
R&D intensity is declining and the national target for R&D expenditure
seems further out of reach. R&D intensity in Finland decreased to 3.55 % of GDP in 2012 (3.80 % of GDP in 2011). While this remains the
highest value in the EU, the decreasing trend since 2009 means that Finland is not on track to reach its R&D intensity target of 4 % for 2020. This trend
is due to the decrease in business R&D intensity (from 2.81 % of GDP in
2009 to 2.44 % in 2012) as a result of the severe restructuring of the R&D-intensive
electronics sector. The public R&D expenses remained at around EUR 2
billion in 2012. Due to the government budget deficit, the volume of public
R&D funding is not expected to increase in the coming years. The temporary
tax incentive for R&D, a novelty in Finland, which applies only in the
fiscal years 2013 and 2014, represents a supplementary public effort to support
R&D. 
Energy
policy, environment and climate change
Finland’s
economy is energy and carbon intensive, phenomena explained by the geographical
location, size of the country and industrial specialisation. Finland’s
energy imports (expressed as a percentage of GDP) are higher than the EU
average, making Finland relatively vulnerable to rising energy prices. However,
many industrial consumers are also energy producers or own shares in
electricity production facilities, thus limiting the vulnerability. According
to the national reform programme, energy audits have been performed in major
industrial facilities and these do not reveal major cost-effective
energy-efficiency measures, supporting the thesis that the energy-intensive
economy is at the same time energy-efficient. The energy intensity of the
Finnish economy decreased between 2005 and 2010 by 5 % (approximately), against
an EU average decrease of 12 %, Finland’s industrial sector increased its
energy efficiency between 2000 and 2010 by 10 %, which is roughly the EU
average. The lion’s share of this improvement has taken place in the paper
industry, which dominates Finland’s industrial sector. However, in recent
years, the steel sector in particular has shown declining energy efficiency. 
Finland
has had an active energy efficiency policy for decades, including National
Action Plans and the operating institutional structures. Substantial
progress has been made in energy efficiency through policies in place to
support innovation and start-up companies. In industries and tertiary sector,
voluntary agreements have been made among the most important policy tools. In
the building sector, a new building code, which entered into force in July
2012, has in general tightened energy efficiency requirements by 20 % compared
with 2010 levels. A national energy and climate
roadmap 2050 is being prepared, as well as a specific law to implement new
energy efficiency obligations. Further action is needed however
as in industry the rate of energy-efficient modernisations is low. As an
energy-intensive economy Finland would benefit from further improving energy
efficiency. 
Finland
could also benefit from diversifying its energy supply, particularly as it
relies on a single gas source. The Baltic Energy Market
Interconnection Plan should continue to be implemented. In 2013, the
integration of the Finnish (and Nordic) electricity market with that of the Baltics
improved as a result of Estlink2 becoming operational. As regards gas supply, two
memorandums of understanding have been signed, aiming at the
Baltic Connector – a gas supply pipeline between Finland and Estonia to be completed in 2015; and at agreeing on a regional LNG terminal. 
Eco-innovation
is seen as one of the potential areas for new rapidly growing enterprises and
it could be used to solve some of the remaining environmental challenges. Problems
that could be addressed with better technologies in environmental management
include resource efficiency – there is scope to improve the business
environment by setting up programmes for hands-on support to SMEs to use fewer resources
— including energy — in order to save costs and create or ensure jobs. Reducing
landfilling and increasing recycling is one of the main challenges related to
waste management in Finland. Finland has still a high proportion of landfilled
waste (45%). In addition, reduction of air pollution remains an important
target. It has been estimated that air pollution (especially the particulate
matter, originating from transport for example) in Finland is responsible for up
to 2000 premature deaths (year 2010) and significant health-related external
costs.[34] 
Finland has
a 16% greenhouse gas emission reduction target by 2020 (compared to 2005) in
the sectors not covered by the EU emission trading scheme (ETS). In
2012, emissions were 10% below the 2005 level. According to the latest national
projections submitted to the Commission and when existing measures are taken
into account, the target is expected to be missed by a margin of 4 percentage
points: -12% in 2020 compared to 2005. Thus the existing measures in this area
are not seen as sufficient. While greenhouse gas emissions from
transport declined both in 2008 and 2009 (by 3.9 % and 8.4 % respectively),
there was an increase of 3.7 % in 2010. Measures to better target economic
incentives have been taken, but the objective of systematically reducing
greenhouse gas emissions in the transport sector remains a challenge.
Services
sector and market competition
Finland is
one of Europe’s leading digital economies and this strength should be used more
proactively in finding competitive advantages and modernising public services. Despite
geographical challenges, Finland’s infrastructure is among the most developed
in Europe. Finland has strong investment in the telecommunications sector and
very extensive fixed broadband coverage, with Europe’s one of the highest
coverage of high-quality networks (‘fibre to premises’). Number portability is
very high and there are extensive services available also for disabled users.
Investment in the sector is strong, with Finland
among the Member States that have experienced investment growth. As a result, high-speed
broadband is available to 65.5 % of the population (53.7 % in the EU) and Finland has Europe’s one of the highest coverage of ultrafast fibre networks (33.3 % of the
population against the EU average of 12.3 %).
In
non-tradable services sector, competition is seen to be weak and prices are high
for consumers as well as for enterprises. Lack of
competition is seen as one of several factors that hampers the restructuring of
the economy. The
retail market in Finland is highly concentrated. Its two main retail groups (that
own hypermarkets, supermarkets and smaller outlets) account for over 70 % of
market share. A recent study of the Finnish Competition and Consumer Authority
on the regulation of store location finds that if neither the regulation of
store locations nor municipal plotting policies enhance retail competition,
other efforts to increase competition may prove somewhat fruitless. In June
2013, the Finnish Competition and Consumer Authority issued recommendations
aimed at addressing obstacles to entry and competition in the retail sector
(such as land use and building legislation). In November 2013, the government
decided to include some of those recommendations in amendments to the land use
and planning legislation by, for example, introducing a competition test and
competition as an objective in that legislation. The government also aims to improve
the transparency of municipal land allocation, in line with one of the
recommendations of the Competition and Consumer Authority. The government did
not however follow the authority’s recommendation to make the land use and
planning legislation on the establishment of large-scale retail outlets less
restrictive, committing itself only to including the objective to improve
competition in the targets and requirements of the land use plans of different
levels and the special provisions for retail trade. An expert group, in its
recent assessment of the Land Use and Planning Act, estimated that the relatively
recent provisions (2011) on the location of large-scale outlets are still
justified.[35]
The location of the state-owned alcohol monopoly, which is typically located
next to the two largest retailers, also influences retail competition by
reinforcing market concentration through shopping synergies. The retail trade
sector continues to be among the most regulated in the Member States, with
obstacles created by licensing rules, regulation of large retail premises and protection
of existing firms[36].
Finland has
made some progress in implementing the programme on promoting healthy
competition. In 2013, the competition and consumer authorities
merged. The new structure is now in the early stages of implementation. In
terms of substantive law, Finland has introduced new and stricter provisions,
providing for the non-rebuttable presumption of dominant positions as from 30 %
market share, to address the specific situation of its retail sector (the entrenched
duopoly of two main retail groups: see above). The implementation and benefits
arising from these provisions, which use an exception in EU law, merits monitoring.
In terms of fines and other sanctions, the law was strengthened in 2011. Given
the normal time needed for the provisions on fines to make an impact in
decision-making practice, this is equally an area for ongoing monitoring.
Recent cases, even on the basis of the previous law, seem to suggest that the
competent courts are willing to impose effective fines. According to the
national reform programme, The government is also conducting a study on the
question of potential criminalisation of competition law sanctions. A report is
expected in May 2014. Criminal enforcement poses additional challenges, and
analysis should be carried out as to whether fines on undertakings in
combination with leniency programmes would not yield better results.

3.5.                
Modernisation of public administration

Taking into account the challenges presented
by ageing as well as fiscal pressures, public administration should be as
efficient as possible. While the level of services
provided by the administration is very high, the associated costs are also high
and some areas for additional efficiency could be found. Finnish municipalities
are relatively small, but currently they have to carry out quite extensive
tasks compared to other countries. The small size of municipality raises
questions regarding the effectiveness of expenditure on administration, but
more importantly it is not clear whether the small municipalities are able to
solve the problems in transport, education etc in most effective manner.
In 2013, Finland received a CSR on the implementation
of the ongoing administrative reforms concerning the municipal structure in
order to deliver productivity gains and cost savings in the provision of public
services, including social and healthcare services, and to ensure the
sustainability of the system, which is challenged by an increase in demand due
to demographic changes. The analysis in this SWD
leads to the conclusion that Finland has made some progress on measures taken
to address this recommendation.
The reform of the municipal
structure is progressing according to the previous plans and the government is
committed to reducing local authorities' duties and obligations. The municipal reform is built on voluntary mergers of the
municipalities, which are currently preparing detailed studies on the benefits
of the mergers. Municipalities that will make merger decisions within the
deadline will be entitled to grants and compensation. According to the national
reform programme, the government has decided to appoint special rapporteurs for
the 12 larger metropolitan regions to study the potential mergers. The outcome
of the voluntary mergers appears uncertain at this stage and it appears that
there would be no forced merger according to the current plans.. However, the
government has set in the structural policy programme targets to reduce the
duties and obligations and to cut the overlapping activities in order to
increase the efficiency. At the same time, the municipalities are expected to
improve productivity and to increase tax revenues, thus closing the deficit (1%
of GDP) currently persistent in the local government sector. 
The political parties have
reached an agreement regarding the provision of social and healthcare services. All social welfare and healthcare services are to be delivered by
five strong regional providers, based on current, specific catchment areas. According
to the national reform programme, the point of departure for the reform is the full
integration of all social welfare and healthcare services by a strong regional
provider. Municipalities would continue to participate in the provision of
services, but significant share of their obligations are transferred to the
five regions.. Local services, such as healthcare services, home help services
for the elderly and social welfare services, should still be provided close to
home. The legislative proposal is due to be submitted to parliament in autumn
2014 and it is expected that the new structures will be effective by 2017.
To lower the administrative burden faced
by enterprises, the government is seeking to simplify licensing requirements,
in particular construction permits, environmental permits and sector-specific
permits.
The Environmental Protection Act is being revised with a view to expanding the
use of electronic permits and combining various environment-related permits,
and regional authorities are being encouraged to cooperate in their supervisory
and permit policies. A bill concerning the appeals process on administrative
issues will be presented to parliament in spring 2014. Enhancing the
availability of e-government services and the building of the National Digital
Services Infrastructure is progressing and completion is planned for 2015. The
government is also implementing its structural policy programme decisions
concerning obstacles to entry and growth, in particular in the retail trade.
For the 2014-2020 period, Finland is planning to concentrate the European Regional Development Fund and European
Social Fund to the priorities that are in line with the Europe 2020 strategy
and previous recommendations. The six priorities
are research and innovation, competitiveness of SMEs, shift to low-carbon
economy, employment, social inclusion and combating poverty. The programme's
measures focus mainly on job creation, innovation promotion via smart
specialisation, diversification of business structures, innovative growth
companies, reinforcing
sustainable and efficient use of resources for environment-friendly growth,
increasing labour market participation through improved employment, social
inclusion and education policies. 

4.        
Conclusions

Finland
is still going through a difficult process of industrial restructuring, as the
electronics and paper sectors are in decline. Against this
background, economic growth is forecast to be low in the years to come. Therefore,
the most important issue is restoring competitiveness and creating new growth
sectors. Challenges also remain in the areas of employment, competition and
fiscal policy. Restoring growth would alleviate problems in public finances but
would not, on its own, solve long-term sustainability issues. The latter needs
the implementation of the structural reforms announced by the government.
The
analysis in this staff working document leads to the conclusion that Finland has made some progress in addressing the 2013 country-specific recommendations. However, important
challenges remain in almost all areas addressed by the recommendations. Ambitious
intentions have been announced but, in many areas, concrete action has not been
taken or the plans have not been translated into legislative or fiscal
measures. However, the government has undertaken additional bold consolidation
measures to secure the sustainability of public finances and agreement has been
reached between the social partners to align wage and productivity growth.
The
structural policy programme announced in August 2013 and the government’s
spending limits and fiscal plan for 2015-2018 agreed in March 2014, developed further
in the national reform programme, are important steps forward. The reforms and
measures outlined in these would make a difference in closing the
sustainability gap, if rigorously implemented over the coming years. A
comprehensive reform of the pension system is to be adopted in 2017. Reform of
the municipal structure and related reforms to improve the efficiency of social
and healthcare services are on the way, but the final direction and extent of these
reforms is still unclear.
Challenges
identified in last years' staff working document and reiterated in the AGS thus
remain broadly valid. The
policy plans submitted by Finland address these challenges, and coherence
between the two programmes has been ensured. The national reform programme
confirms Finland's commitment to address shortcomings in the areas of the
sustainability of public finances, labour market and economic restructuring.
The stability programme assures that Finland is committed to broadly comply
with the requirements of the preventive arm of the Stability and Growth Pact.

Overview table[37]
 
 2013 commitments || Summary assessment   
 Country-specific recommendations (CSRs) 
 CSR 1: Pursue a growth-friendly fiscal policy and preserve a sound fiscal position as envisaged, ensuring compliance with the MTO over the programme horizon. Continue to carry out annual assessments of the size of the ageing-related sustainability gap and adjust public revenue and expenditure in accordance with long-term objectives and needs. Ensure the cost-effectiveness and sustainability of long-term care and put a stronger focus on prevention, rehabilitation and independent living. || Finland has made substantial progress in addressing CSR:   ·                          Some progress has been made in preserving the sound fiscal position. After the risk of deviation from the MTO in 2014 was recognised, ambitious consolidation measures were decided for 2015. ·                          Substantial progress has been made in addressing the sustainability gap problems. Measures to adjust public revenue and expenditure and to increase the growth potential have been prepared, with the objective of closing the gap. ·                          Substantial progress has been made in putting a stronger focus on prevention, rehabilitation and independent living in long-term care, with the passing of  a new Act on services for older people in July 2013. 
 CSR 2: Ensure effective implementation of the ongoing administrative reforms concerning the municipal structure, in order to deliver productivity gains and cost savings in the provision of public services, including social and healthcare services. || Finland has made substantial progress in addressing this CSR. ·                          Some progress in the reform of municipal structure. Studies on the benefits of the mergers of municipalities are continuing as planned, but show a tendency to lag behind the initial objective. ·                          Substantial progress in the area of social and healthcare services, as all political parties have agreed on the main elements of the upcoming reform. 
 CSR 3: Take further steps to increase the employment rate of older workers, including by improving their employability and reducing early exit pathways, increasing the effective retirement age by aligning retirement age or pension benefits to changes in life expectancy. Implement and monitor closely the impact of on-going measures to improve the labour-market position of young people and the long-term unemployed, with a particular focus on the development of job-relevant skills. || Overall Finland has made some progress in addressing this CSR.   Some progress has been made as regards the pension reform (by agreeing the timetable and conducting important studies) and reducing early exit pathways to retirement. But pathways such as the ‘unemployment tunnel’ remain. Limited progress on employability of older workers. Substantial progress on young people, including implementing a youth guarantee. Some progress on long-term unemployment with measures to reduce structural unemployment with active labour market policies (ALMPs) and more incentives to work. 
 CSR 4: Continue efforts to enhance competition in product and service markets, especially in the retail sector, by implementing the new programme on promoting healthy  competition. || Finland has made some progress in addressing this CSR. Although steps have been taken to improve competition in the retail sector, issues remain with regard to large commercial establishments, due to planning law restrictions and market conditions. The healthy competition programme is not yet fully implemented. 
 CSR 5: Boost Finland’s capacity to deliver innovative products, services and high-growth companies in a rapidly changing environment, and continue diversification of the industry; continue to improve the overall energy efficiency in the economy. In the current low-growth environment, support the alignment of real wage and productivity developments whilst fully respecting the role of social partners and in line with national practices. || Finland has made some progress in addressing the CSR. ·                          Some progress in addressing the capacity to deliver innovative products and regarding the diversification of industry. Although these areas are outside the direct influence of the government, a considerable number of policy initiatives have been launched to promote growth and innovation, many of them as part of the government’s 2013 structural policy programme. The government adopted a resolution on comprehensive reform of the research institutes and research funding. The new R&I guidelines are undergoing preparation and the recommendations of several evaluations (e.g. strategic centres of science, technology and innovation), Academy of Finland) are being implemented. Moreover, the government is reforming the funding model of both the universities and polytechnics with specific attention to the utilisation of research. ·                          Substantial progress has been made in energy efficiency through policies supporting innovation and start-up companies. In 2013, Finland announced its national indicative energy target (Article 3 EED). A national Roadmap to 2050 is under preparation, along with a specific law to implement new energy efficiency obligations. ·                          Substantial progress has been made in supporting the alignment of real wage and productivity developments, as the social partners have agreed very limited wage growth in 2014-15, in line with the recommendation. 
 Europe 2020 (national targets and progress) 
 Policy field target ||  Progress achieved 
 Employment rate target: 78 % || In 2013, the rate was 73.80% (estimate).  The average annual employment growth required to reach the target is 0.42 % in 2013–20. Achieving the target will depend on economic conditions, but will also require national efforts. 
 R&D target: 4 % of GDP || Finland is not on track to reach its R&D intensity target for 2020, due to a sharp decrease in business R&D intensity (from 2.79 % of GDP in 2009 to 2.44 % in 2012). The public R&D budget has remained fairly stable at around EUR 2 billion (in 2011 and 2012), producing a public R&D intensity of 1.11 % for 2012. Due to the government budget deficit, the volume of public R&D funding is not expected to increase in the coming years. However, the new demand-side measure — a temporary tax incentive for R&D which applies only in fiscal years 2013 and 2014 — represents a significant public effort to support R&D. The efficiency of such tax measures will however depend on how they are defined and how well they are targeted. 
 Greenhouse gas (GHG) emissions target: ||   
 Renewable energy target: 38 % by 2020 Share of renewable energy in all modes of transport: 20 % by 2020 || RES share in 2012: 34.3 % RES share of transport in 2012: 0.4 %. The country needs to give special attention to sustainable biomass utilisation due to its heavy dependence on biomass to achieve its targets. 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 for wind power, hydro power, biogas, other biomass sources, and CHP (combined heat and power). 
 Energy efficiency target: 310 TWh By 2020: level of 35.9 Mtoe primary consumption and 26.7 Mtoe final energy consumption || Finland has notified the policy measures it plans to adopt to implement Article 7 of the Energy Efficiency Directive. 
 Early school leaving target: 8 % || Finland performs better than the EU average for the early school leaving (ESL) rate. In Finland it was 9.2 % (provisional data) vs an EU average of 12.0 % in 2013. However, there was a slight increase in 2013 and it tends to be significantly higher among migrants, with an estimate of 14.9 % in 2012. The overall ESL rate has remained fairly stable over the last decade. In 2011-12, the rate decreased by 0.9 pps. In 2013 the Finnish authorities decided to make the pre-school year at the age of 6 compulsory and to extend the compulsory age of education by one year to 17 years. It remains to be seen whether this measure will have a positive impact on the evolution of ESL in Finland. 
 Tertiary education target: 42 % (narrow national definition, excluding tertiary VET) || Finland is performing quite well as regards the tertiary attainment rate. The rate in 2013 was 45.3 % (provisional data) as against an EU average of 36.6 % (EU-wide definition); it has therefore exceeded the EU headline target for 2020. However, as Finland based its national target on a narrow national definition (excluding tertiary VET) the attainment rate is estimated at 38-40 % according to Finnish national definition. The country has thus almost reached its national target as well. The rate for foreign-born persons remains lower than for natives — 33 % vs. 47 % in 2012 (EU-wide definition). The drop-out rate from higher education in 2011 was, according to the OECD, 24.2 % in Finland, as compared to an OECD average of 31.6 % for the same year. 
 Risk-of-poverty or social exclusion target: Number of people living at risk of poverty or social exclusion: no more than 770,000 || At risk of poverty and social exclusion: 17.2 % in 2012. According to the 2014 2013 NRP, the risk of poverty or social exclusion affects around 854 000 people. Poverty has increased in particular in the metropolitan regions and concentrated within certain areas particularly. 

Annex  

Standard Tables
Table
 I. Macro-economic indicators
Table II. Comparison of
macroeconomic developments and forecasts
Table III. Composition of the
budgetary adjustment
Table IV. Debt dynamics
Table V. Sustainability indicators
Table VI. Taxation indicators
Table VII. Financial market indicators
Table VIII. Labour market and
social indicators
Table IX. Product market
performance and policy indicators
Table X. Green Growth
List of indicators used in Box 3 on the potential impact on growth of structural reforms. 
Final goods sector mark-ups: Price-cost
margin, i.e. the difference between the selling price of a good or service and
its cost. Final goods mark-ups are proxied by the mark-ups in selected services
sectors (transport and storage, post and telecommunications, electricity, gas
and water supply, hotels and restaurants and financial intermediation but
excluding real estate and renting of machinery and equipment and other business
activities[38]).

Source: Commission services estimation
using the methodology of Roeger, W. (1995). "Can imperfect
Competition explain the Difference between primal and dual Productivity?" Journal
of Political Economy Vol. 103(2) pp. 316-30, based on
EUKLEMS 1996-2007 data. 
Entry costs: Cost of
starting a business in the intermediate sector as a share of income per capita.
The intermediate sector is proxied by the manufacturing sector in the model. 
Source: World Bank, Doing Business
Database. www.doingbusiness.org. 2012 data.
Implicit consumption tax rate:
Defined as total taxes on consumption over the value of private consumption. In
the simulations it is used as a proxy for shifting taxation away from labour to
indirect taxes. The implicit consumption tax-rates are increased (halving the
gap vis-à-vis the best performers) while labour tax-rates are reduced so that
the combined impact is ex-ante budgetary neutral.
Source: European Commission, Taxation
trends in the European Union, 2013 edition, Luxembourg, 2013. 2011 data.
Shares of high-skilled and low-skilled: The
share of high skilled workers is increased, the share of low-skilled workers is
reduced (halving the gap vis-à-vis the best performers). Low-skilled correspond
to ISCED 0-2 categories; high-skilled correspond to scientists (in mathematics
and computing, engineering, manufacturing and construction). The remainder is
medium-skilled. 
Source: EUROSTAT. 2012 data or latest
available. 
Female non-participation rate: Share
of women of working age not in paid work and not looking for paid work in total
female working-age population
Source: EUROSTAT. 2012 data or latest
available.
Low-skilled male non-participation
rates: Share
of low-skilled men of working age not in paid work and not looking for paid
work in total male working-age population
Source: EUROSTAT. 2012 data or latest
available.
Elderly non-participation rates (55‑64
years): Share
of the population aged 55‑64 years not in paid work and not looking for paid
work in total population aged 55‑64 years.
Source: EUROSTAT. 2012 data or latest
available.
ALMP: Active Labour
Market Policy expenditures as a share of GDP over the share of unemployed in
the population. 
Source: EUROSTAT. 2011 data or latest
available.
Benefit replacement rate:  Share
of a worker's pre-unemployment income that is paid out by the unemployment
insurance scheme. Average of net replacement rates over 60 months of
unemployment. 
Source:
OECD, Benefits and Wages Statistics. www.oecd.org/els/benefitsandwagesstatistics.htm.
2012 data.
[1] COM(2013) 800 final.
[2] COM(2013) 790 final.
[3] Apart from the 16 Member States identified in the AMR, Ireland was also covered by an in-depth review, following the conclusion by the Council
that it should be fully integrated into the normal surveillance framework after
the successful completion of its financial assistance programme.
[4] In the stability programme, the general government balance in 2013
is 2.0%. This was the information available at the cut-off date of the underlying
forecast. In the EDP notification, Finland's deficit is 2.1% in 2013. 
[5] Cyclically adjusted balance net of one-off and temporary measures,
recalculated by the Commission services on the basis of the information
provided in the programme, using the commonly agreed methodology.
[6] This lower rate has been calibrated in line with the requirements
of the structural balance. In the case of Finland, it has been calibrated to be
equivalent to a 0.1% of GDP tightening on the structural balance, reflecting Finland's starting debt of below 60% and its large output gap.
[7] The main instrument which implements the provisions of the Fiscal
Compact is the Act on implementation of the Treaty and the budget framework
directive (No 869/2012 Laki talous- ja rahaliiton vakaudesta,
yhteensovittamisesta sekä ohjauksesta ja hallinnasta tehdyn sopimuksen
lainsäädännön alaan kuuluvien määräysten voimaansaattamisesta ja sopimuksen
soveltamisesta sekä julkisen talouden monivuotisia kehyksiä koskevista
vaatimuksista).
[8] On 14th February 2014 a
Government Decree (No 120/2014) entered into force. It obliges the Government
to adopt on a yearly basis a medium term fiscal plan consistent with the medium
term objective (MTO) based on an independent economic forecast and an assessment
of the budgetary situation.
[9]              See, http://www.vm.fi/vm/en/04_publications_and_documents/01_publications/
01_budgets/ 20131218 Budjet/ vm_budjetti_enkku_korjattu.pdf
[10]             See Table V in Annex. The medium-term sustainability
gap (S1) indicator shows the upfront adjustment effort required, in terms of a
steady improvement in the structural primary balance to be introduced until
2020, and then sustained for a decade, to bring debt ratios back to 60% of GDP
in 2030, including financing for any additional expenditure until the target
date, arising from an ageing population. The following thresholds were used to
assess the scale of the sustainability challenge: (i) if the S1 value is less
than zero, the country is assigned low risk; (ii) if a structural adjustment in
the primary balance of up to 0.5 p.p. of GDP per year until 2020 after the last
year covered by the autumn 2013 forecast (year 2015) is required(indicating an
cumulated adjustment of 2.5 pp.), it is assigned medium risk; and, (iii) if it is greater than 2.5 (meaning
a structural adjustment of more than 0.5 p.p. of GDP per year is necessary), it
is assigned high risk.
[11]             See Table V in Annex. The long-term sustainability gap
(S2) indicator shows the immediate and permanent adjustment required to satisfy
an inter-temporal budgetary constraint, including the costs of ageing. The S2
indicator has two components: i) the initial budgetary position (IBP) which
gives the gap to the debt stabilising primary balance; and ii) the additional
adjustment required due to the costs of ageing. The main assumption used in the
derivation of S2 is that in an infinite horizon, the growth in the debt ratio is
bounded by the interest rate differential (i.e. the difference between the
nominal interest and the real growth rates); thereby not necessarily implying
that the debt ratio will fall below the EU Treaty 60% debt threshold. The following thresholds for the S2
indicator were used: (i) if the value of S2 is lower than 2, the country is
assigned low risk; (ii) if it is between 2 and 6, it is assigned medium risk;
and, (iii) if it is greater than 6, it is assigned high risk.
[12]             Ageing costs comprise long-term projections of public
age-related expenditure on pension, health care, long-term care, education and
unemployment benefits. See the 2012 Ageing Report for details.
[13] Act
on Supporting the Functional Capacity of the Older Population and on Social and
Health Services for Older Persons.
[14] http://www.ym.fi/download/noname/%7BB3E047CC-DD7A-4897-BA56-513FBDC50C5F%7D/40297
[15] Enterprise Finance Index, Sub-index on access to equity finance 2012:             
http://ec.europa.eu/enterprise/policies/finance/data/enterprise-finance-index/sme-access-to-finance-index/index_en.htm.
[16] For further details, see the 2014 Joint
Employment Report, COM(2013)801, which includes a scoreboard of key employment
and social indicators.
[17] Suomen eläkejärjestelmän sopeutuminen eliniän pitenemiseen. Eläkekysymysten
asiantuntijatyöryhmän raportti Eläketurvakeskus 31.10.2013
[18] Idem.
[19] Osatyökykyisten työllistymistä edistävien
säädösmuutostarpeiden ja palvelujen arviointi, Sosiaali- ja terveysministeriön
raportteja ja muistioita 2013:37 
[20] 53.9% for the low-skilled v. 74.0% for the total population (20-64
age group) in 2012.
[21] 51.7 % in Finland, 56.8 % EU in 2012. (Number of non-EU nationals
is half the EU-27 average).
[22] Ministry of Finance Economic Bulletin 2/2013.
[23] Matalapalkkatyö Suomessa, Valtioneuvoston kanslian raporttisarja
1/2013.
[24] References are to the Government Decision of 29.11.2013 on
implementing the Structural Policy Programme.
[25] Ministry of Finance Economic Bulletin 2/2013.
[26] Employment and Social Developments in Europe 2013.
[27] In 2011 the government set a target to raise the activation rate of
the unemployed to over 30%. In January 2014, it was 26.4%.
[28] OECD country PIAAC profile for Finland at
http://www.oecd.org/site/piaac/country-specific-material.htm
[29] The gender pension gap was 25 % in the 65+ age group in 2009. (This
latest data is from the time before the introduction of a pension guarantee in
March 2011).
[30] Kaventaja website of the National Institute for Health and
Welfare.
[31] Final goods sector
mark-ups is the difference between the selling price of a good/service and its
cost. Entry cost refers to the cost of starting a business in the intermediate
sector. The implicit consumption tax rate is a proxy for shifting taxation away
from labour to indirect taxes. The benefit replacement rate is the % of a worker's pre-unemployment income that is
paid out by the unemployment scheme. For a detailed explanation of indicators see
Annex.
[32] For a detailed explanation
of the transmission mechanisms of the reform scenarios see: European Commission
(2013), "The growth impact of structural reforms", Chapter 2 in QREANo.
4. December 2013. Brussels; http://ec.europa.eu/economy_finance/publications/qr_euro_area/2013/pdf/qrea4_section_2_en.pdf
[33] European Economy. Occasional Papers. 177. March 2014.
[34] Data: DG ENV Unit C1 (based on the Impact Assessment of Air
Package, 2014).
[35] http://www.ymparisto.fi/fi-FI/Rakentaminen/Maankaytto_ja_rakennuslain_kokonaisarvio(28271.
[36]             See OECD (2013), Product Market Regulation Database,
www.oecd.org/economy/pmr. 
[37] The following categories are used to assess progress in
implementing the 2013 country-specific recommendations: 
No progress: The Member State has
neither announced nor adopted any measures to address the CSR. This category
also applies if a Member State has commissioned a study group to evaluate
possible measures. 
Limited progress: The Member State
has announced some measures to address the CSR, but these measures appear
insufficient and/or their adoption/implementation is at risk. 
Some progress: The Member State has
announced or adopted measures to address the CSR. These measures are promising,
but not all of them have been implemented yet and implementation is not certain
in all cases. 
Substantial progress: The Member
State has adopted measures, most of which have been implemented. These measures
go a long way in addressing the CSR. 
Fully addressed: The Member State has
adopted and implemented measures that address the CSR appropriately.
[38] The real estate sector is excluded because of statistical difficulties
of estimating a mark-up in this sector. The sector renting of machinery and equipment
and other business activities is conceptually part of intermediate goods
sector.