COMMISSION STAFF WORKING DOCUMENT Country Report Finland 2020 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2020 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011
Date: 2020-02-26
Institutions: European Commission, Secretariat-General
Subjects: Finland, economic situation, green economy, investment, labour market, macroeconomics, public finance, social policy, structural adjustment, tax system

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 26.2.2020  SWD(2020) 525 final  COMMISSION STAFF WORKING DOCUMENT Country Report Finland 2020 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2020 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011 {COM(2020) 150 final}  
 
 
CONTENTS 

Executive summary 

1.  Economic situation and outlook 

2.  Progress with country-specific recommendations 

3.  Reform priorities 

3.1.  Public finances and taxation 
3.2.  Financial sector 
3.3.  Labour market, education and social policies 

3.4.    Competitiveness, reforms and investment 
3.5.  Environmental sustainability 

Annex A: Overview Table 

Annex B: Commission debt sustainability analysis and fiscal risks 

Annex C: Standard Tables 

Annex D: Investment guidance on Just Transition Fund 2021-2017 for Finland 

Annex E: Progress towards the Sustainable Development Goals (SDGs) 

References 

LIST OF TABLES 

Financial market indicators 

Assessment of 2019 CSR implementation (*) 

Key economic and financial indicators - Finland 

Financial soundness indicators, all banks in Finland 

Table 1.1: 
Table 2.1: 
Table 3.2.1: 
Table 3.2.1a:  Assessment of barriers to investment and ongoing reforms 
Table C.1: 
Table C.2: 
Table C.3: 
Table C.4: 
Table C.5: 
Table C.6: 
Table E.1: 

Indicators measuring Finland’s progress towards the SDGs 

Product market performance and policy indicators 

Labour market and education indicators 

Headline Social Scoreboard indicators 

Social inclusion and health indicators 

Green growth 

1 

4 

8 

16 

22 

22 
27 
30 
44 
53 

58 

64 

65 

71 

72 

77 

15 
19 
27 
47 
65 
66 
67 
68 
69 
70 
72 

 
 
 
 
LIST OF GRAPHS 

Graph 1.1:  GDP growth and contributions 
Graph 1.2: 
Graph 1.3: 

Contributions to potential growth 

Investment: total construction and housing construction - Finland and the EU – As a 

share of value-added 

Graph 1.4: 
Graph 1.5: 
Graph 1.6: 
Graph 1.7: 

Annual harmonised index of consumer prices, Finland, annual average, % change 

Regional convergence: average GDP per head growth in 2010-2017 vs. GDP in 2010 

Nominal unit labour costs in total economy (2015=100) 

Breakdown of balance of trade for goods (fuels not included) 2001-2018 – Cost and 

non-cost competitiveness impact 

Graph 1.9: 
Breakdown of external position (current and capital accounts) 
Graph 1.10:  Breakdown of the international investment position (% of GDP) 
Graph 2.1:  Overall multiannual implementation of 2011-2019 county-specific-recommendations 

to date 

Graph 3.1.1:  General government expenditure as a proportion of GDP, broken down by function, 

Finland and the EU 

Graph 3.1.2:  Drivers of change in general government balance 
Graph 3.1.3:  Debt as % of GDP 

Graph 3.1.3a: Household debt and credit bureau coverage 
Graph 3.3.1:  Activity, employment and unemployment rates 
Graph 3.3.2:  Population change, 2007-2018 
Graph 3.3.3:  Reasons for inactivity as a proportion of inactive population by sex and age group. 

2018 

Graph 3.3.4:  Relative dispersion of employment rates by education level (2010, 2015, 2018) 
Graph 3.3.5:  Job vacancy rates in the whole economy and in the information and communication 

services sector in Sweden and Finland 

Graph 3.3.6:  Self-reported unmet needs by income quintile declared (% pop) 
Graph 3.3.6a:  Employment rate by age and gender, 2018 
Graph 3.4.1:  Real labour productivity per person and hour worked in PPS (EU=100) 
Graph 3.4.2:  Total factor productivity (TFP) (2000=100) 
Graph 3.4.3:  Birth rate of enterprises in the information and communications services sector ‘(to be 

updated) 

Graph 3.4.4:  Development of R&D expenditure (as a proportion of GDP) 
Graph 3.4.5:  Trend of public and business R&D expenditure intensity by sectors of performance (as 

a proportion of GDP) 

Graph 3.4.6:  Research and development expenditure by industry and year (current prices) 
Graph 3.4.7:  Regional value added per worker 
Graph 3.5.1:  NUTS2-region the most affected by the transition from peat to carbon neutral energy 

production 

2 

8 
8 

9 
9 
10 
11 

11 
12 
13 

16 

22 
22 
25 
29 
30 
31 

31 
34 

34 
38 
41 
44 
44 

45 
48 

49 
49 
52 

56 

 
 
 
LIST OF BOXES 

Box 2.1: EU funds and programmes to address structural challenges and to foster growth and 

competitiveness in Finland 

Box 3.2.1: A credit registry in Finland 

Box 3.3.1: Monitoring performance in light of the European Pillar of Social Rights 

Box 3.3.2: Reaching the 75 % employment rate target 

Box 3.4.1: Investment challenges and reforms in Finland 

20 
29 
36 
41 
47 

3 

 
 
 
EXECUTIVE SUMMARY 

and 

clean 

is  among 

technologies 

The  Finnish  economy  faces  some  structural 
challenges,  but  the  announced  government 
policies,  if  fully  implemented,  could  go  some 
way  towards  reducing  the  problems  identified 
(1).  Finland 
the  most  advanced 
economies in the EU and among the front-runners 
energy 
in  digital 
set 
innovation.  The  government  has  also 
particularly  ambitious  objectives 
for  climate 
action,  reaching  carbon  neutrality  by  2035  and 
becoming  the  world's  first  fossil-free  welfare 
society. Nevertheless, the country faces significant 
challenges,  in  particular  a  productivity  decline 
after its electronic sector contracted and an ageing 
population  combined  with  an  employment  rate 
lower  than  its  Nordic  neighbours.  Furthermore, 
productive  investment  in  Finland  remains  low 
compared  to  its  EU  peers.  Addressing  these 
challenges  will  strengthen  the  growth  potential  of 
the  economy  and  make  it  more  inclusive  and 
resilient  to  external  shocks.  The  medium-term 
reform  plans    announced  by  the  new  government 
look  promising,  although  they  may  face  political 
and implementation hurdles. 

Finland’s  business  cycle  has  passed  its  peak. 
Real  GDP  is  expected  to  have  increased  by  1.4% 
in  2019  after  1.7%  in  2018  and  3.1%  in  2017. 
Lower GDP growth results mainly from lower net 
exports and less dynamic investment, in particular 
investment 
in  equipment.  Lower  employment 
growth  is  weighing  on  consumer  spending,  while 
is  clearly 
construction  of  residential  housing 
decelerating.  Inflation  remains  close  to  the  EU 
average.  Finland’s  economic  growth  is  projected 
to  slow  down  from  2.1%  over  the  previous  three 
years  to  an  average  annual  rate  of  1.0%  in  2020-
2021.  In  the  coming  years,  public  investment  is 
expected to partly offset the loss of momentum in 
global trade expansion. 

The  country’s  shrinking  workforce  is  set  to 
affect growth potential relatively soon as well as 
the  long-term  sustainability  of  public  finances. 
The  workforce  appears  to  be  ageing  faster  than 

(1)  This  report  assesses  Finland’s  economy  in  light  of  the 
sustainable  growth 
European  Commission’s  annual 
strategy,  published  on  17  December  2019.  In 
this 
document, the Commission sets out a new strategy on how 
to address not only the short-term economic challenges but 
also  the  economy's  longer-term  challenges.  This  new 
economic agenda of competitive sustainability rests on four 
dimensions:  environmental  sustainability,  productivity 
gains, fairness and macroeconomic stability. 

Executive summary 

previously  estimated.  As  a  result,  the  labour 
force’s  contribution  to  potential  GDP  growth  is 
expected  to  turn  negative  as  early  as  2021.  The 
decline  in  the  working-age  population  and  the 
ageing of the overall population are soon expected 
to  have  a  negative  impact  on  public  finances, 
notably  through  increasing  health  care,  long-term 
care and pension expenditure weighing directly on 
the sustainability of public finances.  

Raising  employment  to  the  declared  target  of 
75%  could  help  Finland  deal  with 
the 
the 
improve 
demographic  challenge  and 
sustainability  of  public  finances.  A  major 
objective  for  the  new  government  is  to  attain  a 
75%  employment  rate  (15-64-year  olds)  by  2023 
(72.6%  in  2019).  It  will  require  a  large  range  of 
measures,  especially  in  a  low  economic  growth 
context. In particular, several characteristics of the 
labour market and of the social benefit system tend 
to  affect  the  job  opportunities  of  people  who 
belong  to  some  specific  groups,  while  rising 
vacancy rates and labour shortages suggest a need 
to  invest  in  skills.  Tackling  these  issues  could 
require  structural  reforms  of  the  social  benefit 
system,  which  could  be  politically  challenging. 
These 
the 
include 
‘unemployment  tunnel’,  which  allows  extended 
unemployment benefit to older people ahead of the 
statutory retirement age. 

addressing 

could 

in 

investment 

the  negative 

impact 
Investment 

Raising  productivity  appears  to  be  key  to 
the 
offsetting 
of 
demographic  challenge. 
remains 
below EU average for categories that most support 
productivity  growth,  notably 
in 
equipment  and 
intellectual  property.  This 
impedes  the  growth  potential  and  weighs  on  the 
country’s  competitiveness.  Furthermore,  labour 
shortages in high-skilled sectors suggest a need for 
investing 
to  higher 
productivity.  The  new  government’s  plans  to 
increase  public  investment  in  the  coming  years, 
notably 
and 
infrastructure,  could  strengthen  the  economy’s 
capacity to face these challenges.  

education,  R&D 

that  contribute 

in  skills 

skills, 

in 

Focusing investment-related economic policy on 
human  capital,  on  research  and  innovation,  on 
low  carbon  and  energy  transition,  and  on 
sustainable  transport,  would  strengthen  the 
country’s long-term growth potential. While the 

4 

 
 
                                                           
overall investment level in Finland appears largely 
satisfactory,  investing  further  in  people's  skills, 
education  and 
in  coordinated 
training  and 
professional  services  available  to  the  unemployed 
and  the  inactive  is  needed  to  offset  workforce 
losses  from  population  ageing,  reduce  inactivity 
and 
long-term  unemployment  and  potentially 
increase  productivity.  Employment  would  also 
benefit  from  investment  in  social  inclusion.  The 
ratio of R&D to GDP has not recovered since the 
crisis  years  and  appears  to  be  insufficient  to 
diversify exports towards higher tech goods in the 
medium  term.  The  decarbonisation  of  energy-
intensive  industries  and  the  transport  sector  will 
also require higher private and public investment.  

Finland  has  made 
addressing 
the 
recommendations.  

limited 
2019 

(2)  progress 

in 
country-specific 

There  has  been  some  progress  in  the  following 
area: 

  Reforms  are  being  implemented  to  strengthen 
skills  and  inclusion,  notably  through  well-
integrated  services  and  higher  funding  for 
continuous  learning  in  vocational  education 
and training and tertiary education.  

  Measures  to  mitigate  risks  to  the  financial 
system as a whole have been adopted and other 
measures  are  being  drafted  to  strengthen  the 
monitoring of the household debt.  

There  has  been  limited  progress  in  the  following 
areas:  

  The  government  plans  to  continue  the  social 
and healthcare reform initiated by Juha Sipilä’s 
government 
is 
(2015-2019).  The 
expected  to  be  adopted  by  the  end  of  the 
government’s term. 

reform 

 

Improving  incentives  to  work  is  a  long-term 
process  that  entails  simplifying  the  complex 
benefit  system,  while  keeping  its  capacity  to 
reduce  poverty  and  inequalities.  The  benefits 
system  reform  process  is  expected  to  be 

(2)  Information  on  the  level  of  progress  and  actions  taken  to 
address  the  policy  advice  in  each  respective  subpart  of  a 
country-specific  recommendation 
the 
overview table in the Annex.  

is  presented 

in 

Executive summary 

implemented  gradually  over  two  government 
terms (to be completed by 2027).  

  As regards investment-related economic policy 
on  research  and  innovation,  low  carbon  and 
energy transition and sustainable transport,  the 
Finnish  government  has  announced  plans  to 
strengthen investment in these areas.  

  Work  on  the  credit  registry  is  still  in  the 
planning  phase:  the  necessary  legislative  work 
on  data  protection  has  started  in  early  2020, 
while  work  on  the  credit  registry  itself  might 
incur  delays.  The  authorities  are  committed  to 
having  the  necessary  legislation  in  place  by 
2023. 

results 

supporting 

  Finland  performs  well  on  the  indicators  of 
the  Social  Scoreboard 
the 
European  Pillar  of  Social  rights.  The  good 
reflect  Finland's  advanced 
overall 
welfare  model  with  a  strong  social  dialogue. 
Income inequalities are among the lowest in the 
EU  and  few  people  are  at  risk  of  poverty  or 
social  exclusion.  Finland  continues  to  have  an 
education system that generally performs well. 
It scores  well on digital skills, although a  lack 
of  specialists  seems  to  create  obstacles  for 
and 
the 
companies 
communication  services  sector.  Access 
to 
health  care  remains  a  concern,  given  the 
relatively high unmet health care needs. 

information 

in 

the 

reach, 

Regarding progress in reaching the national targets 
under  the  Europe  2020  strategy,  the  employment 
rate target of 78% (20-64-years old) appears to be 
within 
low-growth 
although 
environment  may  pose  challenges.  The  poverty 
rate  is  low  compared  to  the  EU  average,  but 
recently  it  has  slightly  increased  and  the  national 
target  seems  to  be  out  of  reach.  The  school-drop-
out  rate  (‘early  school  leaving’)  remained  slightly 
above the  target of 8%. The  very ambitious  R&D 
investment  target  of  4%  of  GDP  is  unlikely  to  be 
met.  However,  Finland  is  broadly  on  track  to 
reaching its 2020 climate and energy targets. 

Finland is a front-runner in integrating the United 
Nations  Sustainable  Development  Goals  (SDGs) 
into  public  policies,  and  performs  better  than  the 
EU  average  on  most  of  those.  Moreover,  the 
country  is  further  improving  its  ranking  for  most 

5 

 
 
                                                           
Executive summary 

remain  a  concern,  especially  for  people  not 
covered  by  occupational  insurance.  A  major 
reform  of  the  healthcare  system  is  currently 
being considered and is expected to be  largely 
based  on  the  plans  and  objectives  of  Juha 
Sipilä’s government. 

  Productivity  growth  remains  a  challenge. 
Finland’s  productive  investment  remains  close 
the  EU  average  for 
to,  or  even  below, 
categories 
including 
such  as  equipment, 
information  and  communication  technology 
equipment,  and  intellectual  property  products. 
Moreover,  productive 
is  rather 
narrowly  concentrated,  with  an  increasing  gap 
between  the  most  productive  firms  and  those 
that are the least productive.  

investment 

  Some  structural  factors  might  be  holding 
back  investment.  The  most  commonly  cited 
barrier  to  investment  is  the  availability  of 
skilled  staff,  notably  in  the  information  and 
communication 
sector.  Other 
services 
impediments  are:  i)  lengthy  procedures  for 
obtaining  business  permits;  ii)  the  still  limited 
cooperation between businesses and academia; 
iii) lack of coordination of smart specialisation 
at central level;  and iv) the still modest access 
to finance for seed capital companies.  

low 

interest 

  Household  debt  remains  high  but  the 
banking sector is well capitalised. Household 
debt,  including  through  housing  corporations, 
remains  at  historically  high  levels,  supported 
by  persistently 
rates.  The 
predominance  of  variable  rates  could  create 
risks  if  interest  rates  rise  in  the  medium  term. 
Consumer  credit  is  also  rising.  The  lack  of  a 
comprehensive 
registry 
(positive) 
prevents banks from having a clear overview of 
households’  overall  debt.  However, 
the 
servicing  of  debt  remains  solid,  and  banks 
remain  well  capitalised.  Moreover,  further 
measures  to  contain  the  rising  household  debt 
are being considered.    

credit 

  There are some weaknesses in the  measures 
taken  to  tackle  money  laundering.  Finland 
intends to update its national risk assessment of 
money-laundering  and  terrorist  financing,  as 
the 
from 
assessment 
2015. Preparatory  work  is  expected  to  be 

current 

dates 

SDGs,  but  with  significant  progress  made  on 
SDG8 — decent work and economic growth, while 
it  is  moving  moderately  away  from  SDG9  on 
industry, innovation and infrastructure (3). 

Key  structural  issues  analysed  in  this  report  that 
for  Finland’s 
point 
economy are the following:  

to  particular  challenges 

  Weaknesses  in  the  policy  framework  have 
hindered the participation of certain groups 
in    the  labour  market.  These  groups  notably 
include  low-skilled  men,  workers  close  to 
retirement,  people  with  a  migrant  background, 
people  with  partial  work  ability  and  persons 
with  disabilities.  Spending  on  policies  to  help 
people find or stay in work is lower in Finland 
than  in  other  Nordic  countries.  Moreover, 
dispersed  services  for  the  unemployed  and 
inactive  may  hinder 
the 
activation of some specific groups in the labour 
marget.  

the  activation 

social 

benefit 

  Other factors holding back employment are 
related  to  weak  incentives  inherent  in  the 
complex 
system. 
Unemployment and inactivity traps and lack of 
flexibility in combining income from  part-time 
work and various benefits may somewhat hold 
back  an  increase  in  the  employment  rate.  The 
government  plans  to  address  these  issues, 
including  through  a  long-term  reform  of  the 
social benefit system; however, the reform is at 
an  early  stage  of  preparation  and  cannot  be 
assessed yet. 

  Demographic trends pose some risks for the 
sustainability  of  public 
finances  and 
accessibility  of  health  and  long-term  care 
services.  Finland’s  shrinking  workforce  and 
the ageing-related long-term trends in spending 
is  set  to  affect  the  long-term  sustainability  of 
the  country’s  public  finances  (see  above). 
Furthermore, the high unmet health care needs 

(3)  Within the scope of its legal basis, the European Semester 
can help drive national economic and employment policies 
towards the achievement of the United Nations Sustainable 
Development  Goals  (SDGs)  by  monitoring  progress  and 
ensuring  closer  coordination  of  national  efforts.  The 
present report contains reinforced analysis and monitoring 
on the SDGs. A new annex (Annex E) presents a statistical 
assessment  of  trends  in  relation  to  SDGs  in  Finland  over 
the past 5 years, based on Eurostat’s EU SDG indicator set. 

6 

 
 
 
                                                           
Executive summary 

completed  in  2020.  The  Finnish  Financial 
Supervisory  Authority  has  made  progress  in 
boosting  its  supervisory  capacity  but  there  is 
scope  for  further  improvement  as  regards 
human  resources.  There  is  also  scope  for 
applying  a  risk-based  approach  to  supervision. 
Cooperation  with  the  Financial  Intelligence 
Unit  beyond  providing  guidance  to  obliged 
entities is limited.  

In 

this 

is  being 

  Finland  is  broadly  on  track  to  reaching  its 
2020  climate  targets,  but  its  objective  of 
reaching  carbon  neutrality  by  2035  will 
require  an  ambitious  set  of  new  measures. 
The Finnish government intends to achieve this 
objective, notably  with a further electrification 
of  the  economy,  and  by  largely  using  nuclear 
fuel  and  renewable  energy  to  generate  power. 
This  will  require  a  comprehensive  agenda  of 
policies  and  measures. 
respect, 
decarbonising  energy-intensive  industries  and 
the  transport  sector  appear  as  key  objectives. 
Sizeable  investment  in  low  carbon  and  energy 
transition  as  well  as  in  sustainable  transport 
considered.  The 
infrastructure 
government  has  announced  an  overhaul  of 
energy taxation and it will phase out fossil fuel 
subsidies on oil, coal and, possibly, peat. Waste 
management  is  advanced,  but  the  country’s 
recycling  rate  remains  below  the  EU  average. 
The  Commission’s  proposal 
Just 
Transition  Mechanism  under  the  next  multi-
annual  financial  framework  for  the  period 
2021-2027,  includes  a  Just  Transition  Fund,  a 
dedicated 
scheme  under 
transition 
InvestEU, and a new public sector loan facility 
with  the  EIB.  It  is  designed  to  ensure  that  the 
transition towards EU climate neutrality is fair, 
by helping the most affected regions in Finland 
to 
economic 
social 
consequences. Key priorities for support by the 
Just Transition Fund, set up as part of the Just 
Transition Mechanism, are identified in Annex 
D,  building  on  the  analysis  of  the  transition 
challenges outlined in this report. 

address 

for  a 

just 

and 

the 

7 

 
 
 
1.  ECONOMIC SITUATION AND OUTLOOK 

contribution of total factor productivity and capital 
accumulation  are  projected  to  offset  in  excess  the 
negative  impact  of  ageing,  these  demographic 
trends are  expected to represent a  substantial drag 
on potential growth. 

Graph 1.2:  Contributions to potential growth 

GDP growth 

cyclical 

is  expected 

Economic  expansion 
to  ease. 
Finland’s real GDP is estimated to have increased 
by  1.6%  in  2019  (see  Graph  1.1),  having  already 
decreased in 2018 (1.7%), following robust growth 
performances in 2016 and 2017. Growth is forecast 
to  have  been  broad-based,  with  positive  and 
from  all  components. 
balanced  contributions 
Gradual 
advanced 
economies,  weakening  external  demand  and  a 
period  of  increased  uncertainties,  are  all  expected 
to  weigh  on  growth.  Falling  consumer  confidence 
and lower employment growth might affect private 
consumption, and construction investment is likely 
to  fall.  This  is  expected  to  be  partly  offset  by  an 
expansionary fiscal stance. In 2020 and 2021, GDP 
growth is forecast to decelerate, as the contribution 
from net exports turns negative. 

slowdown 

in 

Graph 1.1:  GDP growth and contributions 

TFP: total factor productivity 
PF potential growth: production function potential growth 
Source: European Commission 

impact  of  a  structural  change  from 
The 
manufacturing to services activities has affected 
Finland’s  aggregate  productivity.  From  2000  to 
2018, the relative share of GDP at current prices of 
sector 
the  highly  productive  manufacturing 
(average  labour  productivity  growth  of  3.4%  over 
2000-2018)  declined  by  10  percentage  points 
(pps).  At  the  same  time,  the  aggregated  share  of 
construction,  real  estate,  professional  and  non-
market 
average 
productivity growth was close to zero or negative, 
increased by 8 percentage points. This progressive 
structural  shift  is  a  long-term  phenomenon  that 
could  continue  to  negatively  affect  Finland’s 
overall  potential  economic  growth  in  the  years 
ahead. Moreover, the share of high-tech services in 
GDP  (information  &  communications),  whose 
productivity  growth  is  high  (3.3%  over  2000-
2018), increased by only 1 percentage point. 

activities,  whose 

services 

Low  levels  in  the  categories  of  productivity-
enhancing  investment(4)  could  prevent  Finland 
from  achieving  higher  potential  growth  rates 
(see  Section  3.4).  Finland’s  level  of  investment 
remains close to, or even below the EU average for 
support 
investment 

that  most 

categories 

(4)  Investment in skills not included. 

Source: European Commission (Autumn forecast 2019) 

Potential growth 

Finland’s  potential  GDP  growth  prospects  are 
affected  by  a  gradually  shrinking  working-age 
population.  The  number  of  births  declined  by 
around  20%  over  the  last  decade  and  the  latest 
update  of  the  population  projections  implies  even 
faster  ageing  than  previously  estimated.  Labour 
contribution  to  potential  GDP  growth  is  expected 
to be negative as early as from 2021 onwards (see 
Graph 1.2). Assuming that current trends continue, 
this  negative  impact  is  anticipated  to  gradually  
the 
increase  over 

the  coming  years.  While 

8 

-10-8-6-4-202468040506070809101112131415161718192021%, ppsNet exportsConsumptionInvestment (GFCF)Inventories investmentReal GDP growthforecast-1.0-0.50.00.51.01.52.02.5060708091011121314151617181920212223Annual change (%)Capital Accumulation ContributionTFP ContributionTotal Labour (Hours) ContributionPF Potential Growthforecast 
 
  
 
               
                                                           
1. Economic situation and outlook 

Inflation 

Inflation  failed  to  pick  up  in  2019,  remaining 
below the euro area average (see Graph 1.4). The 
pass-through from higher  wages into services  was 
smaller than in the past. Expected slower economic 
growth  and  low  external  price  pressures  implies 
that  the  period  of  low  inflation  is  likely  to 
continue,  remaining  below  2%  over  the  next  2 
years. 

Graph 1.4:  Annual harmonised index of consumer prices, 

Finland, annual average, % change 

Source: European Commission 

Labour market 

After  4  years  of  economic  growth,  the  labour 
market situation has improved, but a slowdown 
is  expected.  Employment  continued  increasing  in 
2018, both in absolute terms and in the percentage 
of the workforce. It increased by 2.1 pps in 2018 to 
reach 76.3% (20-64 year-olds), partly due to a drop 
in  inactivity.  Employment  is  expected  to  continue 
growing in 2019 and 2020, albeit at a slower pace. 
The  unemployment  rate  has  been  decreasing 
steadily since 2016. It stood at 7.4% in 2018 down 
from 8.6% recorded in 2017, although still slightly 
above  the  EU  average.  The  new  government  has 
set an ambitious employment target to be reached 
by the end of 2023 (see Section 3.3).  

The still relatively high unemployment suggests 
structural  bottlenecks  in  the  labour  market. 
Youth  unemployment  decreased  substantially  in 
2018 but remains above the EU average. Similarly, 
the activity rate is catching up but the employment 
figures  are  still  below  those  of  Nordic  peers,  and 
even  below  the  EU  average  for  some  age  groups. 
Among the reasons for inactivity are disincentives 
to  work,  inactivity  traps,  unemployment  traps, 
bureaucratic  traps,  caring  responsibilities,  illness 

productivity  growth.  In  particular,  equipment 
investment  has  been  among  the  lowest  in  the  EU 
for  many  years,  which  applies  specifically  to  ICT 
equipment.  This  is  a  puzzling  phenomenon  in  an 
otherwise  strongly  digitalised  economy 
(see 
Section  3.4).  Furthermore,  after  the  technological 
disruption 
largest 
private R&D investor a decade ago, investment in 
intellectual  property  slightly  recovered  in  2018, 
but remains markedly below the level of its Nordic 
peers (Sweden and Denmark).  

the  country’s 

that  affected 

Graph 1.3: 

Investment: total construction and housing 
construction - Finland and the EU – As a share 
of value-added 

Source: European Commission 

less  productive 

investment 
Construction,  a 
category, remains predominant at 61% of total 
investment  (5).  The  country  still  has  the  highest 
level  of  construction  investment  in  the  EU  (see 
Graph  1.3).  Housing  construction  is  particularly 
high, as people move from rural areas to dynamic 
urban  centres.  Beyond  still  favourable  conditions 
provided to borrowers, public investment in social 
housing  and  public 
to  housing 
construction  remain  sizeable.  The  average  labour 
productivity  growth  of  the  construction  sector  is 
close  to  zero  (-0.1%  over  the  2000-2018  period). 
However,  amidst  high  territorial  dispersion  and 
housing 
limited 
construction in dynamic urban centres is expected 
to contribute to higher allocative efficiency. 

labour  mobility, 

incentives 

regional 

(5)  The ratio is 49 % for the EU-28 as a whole. 

9 

024681012141601030507091113151719-3Qas % of GDPConstruction - FI     of which dwellings - FIConstruction - EU27     of which dwellings - EU27-0.50.00.51.01.52.02.53.03.54.04.5070809101112131415161718192021FinlandEuroareaforecasttarget 2% 
         
                                                           
  
 
1. Economic situation and outlook 

or  disability,  as  well  as  relatively  low  regional 
mobility.  

Graph 1.5: 

Regional convergence: average GDP per 
head growth in 2010-2017 vs. GDP in 2010 

Wage  growth  was  moderate  in  2018  and  2019. 
Real  wages  improved  modestly  in  2018.  This 
should  have  changed  in  2019,  due  to  a  tightening 
labour market (see Section 3.3). Unit labour cost is 
expected to have increasing in 2019 slightly faster 
than  in  the  EU  on  average,  thus  not  overly 
affecting competitiveness. 

Social developments  

Source: European Commission – Staff calculations 

The  decrease  in  regional  disparities  is  largely 
due  to  a  slow  recovery  in  the  capital  region  in 
2010-2017 (see Graph 1.5). During this period, all 
regions except North and East Finland expanded at 
a  considerably  slower  pace  than  the  EU  average 
growth  rate  of  1.2%.  The  GDP  per  head  in 
Helsinki  region  declined,  while  other  regions  in 
mainland  Finland  modestly  grew  (between  0.24% 
and  1.19%  annually),  with  South  Finland  and 
North and East Finland above the country average.     

Regional unemployment and activity rates have 
been  converging  in  recent  years.  The  dispersion 
of NUTS2 (6) regional employment rates is now at 
3.2 pps,  one  of  the  lowest  rates  in  the  EU.  The 
North and East region is lagging behind in terms of 
employment. 

(6)  The NUTS classification (Nomenclature of territorial units 
for  statistics)  is  a  hierarchical  system  for  dividing  up  the 
economic territory of the EU. NUTS2 are basic regions for 
the application of regional policies. 

The risk of poverty, social exclusion and income 
inequality remains among the lowest in the EU, 
despite  a  slight  increase.  At  16.5%  in  2018 
(15.7%  in  2017),  the  risk  of  poverty  or  social 
exclusion remains below the EU average of 21.9%. 
The  ratio  of  the  income  of  the  richest  20% 
compared  to  the  poorest  20%  has  remained 
broadly  stable  (3.6  in  2018).  Finland  remains 
among  the  best  performers  in  the  EU  as  fighting 
poverty  and  social  transfers  play  a  major  role  in 
reducing poverty. In 2018, social transfers reduced 
the  risk  of  poverty  by  53.7%  and  the  poverty  gap 
by  82%  (the  EU  averages  are  respectively  33.2% 
and 55%). In 2018, the income share of the poorest 
40% of the population stood at 24%, being among 
the highest in the EU (EU average 21%). Still, the 
ageing  population  and 
the  rising  age-related 
expenditure  remain  concerns  for  the  long-term 
sustainability of the Finnish public finances.  

Regional disparities 

Regional  disparities  have  slightly  decreased  in 
recent years, but there is still a gap between the 
capital  region  and  the  less  developed  region  of 
North  and  East  Finland.  In  terms  of  GDP  per 
head,  the  Greater  Helsinki  region  stood  notably 
above  the  EU  average  (142%)  in  2017  and  1.5 
times  higher  than  the  weakest  North  and  East 
region,  where  GDP  per  head  corresponds  to  91% 
of  the  EU  average.  In  2010,  the  capital  region´s 
GDP  per  head  was  1.7  times  higher  than  that  for 
North and East Finland. 

10 

-1.5-1.0-0.50.00.51.01.52.02.53.08090100110120130140150Capital regionOther NUTS2 regionsNational averageEU28 
               
                                                           
1. Economic situation and outlook 

Graph 1.6:  Nominal unit labour costs in total economy 

(2015=100) 

to  increase  faster  in  Finland  than  in  the  EU  as  a 
whole,  further  market  share  gains  for  Finland  are 
expected to be limited.  

Graph 1.7: 

Breakdown of balance of trade for goods 
(fuels not included) 2001-2018 – Cost and non-
cost competitiveness impact 

Source: European Commission 

Competitiveness 

In  2019,  the  nominal  labour  costs  are  expected 
to have increased in Finland slightly faster than 
in  its  Nordic  peers  (see  Graph  1.6)  .  In  2019, 
nominal  wages  are  expected  to  have  grown 
relatively  strongly  (3.1%),  only  partly  offset  by  a 
small  recovery  in  productivity  growth  (0.4%). 
Overall,  this  is  set  to  have  further  pushed  up 
nominal  unit  labour  costs,  opening  the  risk  of 
decreasing the cost-competitiveness edge gained in 
previous  years.  In  parallel,  comparatively  lower 
productive  investment  is  expected  to  continue  to 
weigh on productivity, and therefore, in particular, 
on  non-cost  competitiveness  (see  Graph  1.7). 
Furthermore, if business creation were to be below 
EU  average,  it  might  hamper  the  swift  economic 
redeployment  towards  high-tech  activities  (see 
Section 3.4).  

recent  years, 

export  market 

In 
shares 
recovered,  reducing  past  cumulated  losses.  In 
2018,  exports  benefited  from 
the  continued 
recovery  in  world  trade  (see  Graph  1.8)  and 
increased  shipbuilding  export.  However,  overall, 
the  recovery  in  Finland’s  market  shares  is  small 
compared  to  accumulated  losses  since  2008.  In 
2019,  unit  labour  costs  are  expected  to  have 
reverted  to  positive  growth  and  the  real  effective 
exchange  rate  appreciated  slightly.  In  the  years 
ahead,  import  growth  is  expected  to  marginally 
outpace export growth. As unit labour costs are set 

(1) Only goods for which both imports and exports, as well as 
volumes, are taken into account. As a result, in 2018, the 
total trade balance (without fuels) in the Graph was US$ 
0.13 bn or € 0.12 bn, instead of the actual trade balance of 
€ 0.82 bn.  
(2) Cost and non-cost competitiveness are defined in the 
report by comparing the unit values of exports (UVX) and 
imports (UVM) and the trade balance for each category of 
goods (four digits categories). If UVX > UVM, and if the trade 
balance for the particular category of goods TB > 0, it is a 
case of non-cost competitiveness. Another case of non-cost 
competitiveness is when UVX < UVM and TB < 0. When UVX < 
UVM and TB > 0 or when UVX > UVM and TB < 0), it is a case 
of cost competitiveness. Where there is strong non-cost 
competitiveness in a category of goods, there is a trade 
surplus, and, where non-cost competitiveness in a category 
of goods is weak, there is a trade deficit. The same applies 
to cost competitiveness (European Central Bank, 2012). 
Source: European Commission 

External position 

In  2019,  both  current  account  and  trade 
balance  deficits  narrowed  slightly.  The  current 
account  balance  improved  from  -1.4%  of  GDP  to  
-1.1%  of  GDP,  while  the  trade  balance  improved 
by 0.5 pps to -0.7% of GDP (see Graph 1.9). The 
current account balance is still below (-0.7%) what 
can  be  explained  by  fundamentals  (Countinho  et 
al.,  2018).  The  trade  balance  for  goods  remained 
slightly  positive,  while  the  deficit  on  services 
in  exports  of 
to  strong  rise 
decreased  due 
telecommunications,  computer  and  information 

11 

7075808590951001051101150002040608101214161820*FIEU-27Nordic peers (DK, SE)-3-113579111315010203040506070809101112131415161718US$ billionscostnon-costPoly. (cost)Poly. (non-cost) 
  
  
1. Economic situation and outlook 

services. These account for almost 35% of the total 
exports of services (7). 

Graph 1.9: 

Breakdown of external position (current and 
capital accounts) 

Overall,  Finland  is  relatively  more  exposed  to 
foreign  currency  fluctuations  as  5  out  of  its  top  7 
export markets are non-euro area countries (goods 
exports  by  country  in  2018:  Germany  15.1%, 
Sweden 10.4%, United States and the Netherlands  
6.8%,  China  5.5%,  Russia  5.2%,  and  the  UK 
4.5%).  

Graph 1.8: Export market shares (EMS): EMS growth rate, 
export growth, world export growth (negative sign)  

Source: European Commission 

Financial sector and household debt 

Finland’s banking system remains robust and is 
now one of the EU’s largest in relative terms. Its 
balance sheet is four times the country’s GDP. The 
banks are highly capitalised and have low ratios of 
non-performing  assets.  In  terms  of  risk,  the 
banking  sector  is  heavily  reliant  on  wholesale 
market  funding  and  has  potential  substantial 
exposure to other Nordic financial systems.  

Source: European Commission 

Finland’s  net  international  investment  position 
has  slightly  improved  and  reverted  to  positive 
values in 2019. It improved from -2.0% of GDP in 
2018 to 3.5% in 2019 (see Graph 1.10). Both gross 
assets  and  liabilities  have  increased  markedly  in 
the  fourth  quarter  of  2018,  due  to  the  move  of  a 
major  bank’s  headquarters  from  Sweden 
to 
Helsinki.  At  the  end  of  2019,  the  financial  sector 
accounted for almost half of total liabilities, while 
the  relative  share  of  non-financial  corporations  in 
total 
liabilities  declined.  Government  social 
security  funds  remain  the  largest  net  positive 
sector, followed by the central bank and collective 
investment schemes. 

(7)  This  export 

item 

includes  hardware  and  software 
consultancy,  software  programs  that  improve  business 
productivity, as well as computer game programs. 

income 

The  credit  risk  is  strongly  linked  to  high 
households’  indebtedness.  It  stood  at  140%  of 
household  disposable 
in  2019.  Total 
private  sector  debt  amounted  to  142%  of  GDP  in 
2018, in line with fundamentals-based benchmarks 
above 
(European  Commission,  2018a)  but 
prudential,  estimated  at  around  125%  of  GDP. 
Both  non-financial  corporations  and  household 
debt lie above their prudential values (of 56% and 
68% of GDP, respectively), while household debt, 
at  65%  of  GDP  in  2018  is  also  above  its 
fundamental  value  of  around  57%  of  GDP). 
issued 
European 
recommendations 
(European 
Systemic Risk Board, 2019) that call for activation 
of  income-related  borrowers-based  measures.  As 
one  of  the  proposed  measures  to  curb  household 
indebtedness, 
started 
preparatory  work  to  establish  a  comprehensive 
credit registry by 2023. 

Systematic  Risk  Board 

June  2019 

authorities 

have 

the 

in 

12 

-40-30-20-100102030040506070809101112131415161718Rate of change y-o-y (%)Contribution: World export growth (euros, neg. Sign)Contribution: Export growth (euros)EMS growth rate-6-4-202468101201020304050607080910111213141516171819*% of GDPCapital accountSecondary income balancePrimary income balance  Trade balance - services  Trade balance - goodsTrade balanceCurrent account balance (CA)Net lending/borrowing (CA+KA) 
  
                                                           
  
1. Economic situation and outlook 

Housing market 

There  is  continued  and  growing  disparity  in 
house  prices  between  the  bigger  cities  and  the 
rest  of  Finland.  On  a  country  level,  by  third 
quarter prices increased in nominal terms both for 
new  buildings  and  existing  housing  stock,  but 
deflated  prices  of  existing  housing  stock  were 
slightly  lower  than  in  2018.  However,  prices  in 
Helsinki and the bigger cities (where there is a net 
migration) are clearly rising faster than in the rest 
of  the  country.  There  is  likely  to  be  little  price 
pressure, due to the construction of a high number 
of  new  buildings  in  recent  years,  which  increased 
the stock of unsold dwellings. As indicated by the 
decreasing  number  of  building  permits  and 
building  starts,  it  is  likely  that  the  supply  of  new 
dwellings  will  drop  in  2020  and  2021,  putting 
more  upward  pressure  on  prices  in  the  medium 
term. 

Graph 1.10:  Breakdown of the international investment 

position (% of GDP) 

Source: European Commission 

Public finances 

to 

The  general  government  headline  balance  is 
forecast 
the 
to  deteriorate.  According 
Commission  2019  Autumn  Forecast,  the  deficit  is 
expected  to  increase  from  -0.8%  of  GDP  in  2018 
to  -1.1%  of  GDP  in  2019.  While  economic  and 
employment developments continue to support tax 
revenues  and  contain  spending  on  social  benefits, 
the  outlook  for  government  revenue  has  clearly 
deteriorated  in  line  with  macroeconomic  trends. 
Furthermore,  higher-than-expected  spending  by 

local  authorities  in  the  first  half  of  2019  further 
deteriorated  the  projected  balance.  The  recent 
statistical  data  revisions  also  resulted  in  the 
balance  for  2018  deteriorating  by  0.1  pp.  The 
general  government  balance  is  forecast  to  further 
deteriorate  to  -1.4%  of  GDP  in  2020  and  – 
assuming  no-policy-change – to  -1.6% of  GDP in 
2021.  

The  public  debt-to-GDP  ratio  may  approach 
the 60% benchmark ratio in the medium term. 
Finland reduced its gross public debt from the peak 
of 63% of GDP in 2016 to 59% of GDP in 2018. 
The  Commission  forecasts  that  the  government 
debt  ratio  will  remain  close  to  this  level  in  2019 
and 2020, and will start increasing in 2021. In the 
long term, the costs of ageing, in particular related 
to  healthcare  and  long-term  care,  are  projected  to 
weigh  on  the  sustainability  of  Finland’s  public 
finances. 

Sustainable development governance 

Finland is a front-runner in integrating the United 
Nations  Sustainable  Development  Goals  (SDGs) 
into  public  policies  (8),  and  performs  better  than 
EU average  on  most of those. Finland  was one  of 
the first countries in the world to prepare a national 
programme  to  interpret  the  United  Nations’  2030 
Agenda.  It  was  one  of  the  first  countries  to 
voluntarily report on its progress at the UN High-
Level Political Forum on Sustainable Development 
2030  Agenda  in  July  2016  (9).  Unsurprisingly, 
Finland  ranks  higher  than  EU  average  for  most 
SDGs,  except  on  a  few  sub-items.  Overall,  the 
country is improving its ranking for 11 SDGs, out 
of 17, but with significant progress made on three 
of  them:  Decent  work  and  economic  growth 
(SDG8),  Climate  action  (SDG13)  and  Peace, 
justice  and  strong  institutions  (SDG16).  It  is 

(8)  In 2015, the UN Member States adopted the 2030 Agenda 
for  Sustainable  Development  (2030  Agenda)  and  the 
Sustainable Development  Goals (SDGs) that will steer the 
promotion of sustainable development in 2016–2030. They 
aim  at  the  eradication  of  extreme  poverty  from  the  world 
and  at  ensuring  wellbeing 
in  an  environmentally 
sustainable manner. 

(9)  In  May  2019,  Finland  published  a  report  measuring 
progress on the implementation of the 2030 Agenda and its 
SDGs (Towards the Finland we want by 2050: the State of 
Sustainable Development in 2019 in light of Indicators and 
Comparative  Studies).  Finland’s  Prime  Minister’s  Office 
has also commissioned and funded a project (Polku 2030) 
to  evaluate  Finland’s  sustainable  development  policy  and 
make recommendations for further action. 

13 

-120-100-80-60-40-200204060020304050607080910111213141516171819*% of GDPReserve assetsNet portfolio investment, equity and investment fundshares/unitsNet portfolio investment, debt securitiesOther investment (net)Net direct investmentNet financial derivatives and employee stock options 
  
                                                           
1. Economic situation and outlook 

moving  moderately  away  from 
three  SDGs: 
Partnership  for  the  goals  (SDG17),  No  poverty 
(SDG1) and Industry, innovation and infrastructure 
(SDG9) (see Annex E). 

14 

 
1. Economic situation and outlook 

Table 1.1: 

Key economic and financial indicators - Finland 

Source: Eurostat and ECB as of 4-2-2020, where available; European Commission for forecast figures (Winter forecast 2020 for 
15 
real GDP and HICP, Autumn forecast 2019 otherwise) 

2004-072008-122013-1620172018201920202021Real GDP (y-o-y)4,0-0,70,53,11,71,61,51,0Potential growth (y-o-y)2,50,50,51,21,41,31,21,2Private consumption (y-o-y)3,61,01,11,01,8...Public consumption (y-o-y)1,50,60,90,21,5...Gross fixed capital formation (y-o-y)4,8-1,30,64,03,3...Exports of goods and services (y-o-y)8,6-1,60,78,82,2...Imports of goods and services (y-o-y) 8,30,51,74,15,0...Contribution to GDP growth:Domestic demand (y-o-y)3,20,40,91,52,1...Inventories (y-o-y)0,3-0,20,10,10,6...Net exports (y-o-y)0,6-0,8-0,41,6-1,0...Contribution to potential GDP growth:Total Labour (hours) (y-o-y)0,50,00,10,40,40,30,20,0Capital accumulation (y-o-y)0,70,50,30,60,60,60,60,6Total factor productivity (y-o-y)1,30,00,10,30,30,40,50,6Output gap1,2-1,2-2,80,00,30,30,20,0Unemployment rate8,07,78,88,67,46,76,56,4GDP deflator (y-o-y)1,32,11,50,72,11,41,82,0Harmonised index of consumer prices (HICP, y-o-y)0,92,70,90,81,21,11,41,5Nominal compensation per employee (y-o-y)3,32,91,2-1,10,73,13,03,2Labour productivity (real, person employed, y-o-y)2,4-1,00,72,0-0,9...Unit labour costs (ULC, whole economy, y-o-y)0,93,90,5-3,01,72,72,32,5Real unit labour costs (y-o-y)-0,41,7-1,0-3,7-0,41,20,50,5Real effective exchange rate (ULC, y-o-y)0,01,1-0,2-2,91,6-0,8-0,20,5Real effective exchange rate (HICP, y-o-y)-1,4-0,80,8-0,52,3-1,4-1,0-0,5Net savings rate of households (net saving as percentage of net disposable income)0,31,5-0,2-1,1-1,2...Private credit flow, consolidated (% of GDP)10,17,43,27,41,6...Private sector debt, consolidated (% of GDP)114,9141,9148,8145,3142,1...of which household debt, consolidated (% of GDP)45,857,562,964,564,7...of which non-financial corporate debt, consolidated (% of GDP)69,184,585,980,877,4...Gross non-performing debt (% of total debt instruments and total loans and advances) (2)0,60,91,21,11,3...Corporations, net lending (+) or net borrowing (-) (% of GDP)4,13,63,73,73,22,83,13,0Corporations, gross operating surplus (% of GDP)27,724,422,925,325,425,025,024,9Households, net lending (+) or net borrowing (-) (% of GDP)-3,2-2,2-2,7-3,7-3,7-2,9-3,0-3,0Deflated house price index (y-o-y)6,00,2-0,80,8-0,3...Residential investment (% of GDP)6,46,26,36,97,3...Current account balance (% of GDP), balance of payments4,20,5-1,5-0,8-1,4-1,3-1,4-1,7Trade balance (% of GDP), balance of payments4,80,9-1,00,1-0,7...Terms of trade of goods and services (y-o-y)-2,2-1,11,0-0,60,5-0,4-0,1-0,2Capital account balance (% of GDP)0,10,10,10,10,1...Net international investment position (% of GDP)-24,27,52,50,1-6,0...NENDI - NIIP excluding non-defaultable instruments (% of GDP) (1)12,34,112,64,6-1,3...IIP liabilities excluding non-defaultable instruments (% of GDP) (1)115,3225,6228,1175,5229,5...Export performance vs. advanced countries (% change over 5 years)3,9-11,2-22,4-7,5-5,0...Export market share, goods and services (y-o-y)-1,1-7,5-2,34,21,80,7-0,9-1,1Net FDI flows (% of GDP).1,8..4,9...General government balance (% of GDP)3,5-0,8-2,4-0,7-0,8-1,1-1,4-1,6Structural budget balance (% of GDP)..-0,8-0,7-1,0-1,4-1,6-1,6General government gross debt (% of GDP)38,644,660,460,959,059,259,359,8Tax-to-GDP ratio (%) (3)42,041,543,743,142,442,142,342,2Tax rate for a single person earning the average wage (%) (4)30,729,630,630,330,2...Tax rate for a single person earning 50% of the average wage (%) (4)19,918,619,018,118,0...(1) NIIP excluding direct investment and portfolio equity sharesKey economic and financial indicators - Finlandforecast(2) domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU foreign-controlled branches.(3) The tax-to-GDP indicator includes imputed social contributions and hence differs from the tax-to-GDP indicator used in the section on taxation(4) Defined as the income tax on gross wage earnings plus the employee's social security contributions less universal cash benefits, expressed as a percentage of gross wage earnings 
 
  
 
 
1. Economic situation and outlook 

2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

Finland has achieved some progress in implementing the country-specific recommendations (CSRs) 
addressed  to  it  since  2011  (10).  Overall,  Finland  has  recorded  at  least  ‘some’  progress  on  70%  of  all 
CSRs addressed to it since 2011, and ‘limited’ progress on the remaining 30% of the CSRs. Over recent 
years,  Finland  has  been  addressing  the  challenges  to  the  long-term  sustainability  of  public  finances  by 
adopting a pension reform that came into force in 2017. External sector challenges have abated and cost 
competitiveness has improved thanks in particular to the measures in the Competitiveness Pact  of 2016. 
Finland has also taken action to increase incentives to accept work and to strengthen active labour market 
policies. 

Graph 2.1:  Overall multiannual implementation of 2011-

2019 county-specific-recommendations to 
date 

* The overall assessment of the country-specific 
recommendations related to fiscal policy excludes 
compliance with the Stability and Growth Pact 
** 2011 annual assessment: Different CSR assessment 
categories 
** The multiannual CSR assessment looks at the 
implementation of the CSRs since they were first adopted up 
until the 2020 Country Report. 
Source: European Commission 

The  pension  reform  has  strengthened  the  long-term  sustainability  of  public  finances.  The  ageing 
population is putting pressure on the pension and healthcare systems. The reform of the earnings-related 
pension system, which linked statutory retirement age to life expectancy, was enacted in late 2015. Under 
the reform, the lowest statutory retirement age has gradually started to rise from 63 to 65 as from 2018. In 
2019,  the  minimum  retirement  age  was  63  years  and  6  months.  Efforts  to  improve  cost-efficiency  of 
healthcare services are still ongoing.  

The gradual improvement of cost competitiveness has been supported by the implementation of the 
CSRs  since  2014.  Progress  has  been  made  in  aligning  wage  growth  with  productivity  developments, 
which has resulted in a slower increase of unit labour costs and improved cost-competitiveness relative to 
competitor economies. A new Finnish wage-setting model was being discussed. In this model, pay rises 
in  the  non-tradable  sector  would  have  been  linked  to  the  increases  first  agreed  in  the  tradable  sector. 
However, no formal agreement on this link was reached. 

(10)  For the assessment of other reforms implemented in the past, see in particular Section 3. 

16 

No Progress0%Limited Progress30%Some Progress38%Substantial Progress29%Full Implementation3% 
 
  
                                                           
2. Progress with country-specific recommendations 

Reforms  in  the  labour  market  have  advanced,  but  activity  of  some  groups  is  still  low.  Several 
measures  have  been  introduced  to  activate  unemployed  job  seekers,  such  as  carrying  out  regular 
interviews  with  the  unemployed.  In  order  to  increase  incentives  to  work,  the  earnings-related 
unemployment  insurance  was  been  cut  in  time  several  years  ago.  Nevertheless,  dispersed  services  for 
unemployed  and  inactive  people  may  still  hamper  the  activation  of  some  specific  groups  in  the  labour 
market. Moreover, spending on active labour market policies is still lower in Finland than in other Nordic 
countries.  

Finland has taken measures in several policy areas and has made limited (11) progress in addressing 
its  2019  CSRs.  To  improve  the  long-term  sustainability  of  public  finances,  the  government  plans  to 
continue the social and healthcare reform initiated by the previous government. The reform still aims at 
addressing  the  fragmentation  of  the  system  and  the  related  financial  challenges  faced  by  small,  remote 
municipalities. The centralisation of service provision to the county level is being considered and would 
likely  lead  to  increases  in  efficiency.  Accessibility  to  health  and  long-term  care  would  be  promoted  by 
means of strengthening the primary care system. The government plans to adopt the reform by the end of 
its term.  

On  addressing  labour  market  and  social  challenges,  more  integrated  and  personalised  services  are 
expected  thanks  to  the  announced  work  ability  reform  as  well  as  a  result  of  the  service  experiments 
carried  out  in  municipalities.  The  reform  of  vocational  education  and  training  is  in  its  final  stages  of 
implementation and the funding model should increase incentives to strengthen links with businesses and 
provide  more  re-skilling  and  upskilling  opportunities  for  adults.  Similar  development  is  expected  in 
tertiary education in 2021, when its new funding scheme will enter into force. Moreover, the government 
is launching a ‘continuous learning’ reform to help adult workers address skills shortages.  

Other factors holding back employment are related to disincentives inherent in the  complex social 
benefit  system.  Unemployment  and  inactivity  traps,  the  ‘unemployment  tunnel’  as  well  as  a  lack  of 
flexibility  in  combining  work  income  and  various  social  benefits  —  constitute  impediments  to  higher 
employment rate. The government plans to address some of these issues through a long-term reform of 
the social benefit system. Increasing the minimum age for extended unemployment benefits, the so-called 
‘unemployment  tunnel’,  from  61  to  62  and  deployment  of  the  real-time  income  register  are  improving 
incentives to take up work or to remain at work. 

On  investment-related  economic  policy,  the  amount  of  public  money  to  support  research  and 
development  is  expected  to  increase.  In  parallel,  the  government’s  objective  is  to  make  Finland  carbon 
neutral by 2035 and the world’s first fossil-fuel-free society. This will require a comprehensive agenda of 
policies  and  measures,  including  large  investments  in  low  carbon  and  energy  transition  as  well  as  in 
sustainable  transport  infrastructure.  Sustainable  infrastructure  investment  is  being  planned,  notably  to 
increase labour mobility. A new national transport system will be developed in 2020-2021 under the lead 
of  a  parliamentary  steering  group.  The  government  has  announced  an  overhaul  of  energy  taxation, 
notably with a pledge to phase out fossil fuel subsidies on oil, coal and, possibly, peat.  

Some  progress  has  been  observed  in  the  monitoring  of  the  household  debt.  Private-sector  debt 
remains at historically high levels, as a result of persistently low interest rates. However, the servicing of 
debt  remains  solid,  and  banks  remain  well  capitalised.  Moreover,  in  early  October,  the  Ministry  of 
Finance  proposed  to  limit  to  60%  the  loan  to  value  ratio  (selling  price  ratio)  applicable  to  housing 
companies.  In  parallel,  a  debt-to-income  ratio  will  be  applied  to  households  when  their  loan  requests 
exceed a certain threshold,  while the legislation relating to consumer credit has been tightened. Further 
macro-prudential measures to contain the household debt are being considered.  

(11)  Information on the  level of progress  and measures taken to act on the policy advice in each respective subpart of a country-
specific  recommendation  is  presented  in  the  overview  table  in  the  Annex.  This  overall  assessment  does  not  include  an 
assessment of compliance with the Stability and Growth Pact.  

17 

 
                                                           
2. Progress with country-specific recommendations 

Work on the credit registry is still being planned. The government has recently decided that the credit 
registry  is  to  be  managed  by  a  public  entity.  The  necessary  legislative  work  on  data  protection  was 
expected to start in January 2020, while  work on the registry itself  might be delayed. Nevertheless, the 
authorities are committed to having the necessary legislation in place by 2023. 

Upon request from a Member State, the Commission can provide tailor-made expertise via the structural 
reform  support  programme  to  help  design  and  implement  growth-enhancing  reforms.  Since  2019,  such 
support has been provided to Finland for three projects that involved i) facilitating domestic and foreign 
investment  by  assessing  the  impact  of  regulations  on  international  investment  in  Finland,  ii)  measuring 
the size of the digital economy in Finland and its impact on taxation, and iii) proposing an improved VAT 
reporting model. 

18 

 
2. Progress with country-specific recommendations 

Table 2.1: 

Assessment of 2019 CSR implementation (*) 

(1) This does not include an assessment of compliance with the Stability and Growth Pact. 
Source: European Commission 
(*) The assessment of CSR 3 does not take into account the contribution of the EU 2021-2027 cohesion policy funds. The 
regulatory framework underpinning the programming of the 2021-2027 EU cohesion policy funds has not yet been adopted 
by the co-legislators, pending inter alia an agreement on the multiannual financial framework (MFF). 

19 

  Finland Overall assessment of progress with 2018 CSRs: Limited progress CSR 1: Ensure that the nominal growth rate of net primary government expenditure does not exceed 1.9% in 2020, corresponding to an annual structural adjustment of 0.5% of GDP.  Improve the cost-effectiveness of and equal access to social and healthcare services. Finland has made limited progress in addressing the fiscal-structural part of CSR 1 (1):  Compliance will be assessed in spring 2020 when the final data for 2019 will be available.  The government plans to continue with the healthcare reform initiated by the previous government. The objectives are still efficiency increases and better accessibility. The government plans to adopt the reform by the end of its term.  CSR 2:   Improve incentives to accept work      and enhance skills and active inclusion, notably through well-integrated services for the unemployed and the inactive. Finland has made some progress in addressing CSR 2:  Limited progress has been achieved on reducing inactivity and unemployment traps. The social benefits reform is a long-term process that is expected to be implemented gradually,over the course of two government terms.  Some progress has been made on active inclusion, as more personalised and more integrated services are expected to result mostly from trials currently carried out in municipalities and from the announced ‘work ability’ reform for which funding has already been earmarked. VET and ’continuous learning’ reforms are ongoing. CSR 3: Focus investment-related economic policy   on research and innovation,    low carbon and energy transition      and sustainable transport,    taking into account regional disparities. Finland has made limited progress in addressing CSR 3:  Limited progress has been made on public research and development, since budgetary amounts are expected to increase.  Limited progress has been made on lowering carbon and on energy transition, with an overhaul of energy taxation, notably with a pledge to phase out fossil fuel subsidies on oil, coal and, possibly, peat.  Limited progress has been made on sustainable transport, as investment in sustainable infrastructure is being planned, notably to increase labour mobility. CSR 4:   Strengthen the monitoring of household debt     and establish the credit registry system.. Finland has made some progress in addressing CSR 4:  Some progress has been achieved on strengthening the monitoring of the household debt, while further measures to contain the rising household debt are being considered.  Limited progress has been made on establishing a credit registry system, as the work is still being planned. The legislative work is expected to start in January 2020, with the authorities committing to having the necessary legislation in place by 2023.   
 
  
 
 
2. Progress with country-specific recommendations 

Box  2.1:  EU  funds  and  programmes  to  address  structural  challenges and  to  foster  growth 
and competitiveness in Finland 

Finland  is  a  beneficiary  of  EU  support.  The  financial  allocation  from  the  EU  Cohesion 
policy funds for Finland amounts to €2.6 billion (1) in the current Multiannual Financial 
Framework, equivalent to around 0.2% of the GDP annually. By the end of 2019, some 
€2.1 billion (around 79% of the total) was allocated to specific projects and €1.2 billion 
was  reported  as  spent  by  the  selected  projects (2)  showing  a    level  of  implementation 
well above the average.  

EU  Cohesion  policy  funding  also  contributes  to  addressing  structural  challenges  in 
Finland.  The  Cohesion  Policy  programmes  for  Finland  have  allocated  EU  funding  of 
€581.9  million  for  smart  growth,  €186.5  million  for  sustainable  growth  and  €502.7 
million for inclusive growth. In 2019 following the performance review (3) €160.9 million 
have been made available within performing priorities. 

EU Cohesion policy funding is contributing to transformations of the Finnish economy 
and  society  by  promoting  growth  and  employment  via  investments,  among  others,  in 
research,  technological  development  and  innovation,  competitiveness  of  enterprises, 
low  carbon society, employment,  education and social inclusion. By 2019, investments 
driven by the ERDF have already led to the  creation  of more than 5,800 new jobs and 
320  new  enterprises.  Almost  10,000  companies  had  participated  in  projects  run  by 
research  and  development  institutions,  more  than  1,400  companies  had  started  to 
export  or expand their exports. The ESF supported over 200,000  participants finding a 
job, among which over 30,000 long-term employed and 26,000 migrants. Moreover, to 
tackle  youth  unemployment,  the  ESF  has  invested  in  projects  to  improve  educational 
outcomes and access to the labour market for over 37,000 participants under 30 years 
old (4). 

Agricultural  and  fisheries  funds  and  other  EU  programmes  also  contribute  to 
investment  needs.  The  European  Agricultural  Fund  for  Rural 
addressing  the 
Development (EARDF) makes available in total €5.7 billion, and the European Maritime 
and Fisheries Fund (EMFF) in total €141 million (including the national co-financing for 
both).  Finland  benefits  also  from  other  EU  programmes,  such  as  for  example  the 
Connecting  Europe  Facility,  which  allocated  EU  funding  of  €190  million  to  specific 
projects on strategic transport networks; or Horizon 2020, which allocated EU funding of 
€1.1 billion (including 340 SMEs with about €216 million). 

EU  funding  contributes  to  mobilisation  of  important  private  investment.  European 
Structural and Investment funds (ESIF) supported programmes alone mobilise additional 
capital by committing about €43 million in the form of loans, guarantees and equity. 

EU  funds  already  invest  on  actions  in  line  with  the  Sustainable  Development  Goals 

20 

 
 
2. Progress with country-specific recommendations 

(SDGs).  In  Finland,  European  Structural  and  Investment  Funds  support  12  out  the  17 
SDGs and up to 98% of the expenditure is contributing to those.  

(1)  European Regional Development Fund, European Social Fund, including national co-financing. 
(2)  https://cohesiondata.ec.europa.eu/countries/FI 
(3)  The  performance  review  is  regulated  by  Article  22  of the Regulation  (EU)  No  1303/2013,  whereby  5-7%  of  overall 
resources  allocated  are  released  to  performing  priority  axes  of  the  operational  programmes  (the  amount  includes 
national co-financing). 

(4)  http://www.rakennerahastot.fi/documents/10179/1136679/Vuosikertomus+2018+tiivistelmä.pdf/9fd8234a-6409-4e56-

982f-e39297488e6a 

21 

 
 
 
3.  REFORM PRIORITIES 

3.1.  PUBLIC FINANCES AND TAXATION 

3.1.1.  FISCAL POLICIES 

Fiscal  policies  helped  lower  the  deficit  by 
reducing  public  expenditure  in  2015-2017.  The 
general  government  balance  improved  from  its 
lowest at -3% of GDP in 2014 to -0.8% in 2018, in 
the  context  of  economic  growth  and  fiscal 
consolidation.  Between  2014  and  2017, 
the 
government  expenditure  as  a  proportion  of  GDP 
fell from 58.1% to 54.2% (see Graph 3.1.1). It was 
driven  mainly  by  cuts  in  spending  on  health, 
education,  economic  affairs  as  well  as  social 
protection.  The  public  wage  bill  has  also  come 
in 
down  due 
the  2017 
the  measures 
Competitiveness  Pact 
freeze  and  a 
temporary reduction in holiday bonuses), lowering 
expenditure on general public services by 0.4% of 
GDP.  Total  public  spending  remained  second 
highest in the EU, still well above the EU average 
(54.2% vs 45.8%). 

(wage 

to 

Graph 3.1.1:  General government expenditure as a 

proportion of GDP, broken down by function, 
Finland and the EU 

oriented  investments’  in  2020-2023.  The  planned 
increases  in  spending  will  be  directed  towards 
labour  market  and  social  security 
reforms, 
investment in education and health care as well as 
the maintenance of transport infrastructure. 

for 

finance 

Tax hikes, asset sales and the projected increase 
in  income  taxes  from  new  jobs  are  the  main 
sources  of 
the  government 
programme. The new permanent expenditures are 
planned to be primarily covered through  increases 
of  excise  duties  reaching  €0.7 billion  (0.3%  of 
GDP) by 2023. The government plans to cover the 
remaining  gap  to  achieve  a  balanced  budget  in 
2023  from  the  expected  revenue  from  the  higher 
employment 
'future-oriented 
investments', which the government plans to phase 
out  by  2023,  are  to  be  financed  by  sales  of  State 
assets.  The  initial  expenditure-revenue  mismatch 
on  top  of  underlying  trends  is  expected  to  lead  to 
the  general  government  balance  deteriorating  (see 
Graph  3.1.2).  The  headline  deficit  is  forecast  to 
increase  from  1.1%  of  GDP  in  2019  to  1.4%  of 
GDP in 2020 and 1.6% of GDP in 2021.  

rate. 

The 

Graph 3.1.2:  Drivers of change in general government 

balance 

(1) The classes of the functions of government (COGOF) are: 
1. General public services; 2. Defence; 3. Public order and 
safety; 4. Economic affairs; 5. Environmental protection; 6. 
Housing and community amenities; 7. Health; 8. Recreation, 
culture and religion; 9. Education and 10. Social protection.  
Source: Eurostat 

In 2019, the government  decided to change the 
fiscal  stance  and  pursue  expansionary  policies 
by  means  of  fostering  structural  reforms.  The 
government’s  plans  anticipate  a  permanent 
increase  in  annual  expenditure  by  €1.1  billion 
(0.5% of GDP) in 2020, increasing to €1.4 billion 
by  2023.  The  government  also  plans  to  spend  a 
total  of  €3.1 billion  (1.3%  of  GDP)  on  ‘future-

Source: European Commission 

It is not certain that the higher public spending 
will lead to a proportional increase in the public 
debt. Finland has a large stock of financial assets 
that the government is going to use to finance part 
of  this  planned  expenditure.  Finland  reduced  its 
gross public debt from the peak of 63% of GDP in 
2016  to  59%  of  GDP  in  2018.  The  Commission 
forecasts  that  the  government  debt  ratio  will 
remain close to this level in 2019 and 2020. It will 

22 

0%10%20%30%40%50%60%70%0%10%20%30%40%50%60%70%80%90%100%081417081417FinlandEU28COFOG 1COFOG 2COFOG 3COFOG 4COFOG 5COFOG 6COFOG 7COFOG 8COFOG 9COFOG 10% of GDP (rhs)-1.5-1-0.500.511.522.515161718192021% of GDPTotal RevenueTotal Current ExpenditureTotal Capital ExpenditureGeneral government balance changeforecast 
 
    
    
3.1. Public finances and taxation 

agriculture,  energy-intensive  businesses,  heating, 
etc.  These  exemptions  totalled  €1.6  billion  (or 
0.7% of GDP) in 2016 (Organisation for Economic 
Co-operation  and  Development,  2020).  A  general 
tax reform  for sustainable development  will cover 
energy  taxation,  transport  taxation,  promotion  of 
the  circular  economy  and  will  include  a  study  on 
the taxation of emissions-based consumption. The 
General  Government  Fiscal  Plan  for  2020-2023 
includes  appropriations  for  the  carbon  neutrality 
targets,  the  wellbeing  of  the  environment  and 
biodiversity, 
supporting 
reducing 
renewable energy and public transport.  

emissions, 

(see 

income 

register 

Efforts  to  improve  tax  compliance  continue 
with the implementation of  the income register 
and deployment of special tax number systems. 
The 
also  European 
Commission,  2019a)  became  operational  in  2019, 
and  the  first  experiences  have  revealed  that  some 
corrective  measures  are  needed  to  make  sure  that 
the data are reported correctly. There will be more 
support  provided  to  small  businesses  and  civil 
society  organisations.  The  income  register  will  be 
expanded in two separate stages. As from 2020, all 
data  users  who  are  covered  under  the  Income 
Register Act began to use the income register data. 
From 2021, data on pensions and benefits will also 
be reported and enforcement authorities will begin 
to  use  income  register  data.  The  Finnish  Tax 
Administration  has  introduced  special  tax  number 
systems  to  improve  tax  collection  and  prevent  a 
grey  economy  from  developing.  Based  on  the 
positive  experience  in  the  construction  industry 
(13), 
the 
shipbuilding  sector.  The  need  to  introduce  it  in 
other sectors, such as tourism and restaurants, will 
be assessed. 

the  system  will  be 

introduced 

in 

(13)  Under  the  special  tax  number  system,  a  construction 
worker  cannot  be  employed  at  a  building  site  in  Finland 
without a personal tax number. The registration for Finnish 
personal  identity  code  is  required  for  obtaining  the  tax 
number,  which  is  printed  on  the  nametags  worn  by 
everyone at any construction site. The public authorities for 
occupational safety and health control the use of nametags. 
The  Finnish  Tax  Administration's  online  information 
service  allows  e.g.  employers  to  check  whether  the 
registration of an individual worker's name and number is 
valid. 

start increasing in 2021, not least due to substantial 
military expenditure that will kick in.  

Taxation 

Finland's  tax  structure  is  characterised  by  a 
high  overall  tax  burden  skewed  to  labour  and 
consumption. In 2018, the total tax burden (43.2% 
of GDP) was among the highest in the EU. This is 
mostly driven by a relatively high level of personal 
income  taxation  (12.2%  of  GDP)  and  of  taxes  on 
consumption  (14.2%  of  GDP).  By  contrast, 
revenues  from  capital  taxes,  including  recurrent 
immovable  property  taxes,  are  at  7.1%  of  GDP, 
somewhat below the EU average.  

to  continue 

the 
The  government  decided 
gradual  tax  shift  away from  taxation  of  labour 
income  towards  consumption  taxes.  It  proposed 
a moderate decrease of the personal income tax by 
adjusting  lower  and  middle  income  tax  brackets. 
The  tax  base  will  be  strengthened  by  phasing  out 
the  mortgage  interest  deduction  and  reducing  the 
tax  credit  for  household  expenses.  At  the  same 
tobacco 
time, 
products, soft drinks are scheduled, which can lead 
to  health  and  welfare  benefits.  Taxes  on  transport 
fuels will also increase in 2020.   

in  excise  duties  on 

increases 

the 

tax  base  and 

The  reform  of  immovable  property  taxation 
remains  on  the  agenda.  The  aim  is  to  ensure  a 
better  overall  match  between 
immovable 
the  market  value  of 
property 
properties. The government programme points out 
that  immovable  property  taxes  must  take  into 
account  the  environmental  aspects.  Regarding 
taxes  on  capital,  the  government  is  also  studying 
the prospects for introducing, from 2022 onwards, 
a  5%  withholding  tax  on  dividends  payable  to 
foreign  funds  and  other  corporations  that  are 
currently exempt from dividend tax. 

Revenue  from  environmentally-related  taxes 
remains  above  the  EU  average,.  Environmental 
taxes  accounted  for  2.9%  of  GDP  in  2018  (EU 
average 2.4%), and energy taxes for 1.9% of GDP 
on  the  same  level  as    the  EU  average.  While 
subsidies  had  almost  disappeared  by  2016,  tax 
exemptions  remained  in  place  in  2016  for  fossil 
fuels  used  in  transport  (12),  mobile  machinery, 

(12)  The  Energy  Taxation  Directive  (2003/96/EC)  has  a 
mandatory exemption for aviation and sea navigation fuels. 

23 

 
                                                           
                                                           
 
3.1. Public finances and taxation 

Fiscal framework 

3.1.2.  DEBT SUSTAINABILITY ANALYSIS AND 

the 

independent 

Finland is the only euro area Member State that 
has  designated  a  Ministry  of  Finance 
forecast 
department  as 
producer  in  the  meaning  of  Regulation  (EU) 
473/2013.  The  management  of  the  Economics 
Department  and  the  Budget  Department  of  the 
the 
Ministry  of  Finance  are  separated  and 
Economics  Department  carries  out  its  forecasting 
activities  independently.  However,  this  particular 
arrangement  warrants 
to 
ensure  that  the  separation  and  independence  of 
both  functions  within  the  one  institution  are 
preserved. 

regular  surveillance 

The government follows some ‘green budgeting’ 
practices. Since 2017, budget proposals include  a 
chapter focusing on climate change and sustainable 
development (see  Section 3.5). It examines  which 
appropriations included in  the budget foster green 
targets. In particular, it presents the appropriations 
that  promote  i)  the  use  of  renewable  energy,  ii) 
biodiversity and the  wellbeing of the  environment 
and  nature,  iii)  emissions  reduction,  iv)  bio-
economy solutions and v) developing Finland into 
a  low-carbon  society.  The  chapter  also  covers 
taxes  that are significant in terms of the  goal of a 
carbon-neutral  Finland,  such  as  energy  taxes, 
motor  vehicle  tax,  car  tax,  excise  duty  on  certain 
beverage packaging and waste tax. Furthermore, it 
includes a qualitative assessment of components of 
public 
the 
environment, on the basis of earlier studies.  

that  are  detrimental 

funding 

to 

the 

against 

efficiency  gains 

At  the  beginning  of  the  new  term,  the 
government  carried  out  a  spending  review. 
Spending  reviews  are  detailed  inspections  of 
public  expenditure  aimed  at  identifying  savings 
and 
current 
composition  of  public  expenditure.  The  previous 
spending  review  aimed  at  providing  a  detailed 
description  of  central  government  expenditure  to 
be considered in government negotiations after the 
2015  elections,  with  a  view  also  to  informing 
ministers  of  the  new  government.  The  2019 
elections  triggered  an  update  of  the  spending 
review process. The spending review carried out in 
the 
first  half  of  2019  covered  all  central 
government  expenditure,  including  transfers  to 
local  governments  and  social  security  funds  and 
excluding  operational  expenditure,  expenditure 
items of less than €50 million and VAT expenses.    

FISCAL RISKS 

fiscal  stress  are 
No  significant  risks  of 
anticipated  for  Finland  in  the  short  term.  The 
value of the S0 indicator, the Commission’s early-
detection indicator of fiscal stress over one year, is 
below its critical threshold, for both the fiscal and 
financial  competitiveness  sub-indices  (see  Annex 
B).  The  low  spreads  on  sovereign  yields  and 
credit-default swaps point to a favourable financial 
market perception of Finland’s solvency. 

increase 

Finland is facing fiscal sustainability risks in the 
medium  to  long  term.  The  sustainability  gap 
indicator S1 points to medium risks, mainly due to 
in  age-related  public 
the  projected 
spending. According to this indicator, a cumulative 
gradual  improvement  in  the  structural  primary 
balance  of  0.5%  of  GDP,  relative  to  the  baseline 
scenario,  would  be  required  over  5  years  to  reach 
the debt ratio of 60% of GDP by 2034. In the long 
term,  the  fiscal  sustainability  gap  indicator  S2 
points  to  medium  risks.  Based  on  the  no-policy-
change  scenario,  the  S2  indicator (14)  is  estimated 
at 3.6% of GDP. This is worse than estimated last 
initial 
year,  due 
budgetary  position 
the  S2 
indicator  to  the  tune  of  1.7%  of  GDP  out  of  the 
3.6%  of  GDP  (up  from  0.7%  of  GDP  last  year).  
The  projected  contribution  of  the  increase  in 
ageing  costs  remains  high  (1.9%  of  GDP),  driven 
by  the  projected  increase  in  expenditure  on  long-
term care (1.6% of GDP). 

the  more  unfavourable 

that  will 

impact 

to 

Public  debt  is  projected  to  increase  over  the 
forecast  period.  The  debt  sustainability  analysis 
points  to  medium  risks  over  the  medium  term. 
Under the  baseline  scenario  of no policy change, 
the debt  ratio is projected to increase  gradually to 
about 62% of GDP in around 2030. The debt will 
primarily grow due to ageing. If the costs of ageing 
(pensions, 
healthcare 
expenditure)  were left out of  the debt projections, 
the  debt  ratio  would  gradually  decline  to  about 
53% of GDP in the same period (see Graph 3.1.3). 
In  addition,  debt  is  also  projected  to  grow  due  to 
negative primary balances, which will be partially 

long-term 

care 

and 

(14)  The long-term fiscal sustainability gap indicator S2 shows 
the upfront fiscal adjustment to the current primary balance 
(in  structural  terms)  required  to  stabilise  the  debt-to-GDP 
ratio over the infinite horizon. 

24 

 
                                                           
3.1. Public finances and taxation 

compensated  by  a  favourable  contribution  of  the 
snowball  effect  (see  Annex  B).  If  Finland  was  to 
comply with all fiscal rules under the Stability and 
Growth Pact, the debt-to-GDP ratio would decline 
to  about  50%  of  GDP  in  2030.  By  contrast, 
government  debt  in  2030  would  reach  65%  of 
GDP  if  economic  growth  were  lower  than  in  the 
baseline scenario. 

Graph 3.1.3:  Debt as % of GDP 

Source: European Commission 

Healthcare and social care reform 

The  increasing  spending  on  long-term  care 
highlights  the  urgent  need  to  address  the 
sustainability  of  the  health  care  system.  While 
expenditure  on  health  care  alone  is  below  the  EU 
average  in  terms  of  current  spending  (5.5%  of 
GDP vs 6.6% of GDP in the  EU), expenditure on 
long-term  care  is  at  2.2%  of  GDP,  the  fourth 
highest  in  the  EU.  By  2070,  spending  on  health 
and  long-term  care  is  expected  to  grow  due  to  an 
ageing  population  and  other  non-demographic 
drivers  by  13%  and  93%  respectively.  The 
financing  of  healthcare  consists  mainly  of 
government  schemes,    62%  compared  to  36%  of 
the  EU  average  (Organisation  for  Economic  Co-
operation  and  Development/EU,  2018).  However, 
the  current  system  is  fragmented,  and  consists  of 
three channels: the  municipal system, the  national 
health 
and  occupational 
system 
healthcare. The level of out-of-pocket payments is 
higher 
the  EU  average  and  has  been 
increasing over the last three years.  

insurance 

than 

After the setback in March 2019, the reform of 
the  healthcare  system  remains  on  the  political 
agenda.  The  regional  government  health  and 
social  services  (SOTE)  reform  prepared  by  the 
government in 2015-2019 was not presented to the 
Parliament in the end, due to, among other things, 

to 

reorganise  public 

constitutional  concerns.  The  government 
is 
planning  to  implement  the  revised  reform  by 
spring  2023.  The  main  item  of  the  reform  is  still 
the  consolidation  of  management  of  both  health 
and  social  care  services  at  regional  level.  The 
related  plans 
sector 
administration for these services at State, regional 
and  municipal  levels  are  also  maintained.  The 
reform will put more emphasis on equal access to 
services and their quality. However, increasing the 
role  of  private  healthcare  providers  and  granting 
the patients freedom of choice between public and 
the 
private  services,  which  was 
previous  version  of  the  reform,  is  no  longer 
considered. 

included 

in 

The  government’s  reform  of  the  healthcare 
system  is  to  focus  on  primary  care  services. 
About  €140 million  will  be  spent  over  the  next 
three  years  and  1,000  additional  doctors  are  to  be 
in  health  and  social  care  centres.  In 
hired 
particular,  the  government  plans  to  i)  raise  the 
minimum  staffing  level  for  care  personnel;  ii) 
improve  access  to  basic-level  services  (shorter 
maximum  waiting  times);  iii)  increase  home  care 
resources and informal care;  iv) design a national 
mental health strategy; v) continue the programme 
to  address  child  and  family  services;  and  vi) 
the  Act  on  Disability  Services  and 
reform 
Assistance. The second aspect of the reform is the 
transfer  of  healthcare  matters  from 
the  295 
municipalities to new administrative entities (15 to 
18  counties),  albeit  at  a  slower  pace  than  initially 
planned. Preparations for the administrative reform 
have  started  with a  study on  special arrangements 
for Uusimaa, the Helsinki metropolitan area. 

Management at the regional level is expected to 
improve efficiency. The reform aims at addressing 
the  financial  weakness  of  municipalities,  some  of 
which  struggle  to  fulfil  their  legal  obligations  in 
healthcare provision. The consolidation is expected 
to  strengthen  the  management  of  the  system.  The 
risk-pooling  of  the  population  and  the  access  to 
specialists  are  likely  to  improve.  The  main  factor 
for  boosting  efficiency  will  be  the  ability  of  the 
Ministry  of  Social  Affairs  and  Health  to  monitor 
and manage the performance of the future regional 
healthcare  entities.  However,  no  study  has  been 
initiated  so  far  on  possible  cost  savings  from  the 
reform. 

25 

4045505560657075801718192021222324252627282930% of GDPBaselineBaseline without ageing costsSGP scenarioLower GDP growth scenario 
    
3.1. Public finances and taxation 

Reaching an agreement on the reform has been 
a  challenge  for  the  last  15  years.  The  new 
stepwise and consultative approach adopted by the 
government may prove to be a more effective way 
the 
to  adopt 
expansion  of  primary  healthcare 
improve 
accessibility  has  a  clear  budget,  deadlines  and 
deliverables,  the  governance  reform  aiming  at 
improving  fiscal  sustainability 
is  still  being 
formulated. 

the  reform.  However,  whereas 

to 

26 

 
3.2.  FINANCIAL SECTOR 

3.2.1.  BANKING SECTOR  

The banking sector is large and its profitability 
has  been  slightly  declining  in  recent  years. 
Finland’s  banking  sector  is  highly  concentrated 
with the  top three players occupying over 70% of 
the  market  across  all  main  segments.  It  is  one  of 
the  largest  in  Europe  in  relative  terms,  with  a 
the 
balance  sheet  equivalent 
country’s 
remain 
economic  output.  Banks 
profitable  but  profit  margins  have  somewhat 
deteriorated  over  recent  years,  and  remained 
mostly  stable  in  2019  (see  Table  3.2.1).  A  major 
factor  involved  are  the  heavy  investments  in 
modernising  the  IT  infrastructure,  pushing  the 
average  cost/income  ratio  to  63%  in  the  first  6 
months of 2019. 

to  four 

times 

Banks  are  highly  capitalised,  but  the  Finnish 
banking system’s reliance on wholesale funding 
remains  a  vulnerability.  The  sector’s  capital 
levels  exceed  minimum  requirements  by  a  large 
margin.  The  sector’s  aggregate  Common  Equity 
Tier  1  (CET1)  ratio  declined  to  16.6%  in  2019. 
The decline reflected the move of Nordea Group to 
Helsinki  (end-2018),  as  well  as  the  impact  of  a 
minimum  risk-weight  of  15%  on  mortgages 
imposed  by  the  Finnish  Financial  Supervision 
Authority  in  January  2018.  Capital  ratios  are 
bound to be further challenged by the introduction 
of  Basel  III  capital  requirements.  The  quality  of 
the  loan  books  is  very  good,  with  a  low  ratio  of 
non-performing  loans.  However,  with  a  system-
wide  loan-to-deposit  ratio  of  127.2%,  Finnish 
banks are more dependent on market funding than 
some of their European competitors. This is one of 
the  long-lasting  structural  vulnerabilities  of  the 
system,  even  if  at  present  market  access  remains 

relatively  easy  and  prices  are  favourable.  The 
banks  are  limiting  this  vulnerability  with  a  large 
pool  of  liquid  assets  that  is  higher  than  the 
aggregate  funding  gap,  and  a  steadily  increasing 
issuance  and  use  of 
long-term  debt,  mainly 
covered bonds. They are slowly (on average by €5 
billion  yearly)  replacing  securities  with  a  shorter-
term  repayment  profile.  While  this  limits  the 
refinancing 
the 
interconnectedness  of  credit  institutions  and  their 
exposure to the Nordic housing markets.   

increases 

risk, 

also 

it 

Access to finance remained easier than in  most 
EU  countries.  According  to  the  2019  survey  on 
access  to  finance  of  enterprises,  access  to  finance 
for small and medium-size enterprises in Finland is 
deemed  the  least  problematic  of  all  surveyed 
countries 
(European  Central  Bank,  2019). 
However,  in  2017,  the  size  of  investment  in  seed 
capital  companies  remained  relatively  modest, 
even  though  it  increased  in  line  with  the  EU 
average (Flachenecker et al., 2020). Also, the cost 
of borrowing small amounts relative to large loans 
is higher than the EU average.  

3.2.2.  HOUSEHOLD DEBT  

Robust  domestic  demand  remains  the  driver 
behind  loan  growth.  The  loan  books  of  Finnish 
banks’ continue to grow at 2.4% and 6.6% (second 
quarter  2019)  in  the  household  and  corporate 
segments  respectively.  Loans  to  non-financial 
corporations  currently  represent  about  40%  of 
banks’ aggregate loan book to the private sector. In 
the current environment of low interest rates, most 
firms  and  retail  clients  can  easily  afford  bank 
is  nevertheless 
credit 

for  any  purpose. 

It 

Table 3.2.1: 

Financial soundness indicators, all banks in Finland 

(1) Annualised data 
Source: ECB, CBD 

27 

201420152016201720182019q2Non-performing loans1.61.51.41.21.51.4o/w foreign entities1.61.7--1.00.8o/w NFC & HH sectors2.32.12.02.02.0-o/w NFC sector3.13.02.32.12.82.7o/w HH sector1.71.61.81.91.31.4Coverage ratio30.431.529.427.826.525.4Return on equity(1)9.18.38.78.88.17.2Return on assets(1)0.40.50.50.60.50.4Total capital ratio17.523.824.623.420.920.6CET 1 ratio16.121.422.221.017.216.6Tier 1 ratio16.622.423.121.518.618.4Loan to deposit ratio103.6102.494.394.8133.2127.2 
 
 
  
 
concerning  that  households  seem  to  resort  also  to 
loan 
borrowing 
from  unsupervised  payday 
companies,  which  aggressively  market 
their 
services.  Household  debt  to  disposable  income 
remains high, close to 140%, similarly to 2018. As 
in recent years, most of the credit stock, including 
new  lending,  is  taken  at  variable  rates,  which 
makes  borrowers  vulnerable  to  potential  rapid 
changes in the monetary policy stance.  

required 

legislative 

The 
for 
framework 
developing  the  credit  registry  is  being  put  in 
place.  A  comprehensive  credit  registry  would 
allow  a  more  complete  picture  of  the  overall 
indebtedness  level  of  households.  Following  the 
2018  report  commissioned  by  the  Ministry  of 
Justice  that  proposed  establishing  a  centralised 
credit  registry,  preparatory  and  analytical  work 
started  in  2019.  Legislative  work  has  started  in 
early  2020.  The  registry 
to  be 
established by the end of the government’s term. It 
will run alongside the income registry system that 
is already in operation. A key feature of the credit 
registry  is  data  protection,.  The  feasibility  study 
estimates the total cost of the credit registry project 
at  €20 million,.  While  the  registry  is  expected  to 
ultimately  become  a  fully  comprehensive  system 
covering  all  credit  granted  to  individuals,  the 
to  be 
coverage  of 
developed  gradually.  At  the  first  stage,  at  least 
consumer credit would be included. 

the  registry 

is  expected 

is  expected 

3.2.3.  ANTI-MONEY LAUNDERING  

for 

its  action  plan 

Finland  adopted 
the 
prevention  of  grey  economy  and  economic 
crime  in  June  2018.  Money  laundering  risk  in 
Finland  comes  primarily  from  the  grey  economy. 
In recent years there have been large-scale alleged 
money laundering cases in the Nordic EU Member 
States,  which  have  been  looked  at  in  the  ‘Report 
the  assessment  of  recent  alleged  money 
on 
laundering 
credit 
involving 
institutions’(European Commission, 2019b). 

cases 

EU 

3.2. Financial sector 

that 

The  Finnish  Financial  Supervisory  Authority 
(FIN-FSA)  has  made  progress  in  boosting  its 
supervisory capacity but more needs to be done. 
Finland  is  currently  working  on  a  preparatory 
study  for  a  new  national  risk  assessment,  to  be 
completed  in  2020.  The  mutual  evaluation  report 
released  by  the  Financial  Action  Task  Force  in 
April  2019,  assessed  Finland’s  anti-money 
laundering  and  counter-terrorist  financing  system 
and  concluded 
the  financial  supervision 
needed to be strengthen. In particular, it concluded 
that  the  following  steps  were  needed:  i)  the 
development  of  a  risk  classification  tool;  ii)  a 
better understanding and correct application of the 
risk-based approach; iii) the revision of inspection 
procedures  and 
the  establishment  of  a 
dissuasive sanctioning policy could all enhance the 
supervisor’s  ability  to  adequately  address  money-
laundering and terrorist financing risks. Following 
the  evaluation,  Finland  is  subject  to  enhanced 
monitoring  and  will  have  to  regularly  report  on 
progress  made.  Finland  is  committed  to  rapidly 
strengthening  capacity  and  has  recently  provided 
additional  financial  and  human  resources  to  key 
competent  authorities.  Yet,  more  such  resources 
need to be provided to FIN-FSA. In several cases, 
the  financial  supervisor  has  looked  at  suspected 
money  laundering  in  the  banking  sector.  The  first 
sanctions  were  issued  in  December  2019  against 
one  bank  and  one 
investment  company  for 
breaches of money laundering / terrorism financing 
obligations. 

iv) 

The  workload  for  the  Financial  Intelligence 
Unit  (FIU)  has  increased  markedly  over  the 
past  year.  The  number  of  suspicious  transaction 
reports received by the FIU increased by 64.2% in 
2019. In response, the FIU increased its number of 
staff.  In  many  areas,  such  as  giving  guidance  to 
obliged  entities,  there  is  a  close  cooperation 
between  the  supervisor  (FIN-FSA)  and  the  FIU. 
the 
However, 
consultations on fit and proper tests and the contact 
between  FIN-FSA  and  the  FIU  is  otherwise 
limited,  as 
little 
information with the FIN-FSA, while the FIN-FSA 
only shares general information.. 

the  FIU  can  only  share 

cooperation 

lacking 

in 

is 

28 

 
3.2. Financial sector 

Box 3.2.1: A credit registry in Finland 

A  credit  information  system  collects,  processes  and  distributes  information  for  managing  credit-
related  decisions  and  for  financial  supervision.  The  key  participants  in  credit  reporting  are  the  data 
subjects,  the  data  providers,  the  service  providers  and  the  users.  There  are  two  main  types  of  service 
providers.  Credit  registries  (typically  government  owned)  have  as  their  primary  objective  to  support 
financial sector supervision and monitor systemic risks. Credit bureaus (in most cases privately owned) aim 
principally  at  improving  the  quality  and  availability  of  data  so  that  creditors  can  make  better-informed 
decisions. In terms of reported information, credit information systems may deal with negative and positive 
data.  Negative  data  is  normally  limited  to  the  reporting  of  unfulfilled  financial  obligations,  such  as  late 
payments,  defaults  and  bankruptcies,  and  is  only  registered  when  there  is  an  adverse  event.  Positive  data 
complements the data captured by negative-only files. Among other things, it may include information on 
assets and liabilities, debt ratios, loan types, lending institutions, guarantees, debt maturities, or repayment 
patterns.  

In Finland, credit information is provided by credit bureaus that collect mainly negative information, 
with  notably  low  coverage  when  compared  to  the  EU.  The  coverage  ratio  has  been  stable  over  recent 
years,  whereas  in  the  EU  there  was  a  general  tendency  to  increase  the  coverage  of  credit  information. 
Furthermore, many EU countries have established public credit registries, and the vast majority of EU credit 
information  systems  incorporate  positive  data  as  well.  At  the  same  time,  since  2012,  household  debt  in 
Finland has been increasing and has exceeded the EU average, while in the EU it has been decreasing (see 
Graph  1).  In  this  context,  the  2019  Country  Specific  Recommendation  (COM(2019)  526)  calls  for  the 
establishment  of  a  credit  registry  system  in  Finland  to  strengthen  the  monitoring  of  household  debt  (see 
Section 3.2.2 for recent developments). 

Graph 3.1.3a: Household debt and credit bureau coverage 

Well-developed  credit 
information  systems 
with  wide  coverage  are  recognised  as  having 
several  advantages.  First,  information  sharing 
has a positive impact on information asymmetries 
and 
credit 
repayment  behaviour.  Second, 
information  systems  are  important  for  financial 
sector  regulation  and  supervision,  as  well  as  for 
the  assessment  of  micro-  and  macro-prudential 
risks.  Third,  and  particularly  pertinent 
for 
Finland,  is  the  link  with  indebtedness.  Credit 
information sharing can function as a mechanism 
for  borrower  discipline  and  can  mitigate  the 
incentive  to  over-borrow.  It  reveals  borrowers’ 
debt exposure to all lenders and could eventually 
reduce aggregate indebtedness, as highly indebted 
parties receive less credit. Information sharing arrangements are also powerful determinants specifically for 
household  debt,  and  for  related  insolvencies  and  defaults  (van  Roy  et  al.,  2017;  Bennardo  et  al.,  2015, 
Jappelli et al., 2005, 2013; Padilla et al., 1997, 2000; Girault et al., 2010; Brown et al., 2007). 

Sources: Eurostat (2019a), World Bank (2019) 
Note: Coverage indicates the number of individuals and firms listed in a credit  
bureau, with current information on repayment history, unpaid debts, or credit 
outstanding. The number is expressed as a percentage of the adult population. 

The benefits of collecting positive data are also accredited. In systems without positive data, there may be 
information gaps and limited oversight of the overall debt level. For example, there would be no information 
available on debtors that meet their financial obligations regularly, without any adverse events. By contrast, 
positive data is more comprehensive. Its use improves the ability of lenders to separate low- from high-risk 
borrowers  and,  therefore,  assists  in  the  efficient  extension  of  credit.  Studies  link  the  inclusion  of  positive 
information with better lending decisions, credit that is low-priced and fairly distributed, lower default rates 
and  reduced  loan  losses  (Doblas-Madrid  et  al.,  2013;  International  Finance  Corporation,  2012;  Turner, 
2010). Finally, while credit information systems that include positive data can be useful, regulatory and legal 
frameworks on privacy and data protection issues should be complied with accordingly.  

29 

 
   
3.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

3.3.1.  LABOUR MARKET 

In  parallel, 

(see  Graph  3.3.1). 

After  four  years  of  economic  growth,  the 
employment  rate  is  historically  high,  but  a 
slowdown is expected. The employment rate (20-
64  years)  increased  by  2.1  pps  in  2018  to  reach 
76.3% 
the 
unemployment rate has been decreasing and stood 
at 7.4% in 2018, a sharp reduction from the 8.6% 
recorded  in  2017.  The  decline  in  unemployment 
also  led  to  a  drop  in  long-term  unemployment, 
which decreased by 0.5 pps to 1.6% in 2018, well 
below the EU average. Employment is expected to 
have increased in 2019 and to continue increasing 
in  2020,  albeit  at  a  slower  pace.  However,  some 
groups,  e.g.  people  of  a  migrant  background  still 
have  low  employment  rates  (see  the  section  on 
social policies below). 

Graph 3.3.1:  Activity, employment and unemployment 

rates 

Source: Eurostat 

Labour shortages are growing, especially in the 
ICT  sector.  According  to  the  Finnish  public 
employment  service,  the  number  of  vacancies 
increased by 4% in the first two quarters of 2019 to 
reach 114 000 in 2019. Out of those, around 50% 
In 
were 
particular,  the  percentage  of  companies  reporting 
hard-to-fill  (15)  vacancies  for  jobs  requiring  ICT 
specialist  skills is above the  EU average  (see also 
section on skills below).  

reported  as  hard-to-fill  vacancies. 

(15)  Reported by employers that recruited or tried to recruit, and 

had difficulties in filling these vacancies 

Wages  are  expected  to  have  grown  further  in 
2019 due to the tightening labour market and to 
higher  contractual  wage  increases.  Nominal 
wages  are  expected  to  have  grown  in  2019  by 
3.1%,  above  the  expected  rate  of  inflation  (see 
Section 1). Most of the collective agreements will 
expire by 2020. Wage negotiations with public and 
private  sectors  for  2020  and  beyond  started  in 
autumn  2019  and  are  expected  to  end  in  spring 
2020. So far, it is difficult to predict to what extent 
the  outcome  will  take  account  of  productivity 
developments,  competitiveness  considerations  and 
wage  adequacy.  Based  on  the  first  round  of 
negotiations,  wages  are  expected  to  grow  by 
around  3%  in  the  next  two  years  (16).  The  most 
contentious  issue  will  likely  be  the  working  time 
extension  (of  up  to  24  hours  per  year)  that  had 
been  agreed  in  the  Competitiveness  Pact  in  2016. 
The technology industry dropped the working time 
extension  in  exchange  for  the  possibility  to  agree 
locally on extra working hours.  

The  gender  pay  gap  remains  at  16.7%  just 
above  the  EU  average.  The  gender  pay  gap  is 
partly  due  to  gender  occupational  segregation  in 
the  labour  market  and  long  family  leaves  used 
mostly  by  mothers.  More  women  are  hired  on 
temporary  contracts,  with  Finland  having  the 
second  largest  gender  difference  in  the  EU.  The 
government  proposes 
tackling  unjustified  pay 
differences  and  pay  discrimination  by  improving 
pay transparency with legislation (Valtioneuvoston 
kanslia,  2019).  Addressing  gender  segregation 
through  targeted  employment  and  educational 
policies  could  increase  labour  supply  in  sectors 
that are facing shortages.     

Demographic trends are putting pressure on the 
labour  market.  The  working-age  population  has 
been  shrinking  since  2016  because  of  ageing  (see 
Graph 3.3.2). Until now, the impact of this on total 
population  growth  has  been  more  than  offset  by 
positive  net  migration.  Nevertheless,  declining 
fertility  puts  a  strain  on  the  long-term  outlook  for 
labour  supply.  The  fertility  rate  has  dropped 
dramatically  in  the  last  10  years  and  now  ranks 
among the lowest in the EU  (Official Statistics of 
Finland,  2019).  By  the  end  of  2060,  the  share  of 

(16)  Based  on the  agreement  between  Technology  Finland  and 
the industry union that will increase wages by 3.3% (1.3% 
in  2020  and  1.4%  in  2021.  An  additional  0.6%  will  be 
settled locally) 

30 

012345678910455055606570758085010203040506070809101112131415161718% of labour force% of populationUnemployment rate 15-74 (rhs)Activity rate 20-64Employment rate 20-64 
 
             
                                                           
                                                           
3.3. Labour market, education and social policies 

working-age population is projected to reduce by 5 
pps.  The  causes  of  this  sudden  drop  are  unclear, 
but the following possibilities could be considered 
as  reasons:  i)  difficulty  to  reconcile  family  and 
working life; ii) concerns about the  future; iii) the 
postponement  of  having  children;  iv)  increased 
childlessness  and  v)  policy  measures 
that 
discourage  people  from  having  children  such  as 
the non-indexation of the universal child allowance 
or  limitations  to  the  universal  right  to  child-care 
have been eased since 2020.  

Graph 3.3.2:  Population change, 2007-2018 

illness  or  disability 

attainment.  Family  and  caring  responsibilities 
appear  to  affect  women  disproportionally  more 
than  men.  The  main  drivers  for  men’s  inactivity 
(see  Graph  3.3.3).  
are 
Retirement is the main reason of older cohorts’(55-
64) inactivity. The employment rate of low-skilled 
adults  remains  below  the  EU  average.  However, 
the number of low-skilled adults is relatively small 
in  Finland  (17).  Addressing  inactivity  requires  a 
variety of measures depending on the target group.   

Graph 3.3.3:  Reasons for inactivity as a proportion of 

inactive population by sex and age group. 
2018 

Source: European Commission calculations based on 
Finland Statistics (data for 2019 are until August) 

Source: Eurostat 

the  unemployment 

in  recent  years,  but 
Activity  has  surged 
structural  bottlenecks  remain  in  the  labour 
market.  The  total  activity  rate  reached  82%  in 
2018, up from 80.7% a year earlier. This is above 
the EU average (78.4%). However, the activity rate 
of  men  between  25  and  54  is  below  the  EU 
average.  According  to  labour  force  survey  in 
September  2019,  the  unemployment  rate  of  men 
increased  by  0.4%  compared  to  September  2018, 
rate  of  women 
whereas 
decreased by 1.3%. The activity rate for women at 
childbearing age (20-39), even though higher than 
EU average, is around 4 pps. lower in Finland than 
in  its  Nordic  EU  peers.  The  activity  rate  of  older 
cohorts (55-64) is 8 pps above the EU average, but 
remains lower than in other Nordic countries. The 
government has set ambitious employment targets; 
removing structural bottlenecks  to activity  will be 
key  to  achieve  it  (see  Box  3.3.2).  It  will  would 
contribute 
the  UN  Sustainable 
Development  Goal  8  on  full  employment  and 
economic growth. 

to  achieving 

Incentives to work 

constitute 

unemployment 

Inactivity  and  employment  traps  remain,  but 
some measures have been taken in recent years 
to  address  them.  Certain  benefits,  and  their 
or 
combinations, 
inactivity  traps  (European  Commission,  2016a, 
2017,  2018b  &  2019b).  A  reform  of  the  social 
security  system  has  started,  which  addresses  the 
overall  challenge  of  inactivity  and  employment 
traps (see Box 3.3.2). To address bureaucratic traps 
(European Commission, 2019b), Finland deployed 
a  real-time  income  register  in  2019.  It  contains 
real-time  information on salaries and benefits (the 
latter  starting  from  1  January  2020).  It  has  the 
potential 
times  of 
unemployment  and  other  benefits,  thus  increasing 
certainty of income level if taking-up part-time or 
short-term  work.  Moreover,  it  could  open  up 
possibilities  for  a  more  effective  combination  of 
work-related-income and benefits in the future.    

speed-up  handling 

to 

Drivers  for  inactivity  appear  somewhat  gender 
and age  specific, in addition to low educational 

(17)  Only  10.8%  of  the  adult  population  do  not  possess  an 
upper-secondary  or  higher  qualification,  compared  to  an 
EU average of 21.9%. 

31 

3 080 0003 100 0003 120 0003 140 0003 160 0003 180 0003 200 0003 220 0003 240 000-10 000-5 00005 00010 00015 00020 00025 00030 000070809101112131415161718Natural increaseNet migrationWorking age population (20-64)(rhs)0102030405060708090100menwomenmenwomenmenwomen15-2425-4950-64OtherFamily/caringresponsibilitiesDiscouraged workersRetiredIn education or trainingOther family or personalresponsibilitiesOwn illness or disability 
             
    
                                                           
 
3.3. Labour market, education and social policies 

Incentives  for  carers  could  improve  their  long-
term  employment  prospects.  Long 
spells 
involving  caring  responsibilities,  which  fall  often 
on  women,  weaken  the  labour  market  position  of 
carers.  Women  with  a  migrant  background  are 
disproportionally  underrepresented  in  the  labour 
market.  The  activity  rate  gap  between    women 
born  outside  the  EU  and  in  the  EU  in  2018  was 
very  high  (non-EU  18.2pp  -  EU  9.5pp).  The 
government  has  passed  legislation  to  restore  full 
access  rights 
to  childcare  for  children  from 
families experiencing unemployment or inactivity. 

for  the  extended  benefits.  The  social  partners 
proposed  to  the  government  an  increase  of  the 
eligibility age for extended unemployment benefits 
from  61  to  62  for  those  born  after  1961.  The 
amendment  came  into  force  at  the  beginning  of 
2020.  According  to  an  estimation,  the  extension 
would decrease the number of unemployed people 
by 7,400 by the end of 2025 (Reipas, 2019). In the 
current  context,  the  full  phasing  out  of  such  a 
system and improving incentives for older workers 
to  stay  at  work  would  contribute  to  reduce  labour 
shortages.  

The  government  aims  to  reform  family  leave.  
The  main  objective  is  to  grant  both  parents  an 
equal  number  of  non-transferable  days  of  family-
related  leave.  The  proposed  reform  could  have  a 
positive  effect  on  work-life  balance  and  gender 
equality.  The  government  is  exploring  the  idea  of 
streamlining the homecare leave system by looking 
into for example the possibility of paying the home 
care allowance directly to grandparents. This could 
open  up  more  opportunities  for  some  parents  to 
return to work or to education. A deeper reform of 
increased 
home-care 
investments  in  access  to  and  quality  of  early 
childhood  education  and  care  could  bring  about 
sustainable  results  in  terms  of  integrating  women 
into  the  labour  market,  especially  those  from  the 
above-mentioned groups. 

combined  with 

leave 

The pension reform has reduced the number of 
new old-age retirees. Based  on the 2017 pension 
reform, the earliest eligibility threshold for old-age 
retirement  rises  per  age  group  until  it  reaches  65 
years  old  in  2027.  The  reform  has  affected  the 
number  of  people  moving  from  employment  to 
retirement.  The  Finnish  Centre  for  Pensions 
estimates  that  the  number  of  old-age  retirees 
dropped  by  8%  between  2017  and  2018,  mainly 
because  of  the  reform.  This  could  partly  explain 
the  positive  trend  of  the  employment  rate  for 
people  over  55  years  old  and  it  is  expected  to 
continue due to the increasing retirement age.  

The extended unemployment insurance benefits 
for  older  workers  partly  contribute 
to 
unemployment  in  the  oldest  age  groups.  The 
eligibility  of  older  unemployed  people,  over  61 
years  of  age,  for  extended  benefits  reduces  their 
incentives  to  return  to  work  before  retirement. 
Moreover, 
involuntarily  encourage 
employers to dismiss those employees who qualify 

it  could 

Activation measures 

Sustainable  activation  of  target  groups  is  a 
challenge.  Finland  is  spending  more  than  the  EU 
average  on  active  labour  market  policies  but  less 
than its Nordic peers. In particular, Finland spends 
one  third  of  its  total  budget  for  labour  market 
policies  on  active  measures,  whereas  Sweden 
spends  around  half  (Organisation  for  Economic 
Co-operation and Development, 2016). The public 
employment  services  (PES)  have  suffered  from 
staff  reductions  over  the  last  ten  years,  partly  due 
to efforts to digitalise the services. Deployment of 
new technologies in the services could also have a 
negative  consequence:  putting  the  PES  under 
threat of losing its position in the labour market as 
the main player that helps unemployed people find 
work.  It  could  be  beneficial  to  focus  more  on 
activating unemployed men in their prime working 
age, people with partial work ability and migrants, 
given their low employment rates.  

There  is  a  lack  of  coordination  in  providing 
integrated services for people who are ‘hard-to-
place’. In recent years, multi-professional services 
have  been  launched  for  different  target  groups 
(European Commission, 2017 & 2018b). However, 
the services for long-term unemployed people and 
people  with  ‘partial  work  ability’  could  benefit 
from  tighter  coordination  and  commitment  on  the 
part  of  key  players,  especially  between  local  PES 
and  municipalities.  The  challenges  are  seemingly 
resources  as  well  as 
the 
that  are 
incompatible  data  exchange  systems 
preventing 
effectively 
integrated. 

lack  of  human 

from  being 

services 

Municipal level experiments seek to address the 
challenges.  Municipalities  participating  in  the 
experiment  were  selected  in  2019.  A  law  for 

32 

 
3.3. Labour market, education and social policies 

to 

integrate  and  clarify 

ability  (see  European  Commission,  2019b).  The 
reform  aims 
the 
responsibilities  of  all  the  relevant  services  for 
those  with  partial  or  reduced  work  ability. 
Moreover,  legislative  work  on  a  reform  of  the 
disability  pension  has  started. 
to 
incentivise people on part-time disability pensions 
to come back to the labour market. The aim of the 
reform  is  to  increase  the  beneficiary’s  net  income 
with  the  uptake  of  work.  To  achieve  this,  the 
reform would introduce an ‘earnings disregard’ of 
50%  of  the  pension.  The  earnings  that  exceed  the 
disregard  would  reduce  the  pension  by  50%  of 
each euro earned (Knuuti et al., 2019).  

It  seeks 

Policy  measures  to  facilitate  access  to  finance 
for  social  enterprises  are  considered.  Social 
enterprises  in  Finland  play  an  important  role  in 
actively  including  marginalised  groups.  However, 
many of these organisations have difficulty finding 
financial support.  In addition, most financial tools 
are  designed  either  for  conventional  business  or 
not-for-profit  associations  and  therefore  do  not 
cater  specifically  for  social  enterprises.  The 
Finnish  government’s  2019  programme  aims  to 
improve  the  operating  environment  for  social 
enterprises,  which  may  improve  their  potential 
further.  

Skills and future of work 

Skills  mismatches  at  macroeconomic  level  are 
below the EU average. The level of disparities in 
the  labour  market  outcomes  of  the  different  skill 
groups (low-, medium-, and high-skilled) is below 
the EU average and has decreased since 2010 (see 
Graph  3.3.4).  The  vertical  skills  mismatch,  i.e. 
when  people  are  over-qualified,  remained  largely 
constant in Finland between 2008 and 2018, with a 
rate  below  20%.  In  recent  years,  Finland  has 
experienced  an  increase  in  high-skilled  tasks 
relative  to  middle-skilled  tasks  and  a  decline  in 
routine  tasks. This  indicates that in the  short term 
the  adult  workforce  needs  to  be  reskilled  and 
upskilled  so  it  can  better  match  labour  market 
demand.  The  recent  vocational  education  and 
training  (VET)  reform  and  reform  of  higher 
education  funding  increase  incentives  to  provide 
more  upskilling  and  reskilling  training  to  adults 
(see education section below).  

employment  offices 

piloting  transfer  of  employment  services  from 
the  government’s 
to 
municipalities  is  under  preparation.  The  new 
the  decentralisation  of 
programme  promotes 
employment  and  entrepreneurship  services 
to 
municipality level.  The experiments will continue 
until 2022 and the results will feed into the design 
of future service structures.  

The  government  has  repealed  the  ‘active 
model’,  a  conditional  unemployment  benefit 
scheme  that  was  introduced  in  2018  (European 
the 
Commission,  2018  &  2019).  Based  on 
government’s proposal, the automatic reduction of 
unemployment  benefits  has  now  been  removed, 
while  leaving  the  other  parts  of  the  system 
untouched.  According  to  an  evaluation  on  its 
effectiveness  (Kyyrä  et  al.,  2019),  it  was  difficult 
to  prove  the  direct  effects  of  the  active  model  on 
employment  due  to  the  fast  economic  growth  and 
increased demand for labour. At the same time, the 
evaluation  acknowledged  that  the  model  was 
successful  in  encouraging  unemployed  people  to 
use  the  employment  services  and  that  it  increased 
labour  market 
their  participation 
measures.  It 
the  PES  are 
strengthened  so  they  can  intervene  rapidly  to 
reduce  the  risk  of  long-term  unemployment  and 
shifts  to  inactivity.  Following  the  revision  of  the 
‘active  model’,  consideration  could  be  given  to 
designing  other  mechanisms  that  would  increase 
incentives to look for work or take part in training.  

in  active 

important 

that 

is 

Pay subsidies are a key measure put forward by 
the  government  to  increase  employment.  The 
government  increased  available  funding  for  pay 
subsidies  by  €17  million  in  the  2020  budget. 
Moreover,  measures  to  simplify  the  use  of  pay 
subsidies  by  employers  are  in  the  pipeline.  These 
changes  have  a  potential  to  improve  the  targeting 
of  the  subsidies  to  the  private  sector  and  increase 
sustainable 
in 
their  effectiveness 
employment 
(Asplund  et  al.,  2018). 
results 
However,  if  the  pay  subsidies  are  used  as  an  all-
around  support,  it  may  lead  to  negative  effects, 
because  many  unemployed  could  have  been 
employed even without the subsidy. More concrete 
proposals are expected over the course of 2020.   

terms  of 

Measures to increase employment of those with 
partial  work  ability  are  in  the  pipeline.  The 
previous  government  launched  a  ‘work  ability 
programme’  targeting  people  with  partial  work 

33 

 
3.3. Labour market, education and social policies 

Graph 3.3.4:  Relative dispersion of employment rates by 

education level (2010, 2015, 2018) 

administrative difficulties in hiring foreign experts. 
A softening of the relatively stringent immigration 
policies 
in  particular 
extending  working  permits  after  graduation  to  2 
years. 

is  being  considered, 

Graph 3.3.5:  Job vacancy rates in the whole economy and 

in the information and communication 
services sector in Sweden and Finland 

(1) Annual average based on the average of four quarters 
Source: European Commission calculations based on 
Eurostat 

There is only a low risk of jobs in Finland being 
squeezed  out  by  automation.  The  exposure  to 
automation  poses  a  challenge  to  about  5  –  8%  of 
jobs  depending  on  the  region  (Gonzalez  et  al., 
2019).  These  figures  are  the  lowest  in  the  EU. 
However, 
to 
digitalisation,  robotics  and  artificial  intelligence. 
The  labour  market  will  have  higher  demand  for 
non-cognitive  and  digital  skills.  Finland  scores 
well  in  digital  skills  (Box  3.3.3;  Gonzalez  et  al., 
2019)  with  around  50%  of  the  population  having 
above-basic digital skills (see also Section 3.4.2). 

job  profiles  are  changing  due 

of 

information 

Despite good availability of digital skills, labour 
shortages  risk  becoming  a  drag  on 
the 
and 
the 
development 
communication services (ICT) sector. (see Graph 
3.3.5).  While  Finland  has  the  best  availability  of 
scientists  and  engineers  in  the  world  (World 
the  percentage  of 
Economic  Forum,  2016), 
companies reporting hard-to-fill vacancies for jobs 
requiring  ICT  specialist  skills  is  above  the  EU 
average  (6.9%  compared  to  4.6%)  (European 
Commission,2019d). Intense shortages were found 
in  several  knowledge  areas  such  as  computers, 
electronics  and  mathematical  knowledge.  The 
proportion  of  ICT  graduates  remains  well  above 
the EU average, but shortages still exist. Moreover, 
costly residence permit processes limit possibilities 
for  foreign  students  to  stay  in  Finland  after 
graduating.  Furthermore,  Finnish  companies face 

(1) Seasonally adjusted data, not calendar adjusted data 
Source: European Commission 

forecasts 

Finland  has  an  effective  ‘skills  anticipation’ 
system  to  deal  with  future  challenges.  Skills 
anticipation  activities  are  linked  to  policy-making 
and  are  aligned  with 
labour  market  needs 
the  Development  of 
for 
(European  Centre 
Vocational  Training,  2017).  Finland  launched  its 
‘Skills  Anticipation  Forum’  in  2017.  It  organised 
its activities around two main pillars: one provides 
economic 
skills 
developments  until  2025,  and  the  second  is 
focused  on  anticipating  education  and  training 
needs. In addition, many regional anticipation and 
ongoing.  Regional 
are 
foresight 
anticipation  activities  have  developed  rapidly  in 
recent  years, 
local  authorities  and 
educational  establishments.  Skills  anticipation 
feeds  into  a  range  of  government  educational 
policies 
to  higher 
education.  

from  vocational 

involving 

projects 

training 

based 

the 

on 

Reskilling and upskilling are key to maintaining 
the employability of the labour force and ensure 
the  right  supply 
future  skills  needs. 
Participation  in  adult  learning  is  already  high  in 

for 

34 

0.00.10.20.3UKPTEEDELVFIEU28SEHUROLUFRSKBGBE2018201520100.00.51.01.52.02.53.03.54.04.55.0number of job vacancies / (number of occupied posts + number of job vacancies) x 100 FI-Whole economySE-Whole economyFI-IC servicesSE-IC services 
    
  
 
3.3. Labour market, education and social policies 

risk  of  poverty  and  social  exclusion  remains  an 
issue  for  specific  vulnerable  groups,  such  as  self-
employed  people,  children  of  low-skilled  parents 
and people with a migrant background.  

Social  transfers  play  a  major  role  in  reducing 
poverty,  in  particular  unemployment  benefits, 
sickness  and  disability  benefits  (19).  Income 
inequality  remains  among  the  lowest  in  Europe 
(see  Section  1).  Relative  spending  on  social 
protection is among the highest in the EU and has 
increased  over  recent  years.  In  2018,  social 
transfers  reduced  the  at-risk-of-poverty  rate  by 
53.7% (compared to an EU average of 33.2%). On 
average,  unemployment  benefits  have  the  largest 
impact  on  the  at-risk-of-poverty  rate,  followed  by 
family  benefits,  sickness  and  disability  benefits, 
and housing benefits. 

to 

not 

training 

Finland.  In  2018,  28.5%  of  adults  aged  25-64 
reported  in  a  survey  that  they  took  part  in  a 
learning  course  during  the  previous  4  weeks  (EU 
average  11.1%).  Despite  the  high  uptake  in  adult 
learning,  the  government  will  put  forward  a 
continuous learning reform starting in 2020. Time 
constraints  have  been  one  of  the  reasons  for 
(European 
join 
workers 
Commission, 2019b). The reform aims to increase 
the  possibilities  for  people  of  a  working  age  to 
participate 
learning’  courses, 
combining  work  and  study  in  a  flexible  manner 
and  supporting  learning  at  the  work  place.    There 
will  also  be  improvements  to  the  anticipation  of 
individual  skills’  needs  and  guidance  services  for 
adult  learners  (Ministry  of  Education  2019a).  In 
2020,  €7.5  million  of  extra  funding  will  be 
allocated  to  educating  adults  with  a  low  level  of 
basic skills. 

‘continuous 

in 

3.3.2.  SOCIAL POLICIES AND HEALTHCARE  

The risk of poverty or social exclusion has been 
rising  slightly  but  remains  well  below  the  EU 
average.  Material  and  social  deprivation  (MSD) 
(18) is at a low level in Finland compared to the EU 
average.  Finland  also  has  one  of  the  EU’s  lowest 
rates  of  population  at  risk  of  poverty  or  social 
exclusion  (AROPE)  and  child  poverty.  However, 
in  the  context  of  a  general  decrease  in  other 
Member  States,  the  MSD  has  stabilised  and  the 
AROPE  rate  increased  slightly  in  2018.  Elevated 

(18)  The  MSD  is  the  result  of  a  revision  of  the  material 
deprivation  indicator  (MD).  It  takes  into  consideration  a 
broader  concept  of  deprivation  as  it  also  includes  items 
related to social activities, whereas the MD measured only 
material  deprivation.  It  is  based  on  13  items  (of  which 
some  are  common  to  the  MD).  The  MSD  rate  is  the 
proportion  of  people  in  the  total  population  lacking 
(because of an enforced lack) at least 5 items out of the 13 
MSD items (as opposed to 3 or more out of 9 items for the 
MD). 

inequalities), 

The  recent  increase  in  social  benefits  could 
address  slowly  growing  poverty.  As  part  of  its 
economy  of  well-being  strategy  and  in  line  with 
the  UN  Sustainable  Development  Goals  1  (No 
poverty)  and  10  (Reduced 
the 
government  has  announced  measures  to  reduce 
income  inequality.  The  level  of  different  social 
security benefits was increased in early 2020. The 
level  of  increase  varies  between  benefits.  These 
rehabilitation 
benefits 
allowance,  sickness  and  parental  allowance,  basic 
unemployment  allowance  and 
labour  market 
subsidy.  In  addition,  the  level  of  the  lowest 
pensions  will  be  increased.  These  reforms  should 
reduce  beneficiaries’  dependency  on 
social 
assistance (the ‘last resort’ benefit).  

include  minimum 

(19)  The  impact  of  each  type  of  transfer  is  the  percentage 
decrease in the at-risk-of-poverty (AROP) rate/ poverty gap 
‘caused’  by  the  given  type  of  transfer  in  a  given  country 
and year. More precisely, it is measured as the percentage 
difference  between  a  counterfactual  AROP  rate/poverty 
gap,  calculated  based  on  disposable  household  income 
including  all  transfers  except  the  type  analysed,  and  the 
AROP rate/poverty gap, taking into account all transfers. 

35 

 
                                                           
                                                           
3.3. Labour market, education and social policies 

Box 3.3.1: Monitoring performance in light of the European Pillar of Social Rights 

The European Pillar of Social Rights is a compass  for a renewed  process of upward convergence towards 
better working and living conditions in the European Union. It sets out twenty essential principles and rights 
in  the  areas  of  equal  opportunities  and  access  to  the  labour  market;  fair  working  conditions;  and  social 
protection and inclusion. 

supporting 

in  2018,  and 

the 
The  Social  Scoreboard 
European  Pillar  of  Social  Rights  points  to  the 
overall  good  performance  of  Finland.    The 
employment  rate  is  now  higher  than  before  the 
crisis,  at  76.3% 
the  gender 
employment gap is the second lowest in the EU at 
3.7 pps. Income inequalities are among the lowest 
in the EU. In 2018, the income of the richest 20% 
was stable at 3.6 times that of the poorest 20% and 
low compared to the EU average of 5.2 times. The 
risk  of  poverty  or  social  exclusion  remains  also 
low  (16.5%  in  2018),  although  it  has  been  rising 
slightly,  especially  due  to  the  non-indexation  of 
unemployment  benefits.  This  also  explains  the 
slight decrease in the impact of social transfers on 
poverty  reduction,  though  Finland  remains  the 
best  performer  in  the  EU  with  53.6%  (versus  an 
EU  average  of  33.2%).  The  risk  of  poverty  and 
social  exclusion  remains  an  issue  for  specific 
vulnerable  groups,  such  as people  with  a  migrant 
background and children of low-skilled parents. 

Self-reported  unmet  needs  for  medical  care 
have increased from 3.6% of the population in 
2017  to  4.7%  in  2018.  This  is  particularly  the 
case  for  the  lowest  income  group  (6.6%  of  the 
lowest  income  group  (Q1)  reported  unmet  needs 
compared  to  2.9%  of  the  richest  income  group 
(Q5))  and  for  the  unemployed  (8.8%  reported 
unmet needs in 2018). Access to care remains an 
issue in Finland, mainly due to long waiting times 
for primary health care and specialised services for those not covered by occupational or private healthcare 
insurance.  It  is  being  addressed  by  a  reform  of  the  healthcare  and  social  services  that  has  faced  multiple 
delays. 

Finland performs well in upskilling and reskilling, particularly for digital skills. Finland has the highest 
uptake in adult learning in the EU with 28.5% of adults aged 25-64 having had a learning experience in the 
last 4 weeks (the EU average is 11.1%). Time constraints are considered as a main reason for not joining a 
training programme in 2019. The government will roll out a continuous learning reform in 2020 to enable 
people to combine work and studies in a flexible manner. Furthermore, Finland has a well-performing skills 
forecasting  system  to  inform  policies.  This  is  reflected  in  the  good  results  obtained  in  digital  skills,  with 
76% of 16-74 years-olds having basic or above basic digital skills in 2017.  

The final results of the basic income experiment 
will be published in 2020. The experiment, which 
attracted  worldwide  attention,  ran  in  2017  and 
2018. Its primary objective was to find out whether 
the 
introducing  basic 

income  could 

reduce 

relatively  high  unemployment  and  help  eliminate 
inactivity  traps.  According  to  the  preliminary 
results  published  in  early  2019,  the  employment 
level  of  the  participants  in  the  first  year  of  the 
experiment  had  not  changed  compared  to  the 

36 

 
3.3. Labour market, education and social policies 

some 

increased  employment  rate 

reforms are showing some positive results in terms 
of 
for  migrants, 
although  it  may  be  difficult  to  disentangle  the 
impact  of  reforms  from  the  general  increased 
labour  demand.  However, 
innovative 
experiments,  such  as  the  Social  Investment  Bond 
for integration, have had encouraging  first results. 
Continuous  efforts  to  improve  the  integration  of 
migrants  into  the  labour  market  and  into  society 
would  also  achieve  a  more  balanced  economic 
dependency ratio in the long run. This is especially 
important  in  the  context  of  the  rapidly  ageing 
population.  

Access  to  healthcare  services  and  long-term 
care  

The  life  expectancy  of  the  Finnish  population 
has  increased  since  2000,  but  mental  disorders 
are a growing burden. Life expectancy at birth is 
81.7  years,  higher  than  the  EU  average  of  80.9 
years. However, the number of healthy life years is 
lower  than  the  EU  average  and  substantial  health 
inequalities, both geographical and socioeconomic, 
persist (e.g. education gap in life expectancy of 5.6 
years for men and 3.5 years for women at the age 
of  30).  This  can  be  linked  to  behavioural  risks 
being  more  pronounced  among  people  with  a 
lower  level  of  income  and/or  education.  The 
estimated prevalence of  mental health disorders is 
one  the  highest  in  the  EU,  increasing  the  risk  of 
early school leaving, unemployment, inactivity and 
social exclusion.  

The  health  system  is  effective  but  access  is  a 
concern,  particularly  for  primary  care  and 
specialised  services.  The  treatable  mortality  rate 
in  Finland  is  significantly  lower  than  the  EU 
average,  indicating  that  the  health  system  is 
effective.  The  healthcare  system  puts  a  strong 
emphasis  on  promoting  health  and  preventing 
disease.  Care  for  many  chronic  conditions  has 
improved, probably because  of several large-scale 
national  prevention  and  treatment  programmes. 
However,  access  to  care  remains  an  issue  in 
Finland,  mainly  due  to  long  waiting  times  for 
primary  health  care  and  specialised  services.  As 
highlighted 
Scoreboard 
accompanying  the  Social  Pillar,  the  proportion  of 
Finnish citizens who reported unmet needs for care 
increased to 4.7% of the population in 2018, which 
is  above  the  EU  average.  This  is  particularly  the 
case  for  the  lowest  income  group  (6.6%  of  the 

Social 

the 

in 

control  group.  However,  the  participants  reported 
higher  level  of  well-being.  This  result  may  have 
been  driven  by 
the 
experiment,  in  which  basic  income  replaced  the 
unemployment benefits only in a very limited way. 

the  specific  setup  of 

A  comprehensive  reform  of  the  social  security 
system is being prepared. To meet the long-term 
challenges  posed  by  the  changing  world  of  work 
and  the  ageing  population,  the  government  has 
launched  a  reform  of  the  social  security  system. 
The  previous  government  started  a  reform  by 
to  provide  different 
carrying  out  a  project 
proposals  for  the  future  social  security  system.  In 
order  to  give  all  political  parties  a  sense  of 
ownership  over  the  project,  the  preparatory  work 
has  been  carried  out  in  a  parliamentary  working 
group  and  the  reform  will  be  prepared  in  a 
parliamentary committee. The aim of the reform is 
to streamline the complex social security system to 
make it more adaptable. The focus is on the basic 
social  security,  earnings-based  benefits  and  social 
assistance.  Another  main  objective  is  to  address 
inactivity  and  unemployment  traps.  Due  to  the 
magnitude of the reform, it will be implemented in 
parts.  The  reform  should  be  ready  by  2027. 
Although this is a lengthy schedule, the experience 
with  the  regional,  healthcare  and  social  care 
reform,  which  has  suffered  a  setback  due  to 
constitutional  concerns,  suggests 
that  careful 
preparation could be an advantage when designing 
such a large-scale reform. 

to 

Ensuring  the  long-term  integration  of  refugees 
and  other  migrants  into  the  Finnish  labour 
market  and  society  remains  a  challenge.  In 
particular,  non-EU  born  continue 
face 
integration  challenges  (see  also  the  paragraph  on 
incentives  above).  The  employment  rates  are 
improving  along  with  the  general  employment 
situation,  but  the  employment  gap  between  non-
EU born and native-born people is still high (17.5 
pps in 2018). The poverty gap is high, but slightly 
improving  (17.9  pps.  in  2018  from  19.5  pps  in 
2017).  The  gap  between  non-EU  born  and  native 
people  for  severe  material  deprivation  was  above 
the EU average in 2018 (FI: 7 pps; EU: 5.9 pps).  

Finland  has  reformed  its  integration  policies 
since  2015  to  address  these  challenges.  The 
policy  focus  has  shifted  from  language  training 
towards 
integration 
(European  Commission,  2018  &  2019).  The 

labour  market 

swifter 

37 

 
3.3. Labour market, education and social policies 

comprehensive in the EU, both in terms of public 
expenditure  and  coverage  of 
the  population 
(European  Commission,  2018c),  but  it  still  faces 
is  provided  at 
challenges.  Long-term  care 
municipal level,  which may lead to inequalities in 
the  quality  and  accessibility  of  care  across 
municipalities.  As  well  as  on  the  formal  care  and 
cash benefits, municipalities rely on informal care 
provided  by  family  members,  which  may  hinder 
labour market participation of the (mostly female) 
informal  carers  (European  Commission,  2019c), 
although 
is 
(European 
particularly 
Commission, 2016b).  

the  gender 
in 
low 

employment  gap 

Finland 

3.3.3.  EDUCATION AND SKILLS  

in 

signs 

there  are 

Education in Finland remains among the best in 
that 
the  EU,  although 
the  Finnish 
performance  and  equity 
education  system  are  deteriorating  (Volante  et 
al.,  2019).  Though  starting  from  a  high  level  of 
accomplishment  in  providing  quality  education 
(UN  Sustainable  Development  Goal  4),  not  only 
has  the  average  performance  of  Finland  been 
falling  in  recent  cycles  of  the  PISA  survey,  but 
also  inequality  in  achievement  appears  to  be 
increasing. Municipalities are concerned about the 
lack of sufficient financial resources to implement 
recent educational reforms, both in early childhood 
education and care and in compulsory education.  

lowest  income  quintile  reported  unmet  needs 
compared to 2.9% of the highest quintile) and  for 
the  unemployed  (8.8%  reported  unmet  needs  in 
2018). The issue of access is being addressed by a 
complex  reform  of  both  health  and  social  care 
systems,  taken  over  by  the  new  government  with 
several adaptations (more details in Section 3.1). 

conditions. 

difficult  working 

The  current  system  of  healthcare  services 
delivered  by  various  providers  leads  to  an 
unequal  placement  of  medical  staff  across  the 
country,  also  affecting  access  to  healthcare. 
Public healthcare centres do not attract doctors due 
to 
Finland 
acknowledges  this  challenge  and  considers  the 
strengthening  of  primary  care  as  the  highest 
priority.  The  number  of  physicians  has  been 
growing strongly, although regional disparities are 
considerable.  The  number  of  physicians  has 
increased  particularly  in  health  care  districts  with 
universities,  whereas  elsewhere  the  trend  is  often 
negative.  When  it  comes  to  specialists,  there  are 
shortages 
such  as 
psychiatrists.  This  is  a  concern,  considering  the 
increasing  number  of  mental  disorders.  The 
number of nurses per capita is one of the highest in 
the EU. The role of nurses is expanding in primary 
care  and  home  care  and  this  may  help  improve 
access, especially where shortages of doctors exist. 
(Organisation  for  Economic  Co-operation  and 
Development, 2019b). 

specialisations, 

some 

in 

Graph 3.3.6:  Self-reported unmet needs by income quintile 

declared (% pop) 

(1) 2018 data (2017 data for UK, SK, IE) 
Source: Eurostat 

The  need  for  long-term  care  is  projected  to 
increase  in  the  coming  decades  due  to  the 
ageing of the population. The Finnish social care 
the  most  generous  and 
system 

is  among 

The  levels  of  basic  skills  as  measured  by  the 
PISA  2018  survey  remain  comparatively  high, 
but have worsened since the PISA 2015 survey. 
The  performance  of  Finnish  students  in  reading, 
mathematics  and  science  has  been  at,  or  near,  the 
top  of  the  participating  countries  in  the  PISA 
survey.  However,  results  from  the  PISA  2018 
survey  (Organisation  for  Economic  Co-operation 
and  Development,  2019c)  show  a  statistically 
significant decline of performance in science. The 
proportion of 15-year old students underachieving 
also  increased,  while  remaining  below  the  EU 
benchmark  level  of  15%  for  each  subject  area.  In 
addition,  after  accounting  for  socio-economic 
status,  the  difference  in  reading  performance 
between immigrant and non-immigrant students is 
the  largest  in  the  EU.  The  Finnish  Education 
Evaluation  Centre  reported  for  2018  that  the  low 
level  of  appreciation  for  studies  and  insufficient 
students’ 
student 

support  might 

influence 

38 

05101520252018Q1-Q5 (2nd axis)Q1-Q5, EU-28 (2nd axis) 
    
3.3. Labour market, education and social policies 

transport  services,  etc. 
services 

communication services, support services, assistive 
If  needed, 
devices, 
municipalities  provide 
special 
for 
education.  However,  choosing  a  certain  type  of 
secondary  education  may  depend  on  the  physical 
accessibility  of  a  school  building  rather  than  on 
genuine 
interests  of  pupils  with  disabilities 
(Hoffrén,  2017).  The  early  school  leavers’  gap 
between pupils with disabilities and other pupils is 
higher  than  the  EU  average  (15.6 pps  vs  the  EU 
average of 10.1 pps). In parallel, the early school-
leaving rate for non-EU born pupils stood at 13.6% 
in  2018,  being  5.5  pps  higher  than  that  for  native 
born pupils.  

Finland plans to raise the mandatory school age 
to  18  years  and  provide  upper  secondary  (20) 
education  free  of  charge.  The  planned  reform 
(Ministry of Education, 2019b) aims to ensure that 
students  gain  an  upper  secondary  qualification. 
The  plan  is  to  introduce  a  range  of  study  and 
support  options  for  compulsory  education.  The 
material  fees  for  upper  secondary  education  is 
expected  to  be  abolished.  Finland  will  also  carry 
out  a  study  on  non-material-fee-paying  upper 
secondary  education  and  a  reduction  in  learning 
material  costs  and,  based  on 
the 
appropriate  measures 
implement  upper 
secondary  education  that  is  genuinely  free  of 
charge.  The  government  legislative  proposal  is 
expected to be submitted  for consultation by May 
2020,  sent  to  the  Parliament  by  September  2020 
and come into effect in 2021. 

that, 

take 

to 

There  are  shortages  of  teachers  in  special 
education and care. The latest forecast from 2018 
on  the  national  demand  for  qualified  teachers  in 
primary,  secondary  and  vocational  schools  in 
Finland,  carried  out  in  spring  2018,    points  to 
shortages  of  special  education  teachers  (2.2%  of 
the total workforce) and career counsellors (6.2%) 
(Nissinen & Välijärvi, 2018).  The lack of special 
in  vocational 
increases  also 
needs 
teachers 
education  and 
the 
to 
training.  According 
Organisation  for  Economic  Co-operation  and 
Development’s survey (Organisation for Economic 
Co-operation  and  Development,  2019d),  only 

outcomes 
Evaluation Centre , 2018).  

in  basic  skills  (Finnish  Education 

increase.  By  2017, 

Participation  in  early  childhood  education  and 
care  remains  low  by  international  comparison 
despite  a  recent 
the 
participation  rate  of  children  under  age  of  three 
had  increased  to  33.3%,  close  to  the  EU  average 
(34.2%). However, Finland remains among the EU 
countries  with  the  lowest  participation  rate  of 
children aged between four and the starting age of 
compulsory  education  (87.8%  –  EU  average 
95.4%) in 2017, with large regional disparities.  

Education  funding  is  expected  to  increase  over 
the  coming  years,  progressively  offsetting 
significant  budget  cuts  in  2016-2019.  Between 
2016 and 2019, the government reduced spending 
by around €950 million (0.4% of GDP), mainly in 
vocational  education  and  training  (€190  million) 
and  in  early  childhood  education  and  care  (€155 
million).  According  to  the  General  Government 
Fiscal Plan 2020-2023, total annual expenditure on 
education  will  increase  by  about  €518  million  by 
2023,  with  additional  spending  over  2020-2023 
totalling  €455  million.  The  2020  budget  plans  a 
6%  increase  in  expenditure  (11%  more  in  general 
education including early childhood education and 
care,  12%  more  in  vocational  education  and  5% 
more in tertiary education).  

As from 2021, higher education institutions will 
apply  new  funding  models  to  foster  transitions 
from  education  to  work.  Universities  of  applied 
sciences  will  receive  6%  (currently  4%)  of  their 
basic  funding  depending  on 
the  number  of 
graduates  that  enter  into  employment  and  on  the 
the  other 
their  employment.  For 
quality  of 
universities,  such  funding  will  represent  4% 
(currently 2%). The new funding mechanism aims 
to 
to  provide  continuous 
learning courses. It will increase funding based on 
continuous  learning  indicators  for  universities  of 
applied  sciences  from  5%  to  9%,  and  for  the 
universities from 2% to 5%. This should contribute 
to tackling imminent skills shortages in the labour 
market.     

incentives 

improve 

The  education  system  fares  relatively  well  in 
inclusiveness,  although  challenges 
terms  of 
remain  for  some  groups.  Pupils  with  disabilities 
go to mainstream schools and receive support from 
special  teachers  or  assistants,  interpretation  or 

(20)  In  Finland,  secondary  education  covers  two  phases  on  the 
International Standard Classification of Education (ISCED) 
scale.  Level  2  or  lower  secondary  education  is  considered 
the second and final phase of basic education, and level 3 
(upper)  secondary  education  is  the  stage  before  tertiary 
education. 

39 

 
                                                           
3.3. Labour market, education and social policies 

21.5%  of  lower-secondary  teachers  in  Finland 
consider themselves well or very well prepared to 
use  information  and  communication  technologies 
(ICT) for teaching when they finished their studies 
(the second lowest in the EU), and only 14% of the 
teachers feel well or very well prepared to teach in 
a  multicultural  and/or  multilingual  setting  (among 
the lowest in the EU). 

Reaching the new tertiary education attainment 
target  will  require  taking  into  account  the 
availability  of  study  places.  The  government 
plans  to  raise  the  proportion  of  young  adults  (25-
34  year-olds)  with  a  tertiary  education  degree  to 
50%  by  2030.  This  could  require  an  increase  of 
study  places  in  certain  regions.    Compared  to  the 
rest  of  Finland,  there  is  a  major  lack  of  higher 
education  study  places  and  a  growing  demand  in 
the  Uusimaa  region  (i.e.  the  extended  Helsinki 
metropolitan  area).  In  spring  2018,  Uusimaa  had 
available  12,369  university  study  places  (26%  of 
the  total  in  the  country),  while  53,982  students 
submitted  an  application  (35%  of  the  total  in  the 
country). Consequently, each year, around 60% of 
Finnish  students  starting  their  higher  education 
outside  Finland  are  from  the  Uusimaa  region.  It 
can  be  particularly  difficult  to  enter  university  in 
some  regions  because  of  the  restricted  number  of 
places.  This  delays  tertiary  education  for  several 
years for many students.  

Vocational education and training (VET) 

VET  remains  an  attractive  study  path  in 
Finland. In 2017, more than 52,000 new students 

entered  upper  secondary  VET  programmes  in 
Finland,  compared  to  33,000 who  entered  general 
upper  secondary  education.  The  proportion  of 
pupils enrolled in upper secondary VET out of the 
total  number  of  upper  secondary  students  was 
71.6% in 2017, which is markedly higher than the 
EU average. However, despite the attractiveness of 
VET,  the  employment  rate  of  recent  graduates 
(78.5%)  was  slightly  below  the  EU  average 
(79.5%) in 2018.  

funding  strands 

The  recent  VET  reform  pushes  for  more 
responsiveness to the labour market needs. The 
key  components  of  the  reform  were  to  provide 
individualised  and  flexible  study  pathways  and  to 
integrate  separate 
into  one 
coherent  funding  system.  One  of  the  objectives  is 
to open up more possibilities for VET organisers to 
provide modular, not degree related, reskilling and 
upskilling  trainings  for  adult  learners.  The  new 
funding system was planned to be gradually rolled 
out  until  2022  and  was  based  on  core  funding 
(50%),  performance  based  funding  (35%)  and 
effectiveness  funding  (15%).  The  funding  system 
is  based  on  core  funding  (70%),  performance 
based  funding  (20%)  and  effectiveness  funding 
(10%). The effectiveness funding has the potential 
to  speed  up  transitions  from  education  to  work  or 
education  to  education  by  linking  part  of  the 
funding  to  success  rate  in  these  fields.  Further 
changes  to  the  legislation  are  being  prepared  and 
should come into force in 2021.   

40 

 
3.3. Labour market, education and social policies 

Box 3.3.2: Reaching the 75 % employment rate target 

The government has set a target to increase the employment rate for 15-64 years old to 75% 
by  2023.  The  employment  rate  for  this  age  group  stood  at  72.1%  in  2018.  According  to  the 
government’s  initial  estimation,  reaching  the  target  would  require  around  60,000  new  jobs 
compared  to  the  Ministry  of  Finance  forecast  (spring  2019) (1).  Based  on  Eurostat  population 
projections  for  2023,  the  75%  employment  rate  objective  would  require  additional  86,000 
employed compared to the 2018 level. In 2019, the employment rate continued to grow to reach 
72.9%  by  the  third  quarter.  Nevertheless,  the  target  appears  very  ambitious,  as  employment  is 
historically  high  whereas  economic  growth  is  forecast  to  slow  down.  However,  the  example  of 
Sweden  (77.5%  employment  rate  in  2018)  shows  that  it  is  possible  to  reach  an  above  75% 
employment rate in a similar economic and social context.             

Graph 3.3.6a: 

Employment rate by age and gender, 2018 

Source: Eurostat 

While the overall employment rate is above the EU average, it falls short of Finland’s Nordic 
peers.    The  employment  rate  of  working-age  men  is  even  below  EU  average.  The  female 
employment rate is better than the EU average, for all age groups except 30-34 year-old, and it is 
better than the male one for young (15-24) and old (50-64) cohorts. This is the result of structural 
changes during the last decade as the drop in employment in the industry (drop of 47,900 jobs in 
total, 30,000 for men) and the shift towards services disproportionately affected male workers (2).  

Making work pay in all circumstances is paramount to reaching higher employment. One of 
the reasons for inactivity and unemployment are disincentives to work due to the comprehensive 
and  complex  social  security  system  that  creates  traps.  The  caring  responsibilities  that 
disproportionately  affect  women,  own  illness  and  disability  that  affect  more  men  as  well  as 
relatively low regional mobility, are additional reasons that limit employment opportunities. Since 
the Finnish social security system includes cash-benefits, benefits-in-kind and other services, all of 
these  sides  need  to  be  taken  into  consideration  when  reforming  the  system.  To  further  improve 
incentives  to  take  up  work,  the  social  security  system  could  better  balance  work-related  income 
and benefits to ensure that working would be financially more rewarding than receiving benefits in 

41 

0102030405060708090100FMFMFMFMFMFMFMFMFMFM15-1920-2425-2930-3435-3940-4445-4950-5455-5960-64FINordic peers (SE/DK)EU average 
   
3.3. Labour market, education and social policies 

all circumstances. A step in the right direction could be streamlining the reinstating of the benefits 
and  making  it  more  transparent  through  the  real-time  income  register  put  forward  by  the 
government in 2019. The register’s information is used for adjusting the unemployment benefit to 
the income from work at the time it is actually paid to an individual. This could make short-term 
and  part-time  work  more  attractive,  thus  having  a  positive  impact  on  employment.  Finland  is 
behind other Nordics on the proportion of part-time work. 

Participation in active labour market measures, especially incentives to look for jobs, has a 
key role in tackling unemployment. The government has decided to discontinue the active model 
that  was  introduced  in  2018  (see  also  Section  3.3.1).  While  there  is  some  uncertainty  about  the 
employment  results  of  the  model,  participation  in  active  labour  market  measures  has  clearly 
increased.  This  could  be  due  to  the  penalties  that  were  introduced  as  part  of  the  model  and  to 
regular  interviews,  which  will  remain  in  place.  In  addition,  the  supply  of  active  labour  market 
measures  increased  with  the  introduction  of  the  model.  Its  discontinuation  may  have  a  negative 
impact  on  employment,  even  though  unemployed  may  still  lose  their  right  to  unemployment 
benefits for a fixed period in case of not participating in active labour market measures and in the 
regular interviews. It is essential that the government, together with social partners, come up with 
a  system  that  ensures  that  the  unemployed  actively  participate  in  measures  that  foster  their 
employability  and  that  they  actively  apply  for  available  jobs.  Coupling  activity  requirements 
and/or  compliance  with  employment  plans  with  a  credible  threat  of  penalties  could  increase 
effectiveness  of  the  policies.  The  recent  decisions  to  increase  funding  for  active  labour  market 
policies,  in  particular  for  subsidised  salaries,  and  the  improvement  of  service  provision  by 
integrating  relevant  services  could  have  a  positive  impact  on  employment,  if  they  are  properly 
designed and focused on the most vulnerable groups. 

Many  groups  require  special  attention  to  increase  their  employment  opportunities.  Youth 
unemployment has improved substantially in 2018, but it remains above the EU average (17% vs 
15.2%). Activation of the unemployed was successful in recent years and should remain a priority 
in  the  future,  especially  for  those  who  are  the  most  difficult  to  activate.  Since  the  2017  pension 
reform, the employment rate for the over 55 years old has increased and should continue to rise. 
However, the extended unemployment insurance benefits for older workers partly contribute to the 
unemployment  in the oldest  groups, creating an  ‘unemployment tunnel’  towards retirement.  The 
decision  to  increase  the  minimum  eligibility  age  by  one  year  could  decrease  the  number  of 
unemployed by 7,400 persons by the end of 2025 (Reipas, 2019 ).  A gradual phasing out of the 
‘unemployment tunnel’ could increase employment in the older cohorts and have a positive impact 
on  the  effective  pension  age.  Other  groups  with  unused  labour  potential  that  require  specific 
attention are people with partial work ability and migrants. Measures to increase the employment 
of those on a disability pension are already in the pipeline, and the integration system for migrants 
has  been  reformed  thoroughly  in  the  past  few  years.  However,  the  demand  side  might  be 
insufficient  to  open  up  job  opportunities  for  these  groups  who  often  suffer  from  long-term 
unemployment.  In  this  respect,  the  government’s  plans  to  increase  subsidised  salaries  could 
overcome some reluctance of private sector companies to hire long-term unemployed. To optimise 
the  positive  impact,  the  salary  subsidies  could  be  coupled  with  relevant  labour  market  trainings 
and with close follow-up by public employment services (PES). 

Boosting  labour  migration  could  also  contribute  to  reaching  the  objective.  Finland  has 
streamlined  the  application  process  for  work-based  residence  permits.  However,  some  obstacles 
remain  that  discourage  recruitments  from  abroad.  For  people  with  no  specific  skills,  the 
employment process is two staged: the Employment and Economic Development Office makes a 
partial decision on the application, and, only after that, the Immigration Service can make the final 
decision. Specialists, top or middle managers and researchers undergo a one-stage process, but the 
handling times can be up to 4 months. In the sectors where competition of specialists is high, such 
as  in  the  information  and  communication  services  sectors,  long  handling  times  constitute  a 
disadvantage  for  Finnish  companies  vis-à-vis  their  foreign  competitors.  In  parallel,  a  successful 

42 

 
3.3. Labour market, education and social policies 

integration  of  foreign  students  could  be  an  asset  for  the  Finnish  labour  market.  The  number  of 
foreign  students  in  the  Finnish  universities  was  over  21,000  in  2018  (Opetushallitus,  2019). 
However, at the end of the studies, the administrative burden of costly residence permit processes 
may discourage the graduates from staying in Finland. The Sipilä  government introduced a new 
type  of residence permit  for  growth and start-up entrepreneurs. However, the  handling  times for 
residence  permits  are  still  rather  long,  even  for  these  types  of  permits  (up  to  5  months).  The 
responsibility of labour and student migration was transferred to the Ministry of Economic Affairs 
and  Employment  starting  from  1  January  2020.  This  shift  is  expected  to  strengthen  the  links 
between migration policies and promotion of employment.   

The government has set up a ministerial working groups with seven tripartite sub-groups to 
prepare  the  needed  labour  market  reforms.  The  working  groups  are  focusing  on:  1)  service 
structure  of  labour  market  policy;  2)  pay  subsidies  and  other  benefits,  including  unemployment 
benefits; 3) promotion of fitness for work and employment of persons with partial work ability; 4) 
matching  skills  with  labour  market  needs;  5)  work  related  migration,  including  integration;  6) 
labour law; and 7) local bargaining. Some  initial results of the  working  groups  have already  fed 
into the 2020 budget, such as the increase of allocation to subsidised salaries. However, the main 
policy  recommendations  are  expected  to  be  published  by  spring  2020.  Concrete  policy  actions 
with  assessed  employment  and  budgetary  impacts  are  expected  in  the  2021  budget.  The  policy 
measures and reforms should take into account both supply and demand sides. 

Due  attention  would  have  to  be  devoted  to  good  working  conditions  and  future  labour 
market developments. In the context of a well-performing social safety net system, the outreach 
to more vulnerable populations with complex barriers and attracting foreign workers are likely to 
be more successful, if the quality and attractiveness of vacancies are maintained and if taking up a 
job is profitable. Impact assessments could be necessary to ensure that all proposed measures are 
conducive to achieving the target and the largest possible synergy between them. The demand side 
could also be affected, positively or negatively, by the  outcome of the current bargaining round. 
Maintaining  the  labour  market  relevance  of  the  education  and  training  system  and  further 
stimulating the high participation rates in adult learning will remain essential to provide workers 
with the skills needed for the future.  

(1)  This  forecast  is  prepared  independently  by  the  Ministry  of  Finance  Economics  Department based  on the  Act  on  the 
implementation of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union and on 
multi-annual budgetary frameworks (869/2012). 

(2)  Eurostat, lfsa_egan2 

43 

 
 
3.4. COMPETITIVENESS, REFORMS AND INVESTMENT  

There  is  an  increasing  gap  in  productivity 
performance  across  Finnish  firms.  Productivity 
growth over the last decade has been concentrated 
in  the  most  productive  firms  (top  10%),  whereas 
the  bottom  10%  of  firms  have  stagnated.  This 
resulted  in  an  increasing  gap,  even  across  firms 
within the same sector. The gap has also increased 
between  small  and  large  firms,  both  in  terms  of 
labour  productivity  and  TFP,  with  large  firms’ 
productivity  growing  faster.  Weak  productivity 
affected  mostly  firms  in  the  non-exporting  sector. 
Therefore,  it  seems  that  productivity  is  growing 
only in a small proportion of firms ‘at the frontier’, 
while stagnating elsewhere.   

Graph 3.4.2:  Total factor productivity (TFP) (2000=100) 

3.4.1.  PRODUCTIVITY AND INVESTMENT TRENDS 

in  some 

Real  labour  productivity  declined  in  2018,  as 
industrial  subsectors 
value  added 
markedly  decreased.  Labour  productivity  has 
suffered  a  significant  setback  with  the  crisis  and 
has  not  caught  up  with  Finland’s  Nordic  peers 
since  then  (see  Graph  3.4.1).  This  primarily 
reflected  the  setback  of  Finland’s  electronics 
sector.  Moreover,  continuing  wage 
increases 
immediately  after 
the  crisis  affected  cost 
competitiveness  and,  thereby,  economic  output 
(Finnish  National  Productivity  Board,  2019)  (see 
Graph 3.4.1). The progressive recovery that started 
in  2014,  and  accelerated  in  2016-2017,  halted  in 
2018. This partly reflects the cyclical effects of the 
economic  slowdown, as employment continued to 
increase  strongly  (2.6%),  while  external  demand 
fell  and  investment  in  equipment  declined,  which 
particularly affected the manufacturing sector. 

Graph 3.4.1:  Labour productivity per person and hour 

worked in PPS (EA=100) 

Source: European Commission 

Total  factor  productivity  (TFP)  has  been 
stagnant  since  2017  (see  Graph  3.4.2)  and 
remains  below  that  of  Finland’s  Nordic  peers. 
Following two years of strong growth in 2016 and 
2017,  TFP  growth  decreased  in  2018.  While  TFP 
in Finland remains close to the euro area average, 
it  falls  short  of  levels  observed  in  a  peer  country 
such as Sweden, where TFP growth grew by 13% 
since 2000, compared to only 7% in Finland. 

Source: European Commission 

Several  drivers  may  explain  this  trend  of 
divergence.  Technological  diffusion  across  firms 
seems to have  weakened, in part because of  weak 
investments  and  training  in  laggard  firms.  At  the 
same time, firms ‘at the frontier’ are more likely to 
be  exporters,  and  production  for  exports  is  highly 
concentrated in Finland.  

The relative proportion of high-growth firms in 
Finland remains low, but the highest shares are 
observed 
services. 
in  knowledge-intensive 
Despite  the  strong  performance  of  the  innovation 
ecosystem  (see  below  under  3.4.2)  and  the  high 
level  of  innovation-driven  entrepreneurship  in 
Finland,  the  relative  proportion  of  high-growth 
the  business 
firms 

in  Finland  (9.5%  across 

44 

90951001051101150506070809101112131415161718EUEuro areaFIDKSE95979910110310510710911111311500010203040506070809101112131415161718FISEDKEA19 
 
     
    
3.4. Competitiveness, reforms and investment  

Graph  3.4.3).  However,  this  represents  only  a 
partial recovery compared to its pre-crisis level.  

to 

future 

Some  structural  factors  are  holding  back 
investment  and  productivity  growth.  Finland’s 
investment remains close to, or even below the EU 
average for investment categories that are the most 
supportive  of  productivity  growth:  investment 
equipment  and  investment  in  intellectual  property 
products  (see  Section  1  and  Box  3.4.1).  At  the 
same  time,  according  to  the  EIBIS  Survey  2019 
(European  Investment  Bank,  2019),  the  most 
investment  are 
commonly  cited  barriers 
availability  of  skilled  staff  and  uncertainty  about 
the 
respondents 
(80%  and  73%  of 
respectively).  The  constrained  availability  of 
information and communication servicesexperts  is 
becoming  a  rising  concern  for  digitalisation  (see 
Section 3.3). Further possible obstacles include: i) 
the  still  limited  cooperation  between  businesses 
and  academia;  ii)  lack  of  coordination  of  smart 
specialisation  at  central  level  iii)  still  modest 
access  to  finance  for  seed  capital  companies 
(Flachenecker  et  al.,  2020).  Furthermore,  some 
structural  features  of  labour  market  institutions 
could also be holding back investment (see Section 
3.4.2).   

Investment needs (see also under Section 3.5) 

Research and Innovation  

R&D expenditure remains among the highest in 
the  EU,  but  remains  well  below  the  national 
2020  target of 4 %  of  GDP  and  also  falls  short 
of  Finland’s  Nordic  peers  (see  Graph  3.4.4). 
Finland  ranked  second  after  Sweden  in  the  EU  in 
Innovation  Scoreboard 
the  2019  European 
(European Commission, 2019d). Nevertheless, the 
technological  change,  which  contributed  to  the 
decline of the handset business and the consequent 
industrial  restructuring,  led  to  a  steep  decline  in 
business R&D expenditure (see Graph 3.4.5). The 
decline  was  mostly  driven  by  the  manufacturing 
sector and in particular by the electronics industry 
and  in  companies  with  over  500  employees.  In 
companies  with  less  than  500  employees,  the 
volume of R&D has actually grown in 2011–2018. 
Since  2016,  the  service  sector  has  accounted  for 
the majority of the increase in the Finnish business 
enterprise  sector’s  R&D  expenditure,  while  R&D 
expenditure  by  the  manufacturing  sector  as  a 
whole has only been slowly recovering (see Graph 

services 

economy) and their proportion in total employment 
are  still  below  EU  average  and  well  below  their 
Nordic peers. Nevertheless, the highest proportion 
of  high-growth  firms  is  found  in  knowledge-
intensive 
and 
and 
particularly 
intensive  market 
services,  such  as  employment  activities,  security 
and  investigation  activities,  postal  and  courier 
activities,  but  also  computer  programming  and 
consultancy, 
telecommunications 
(Flachenecker et al., 2020).   

in  knowledge 

transportations, 

and 

Graph 3.4.3:  Birth rate of enterprises in the information and 

communications services sector ‘(to be 
updated) 

Source: European Commission 

to 

scope 

seems 

to  be 

There 
improve 
productivity  growth  by  further  stimulating 
business  start-ups  in  Finland.  In  2017,  the  birth 
rate  of  businesses  in  Finland  was  at  9.6%  in  line 
with  the  EU  average  and  above  that  of  Sweden. 
Entry  rates  in  services  increased  from  8.3%  in 
2008 to 11% in 2017. However, this rise is largely 
explained  by  a  surge  of  companies  entering  the 
real estate sector. Excluding this sector, entry rates 
in  2017  remained  below  the  2008  level  (7.5%  in 
2008  versus  6.4%  in  2017).  The  entry  rate  for 
companies  with  10  or  more  employees  in  the 
business  services  sector  was  0.8%  in  2017  (up 
from  0.3%  in  2008),  below  the  EU  average  of 
1.5%  (Bauer  et  al.,  2020).  The  information  and 
communication  services  sector  has  experienced  a 
significant  increase  in  the  number  of  new-born 
businesses  (26%  in  2017,  after  4%  in  2016)  (see 

45 

05101520250708091011121314151617Enterprise births as a percentage of active enterprisesEU28DKNLFISE 
  
3.4. Competitiveness, reforms and investment  

3.4.6).  Overall,  addressing  the  R&D  challenge 
would  lead  to  progress  on  the  UN  sustainable 

development goal (SDG) 9 — Industry, innovation 
and infrastructure (see Annex E). 

46 

 
3.4. Competitiveness, reforms and investment  

Box 3.4.1: Investment challenges and reforms in Finland 

Section 1: Macroeconomic perspective 

Investment (share of gross fixed capital formation in GDP) increased in 2018, and remained well above the 
EU and euro area averages, contributing to progress on SDG8  — Decent work and economic growth (see 
Annex E). However, this high share is driven by the relatively high rate of construction investment, which, 
in 2018, accounted for 7.3% of gross value added. By contrast,  productive investment, such as equipment 
investment and investment in intellectual property products, remains below or at EU average (see Sections 1 
and 3.4).  

Section 2: Assessment of barriers to investment and ongoing reforms 

Table 3.2.1a: 

Assessment of barriers to investment and ongoing reforms 

Source: European Commission 

Finland is among the most advanced economies in the EU and offers one of the best business environments 
with continuous improvements. Moreover, Finland is among the best performers in digital technologies and 
clean energy innovation. However, Finland is among the most restrictive EU Member States as regards the 
sales of medicines. 

Business Finland is the main public funding agency in Finland. It helps businesses go global. It also supports 
and funds innovations. Funding awarded by Business Finland in 2018 amounted to €535 mln. 

Selected barriers to investment and priority actions underway 

1/ The most frequently cited obstacle for investment (EIB, 2019) is the availability of skilled staff, while the 
constrained  availability  of  information  and  communication  services  experts  is  a  rising  concern  for 
digitalisation going forward. However, Finland has an effective skills anticipation system to identify future 
challenges. Moreover, the 2020 budget includes a 12% increase in vocational education and a 5% increase in 
tertiary education.  

2/ There is potential for further increasing cooperation between academia and businesses and for subsequent 
translation of research into innovation. At the same time, coordination of smart specialisation at central level 
appears insufficient to consolidate regional smart specialisation strategies and to link them with the national 
R&D and innovation system. 

3/ Finland remains a modest performer in entrepreneurship and business creation. A the same time, lengthy 
procedures  for  obtaining  business  permits,  including  environmental  permits,  and  still  modest  access  to 
finance for ‘seed capital’ companies might constitute further impediments.  

47 

Regulatory/ administrative burdenTaxationPublic administrationAccess to financePublic procurement /PPPsCooperation btw academia, research and businessCSRJudicial systemFinancing of R&D&IInsolvency frameworkBusiness services / Regulated professionsCompetition and regulatory frameworkRetailEPL & framework for labour contracts ConstructionWages & wage settingDigital Economy / TelecomEducation, skills, lifelong learning EnergyCSRTransportLegend:No barrier to investment identifiedSome progressCSRInvestment barriers that are also subject to a CSRSubstantial progressNo progressFully addressedLimited progressNot assessed yetPublic administration/ Business environmentFinancial Sector / TaxationR&D&ISector specific regulationLabour market/ Education 
 
  
 
Public  R&D  investment  has  largely  stabilised. 
After  a  strong  decline  between  2010  and  2017, 
public R&D expenditure stabilised at 0.9% of GDP 
in 2017 and 2018. While public support to private   
R&D is directed mostly at small and medium-sized 
enterprises (SMEs), investment by SMEs in R&D 
remains  low,  when  compared  to  that  of  larger 
companies.  In  its  recent  programme,  the  new 
Finnish  government  has  committed  to  increasing 
public R&D investment and has kept the target of 
4 % of GDP for 2030 (see below).   

compete  with  countries  where  forests  grow  ten 
times  faster  and  harvesting  takes  place  all  year 
round.  At  the  same  time,  the  Technical  Research 
Centre of Finland, which has traditionally played a 
major role in supporting innovation in the business 
sector,  suffered  substantial  funding  cuts  and  lost 
some  of  its  co-financing  from  the  private  sector 
(24).  

Graph 3.4.4:  Development of R&D expenditure (as a 

proportion of GDP) 

level.  The 

Examples of successful academia-business links 
exist  at  regional 
research  and 
innovation  system  leads  to  high-level  academic 
performance (21). At the same time, the translation 
of research results into business innovation is less 
effective.  On  a  positive  note,  Aalto  University 
offers research and innovation services to students 
and businesses (22). In particular, Europe’s leading 
start-up  event  in  Europe,  ‘Slush’,  originated  in 
Aalto’s  student  community,  while  a  significant 
proportion  of  Finnish  start-ups  entrepreneurs  are 
Aalto  graduates.  Another  successful  example  is 
research  and  innovation  in  the  forest  industry, 
which  made  Finland  one  of 
the  world’s 
frontrunners  in  the  bio-economy  area.  Neste,  the 
former  state  petrol  company  of  Finland,  has 
emerged  as  an  example  of  a  fossil-fuel-based 
company turning to biofuels. Furthermore, Finland 
the 
has: 
bioeconomy; 
large 
forestry  resources;  and  iii)  generated  excellent 
research in the area of wood-derived materials. Its 
largest  bio-product  mill  in  Äänekoski  received 
investment funding from the European Investment 
Bank  and 
the  European  Fund  for  Strategic 
Investments  (23).  Numerous  research  projects 
develop novel products from wood fibres. Cutting-
edge  research  and  technology  allows  Finland  to 

i)  devoted  substantial 

sustainably  managed 

funding 

ii) 

to 

(21)  The  country  has  a  relatively  strong  scientific  performance 
(ranked 6th  and  10th  in  the  EU  in  terms  of  top  publication 
and  international  co-publications),  even  though  its  Nordic 
peers outperform it. 

(22)  For  example,  incubator,  business  modules  and  web-based 

information technology courses.  

(23)  The  cost  of  the  plant  was  €1.2  billion,  of  which  €200 
million  was  a  loan  from  the  European  Investment  Bank. 
The European Fund for Strategic Investments guaranteed a 
€75  million  loan,  as  announced  during  the  launch  of 
‘Investment  Plan 
in  July  2015.  The 
Government  provided  €32.1  million  state  aid  supporting 
renewable  energy  and  energy  efficiency  investments.  In 
addition,  state-owned  Finnvera  guaranteed  a  €400  million 
loan. 

for  Europe’ 

Source: European Commission 

and 

country’s 

Recent policy initiatives aimed at strengthening 
the 
innovation 
research 
performance  are  being 
implemented.  The 
merging  in  2018  of  Tekes  (Finnish  Funding 
Agency  for  Technology  and  Innovation)  and 
Finpro  (Finnish  Export  Promotion  Agency)  into 
Business Finland, together with structural changes 
to  the  Finnish  Innovation  Fund  Sitra,  aimed  at 
exploiting synergies and at strengthening Finland’s 
research  and  innovation  performance  (Halme  et 
al., 2020). More recently, the new government has 
acknowledged  the  need  to  promote  Finland’s 
attractiveness 
to  encourage  both  foreign  and 
domestic  R&D  investment.  In  addition,  the  new 
government’s  fiscal  plans  include  an  increase  in 
additional 
expenditure 
education 
and 
investment 

environment 

research, 

on 
in 

and 

(24)  The  VTT  Technical  Research  Centre  of  Finland  Ltd  is  a 
state-owned  and  -controlled  non-profit  limited  liability 
company. It provides research and innovation services and 
information  for  domestic  and  international  customers  and 
partners, both in private and public sectors. VTT is part of 
Finland's  innovation  system  and  operates  under 
the 
mandate  of 
the  Ministry  of  Economic  Affairs  and 
Employment. 

48 

1.52.02.53.03.54.009101112131415161718as a proportion of GDPSEDKFIEAEU 
 
                                                           
    
                                                           
3.4. Competitiveness, reforms and investment  

and 

information 

in the Small Business Act (25). In addition, Finland 
has  the  highest  proportion  of  venture  capital 
investment  in  Europe  (mostly  concentrated  in  the 
and 
manufacturing 
communication  technology  sectors)  (Flachenecker 
et  al.,  2020).  Also,  according  to  the  World  Bank 
‘Doing Business’ indicators’  (World Bank, 2020), 
Finland  often  scores  among  the  top  performing 
countries worldwide. Moreover, a bill entered into 
force  in  July  2019  that  removed  the  capital 
requirement  of  €2,500  for  registering  a  private 
limited  liability  company  (it  is  now  possible  to 
establish  such  a  company  without  minimum 
capital), along  with other simplification  measures. 
Finland  ranks  best  in  the  world  for  resolving 
insolvency  cases.  In  2019,  amended  bankruptcy 
legislation  was  passed  by  Parliament  to  further 
speed up bankruptcy proceedings. 

Graph 3.4.6:  Research and development expenditure by 

industry and year (current prices)  

Source: Statistics of Finland 

not 

has 

sector 

though 

the  planned  reform  of 

Liberalisation  is  ongoing  in  the  retail  sector, 
the 
even 
pharmacy 
advanced 
substantially.  A  series  of  reforms  aimed  at 
improving the regulatory environment in the retail 
sector  have  been  carried  out  over  recent  years. 
They  included  liberalising  the  opening  hours  of 
shops,  and  amendments  to  the  Land  Use  and 
Building  Act  (132/1999)  in  2017.  Currently,  the 

(25)  The  Small  Business  Act  (SBA) 

is  an  overarching 
framework  for  the  EU  policy  on  small  and  medium-sized 
enterprises  (SMEs).  It  aims  to  improve  the  approach  to 
entrepreneurship  in  Europe,  simplify  the  regulatory  and 
policy  environment  for  SMEs,  and  remove  the  remaining 
barriers to their development.  

infrastructure in order to increase the international 
competitiveness 
research 
the 
framework.  

Finnish 

of 

Graph 3.4.5:  Trend of public and business R&D expenditure 

intensity by sectors of performance (as a 
proportion of GDP) 

BERD: business R&D expenditure 
GovERD: government R&D expenditure 
HERD: higher education R&D expenditure 
Others: private non-profit sector R&D expenditure 
Source: European Commission 

There  are  promising  developments  regarding 
smart  specialisation  in  Finland’s  regions,  but 
there  remains  insufficient  coordination  of  the 
process  at  central 
level.  In  Finland,  smart 
specialisation  is  tightly  linked  with  smart  regions. 
Finland’s  aim  for  2014-2020  was  to  complement 
regional  strategies  with  the  national  innovative 
cities (INKA) programme. One of its goals was to 
match  the  objectives  of  the  national  innovation 
strategy  and  regional  R&I  strategies  (Suomen 
kumppanuussopimus,  2014-2020).  However,  the 
programme was abolished in 2017. At present, it is 
not  clear  how 
regional  smart  specialisation 
strategies  will  be  consolidated  and  linked  to  the 
national R&D and innovation system. In particular, 
it  is  not  clear  which  tool  or  which  body  will  be 
used to achieve this. 

3.4.2.  BUSINESS ENVIRONMENT AND MARKET 

INTEGRATION 

Overall, Finland offers one of the best business 
environments 
there  are 
continuous improvements. Finland is performing 
better  than  EU  average  for  most  of  the  indicators 

in  Europe,  and 

49 

0.000.501.001.502.002.503.000506070809101112131415161718as a proportion of GDPBERDGOVERD + HERD 
      
      
                                                           
to 

account  of 

Finnish  authorities  are  working  on  a  further 
comprehensive  reform  of  the  Land  Use  and 
Building  Act 
recent 
take 
developments  in  the  construction  sector  and  to 
allow  for  more  strategic  planning,  particularly  in 
urban  areas.  The  draft  law  should  be  ready  in 
2020. The  2017  amendments  to  the  legislation  on 
retail are being evaluated to assess their fitness for 
the  changing  retail  environment  and  evolving 
consumer  preferences.  In  the  pharmacy  sector, 
reform bills are being prepared, although, with the 
change  in  government,  the  scope  seems  to  have 
been  revised,  with  less  ambition  to  open  up  the 
market  to  private  operators.  Currently,  strict  rules 
on  establishing  pharmacies  as  well  as  price 
controls  for  medicines,  including  non-prescription 
the  most 
medicines,  place  Finland  among 
restrictive  EU  Member  States  as  regards  the  sales 
of medicines. 

previous 

continued 

Nevertheless,  there  is  scope  to  improve  some 
aspects  of  the  business  environment  such  as 
permits and the level of entrepreneurship. There 
seems  to  be  scope  to  further  simplify  business 
permits, including environmental permits. In 2018, 
the 
its 
government 
deregulation programme ‘Norminpurku’ and some 
small  initiatives  focused  on  streamlining  permits 
and  appeal  processes.  According  to  the  Small 
Business  Act,  in  Finland,  the  time  required  to 
transfer  property  is  about  47  days,  double  the  EU 
average.  Access  to  finance  remains  easier  than  in 
most  EU  countries,  but  remains  modest  for  ‘seed 
capital’ companies (Flachenecker  et al., 2020)(26). 
Moreover,  the  cost  of  borrowing  small  amounts 
relative  to  large  loans  is  higher  than  the  EU 
average  (see  Section  3.2).  While  the  governments 
have  put  several  policy  initiatives  in  place  over 
recent  years,  the  indicator  ‘Entrepreneurship  as  a 
desirable  career  choice’ 
remains  below  EU 
average. At the same time, the level of innovation-
driven  entrepreneurship  in  Finland  is  above  EU 
average.  Nevertheless,  there  seems  to  be  scope  to 
further  stimulating  business  entry  in  Finland  (see 
above  under  3.4.1).  The  new  government  is 
planning  to  further  broaden  the  scope  of  the 
entrepreneurial strategy.  

(26)  Seed capital is the initial funding used to begin creating a 
business  or  a  new  product.  Obtaining  seed  capital  is  the 
first  of  four  funding  stages  required  for  a  start-up  to 
become an established business. 

3.4. Competitiveness, reforms and investment  

the  new  working 

Some  structural  features  of  labour  market 
institutions  could  be  holding  back  economic 
dynamism. At the last round of wage negotiations, 
pay rises in the non-tradable sector were linked to 
the  increases  agreed  in 
the  tradable  sectors. 
Contrary  to  the  system  in  Sweden,  no  formal 
agreement  was  reached  on  applying  this  model. 
This  absence  of  formal  agreement  could  increase 
the  uncertainty  about  the  level  of  wage  increases 
across sectors (see Section 3.3). Some obstacles to 
for  non-organised 
local  bargaining  persist 
employers.  However, 
time 
arrangement  that  entered  into  force  on  1  January 
2020 should open up possibilities for wider use of 
flexible  working  time  arrangements,  also  in  non-
organised  enterprises.  Non-compete  agreements 
(27)  might  hinder  job-to-job  transitions.  At  the 
same  time,  small  and  medium-sized  enterprises 
incur  proportionally 
costs 
compared to other firms, and clauses that specify a 
minimum employment period when it comes to re-
employing  someone  are  considered  a  deterrent  by 
employers (International Monetary Fund, 2018). In 
this context, a new piece of legislation entered into 
force  in  September  2019,  allowing  courts  to  take 
the size of the firm into account when considering 
dismissal  cases  and  reducing  from  90  to  60  days 
the  period  during  which  individually  dismissed 
workers would not receive unemployment benefits. 

larger  dismissal 

Digitalisation  

Finland is among the best performers in the EU 
in  terms  of  both  digital  enablers  and  digital 
transformation  (European  Commission,  2019e). 
The  Finnish  government  has  invested  over  €100 
million, 
including  direct  capital  funding  and 
regional  grants,  to  support  digital  projects  run  by 
the  local  authorities  in  2018-2022.  The  planned 
regional  digitalisation  process  will  require  new 
legislation  on  information  management  and  the 
establishment  of  a  one-stop-shop  service  system. 
Actions include defining the priority areas such as 
clean-tech, 
and 
communication  technologies  and  health  to  focus 
investment  on  technology-intensive  sectors  with 
the  potential 
the 
proportion  of  organisations  with  effective  risk 
management  approaches  to  cybersecurity  remains 
In  particular,  small  and  medium-sized 
low. 

for  upscaling.  However, 

bio-economy, 

information 

(27)  Commitments  by  employees  not  to  carry  out  a  similar 

activity within 6 months after leaving a firm. 

50 

 
                                                           
                                                           
3.4. Competitiveness, reforms and investment  

worth  about  €35  billion  annually),  focusing  on 
larger  contracts  and  a  more  uniform  system  for 
public tendering. The merger is expected to lead to 
savings of up to 20% and will also help harmonise 
practices  to  make  access  to  public  procurement 
easier  for  companies.  The  merger  will  also  help 
coordinate  large-scale  improvement  programmes 
for procurement. In parallel, Finland aims to fully 
digitalise its procurement system by 2021.  

public 

services 

available, 

Finland excels in offering efficient digital public 
services  and  is  one  of  the  world  leaders  in  the 
field.  The  Finnish  government  has  prioritised  the 
digitalisation  of  public  services,  presenting  it  as  a 
transversal  theme  cutting  across  all  milestone 
projects.  The  ultimate  goal  is  to  make  digital  and 
by 
user-centred 
developing: i) principles  for  digitalising all public 
services; and ii) a one-stop-shop service system for 
citizens  and  businesses,  backed  by  the  necessary 
legislation  on  information  management.  Finland’s 
success  is  specifically  thanks  to  the  improved 
availability  of  open  data  and  digital  healthcare 
services.  Online 
interaction  between  public 
authorities  and  the  public  is  high,  as  92%  of 
Finnish  online  users  actively  engage  with  e-
government services.  

3.4.4.  REGIONAL DIMENSION 

There  are  strong  disparities 
in  economic 
performance at regional and local level. Helsinki 
contributed  36%  to  the  country’s  overall  growth 
between 2000 and 2017. The other two main cities, 
Tampere  and  Turku,  further  added  7%,  but  their 
performance  over  that  period  was  considerably 
below  the  national  average  of  18%  due  to  strong 
GDP  contraction  during  the  economic  crisis. 
Several  intermediate  (28)  or  predominantly  rural 
areas grew economically more over this period, but 
their  performance  differed  significantly  from  a 
contraction  of 
to  an 
expansion  of  26%  in  Ostrobothnia  (Organisation 
for  Economic  Co-operation  and  Development, 
2019e). 

in  Kymenlaakso 

-7% 

(28)  ‘Intermediate’, if the proportion of the population living in 
rural local units is between 15% and 50%; ‘predominantly 
rural’,  if  the  proportion  of  the  population  living  in  rural 
local units is higher than 50% (Organisation for Economic 
Cooperation and Development, 2011). 

(SMEs)  are 

lagging  behind 

risk  management. 

in 
enterprises 
that  concern  digital 
implementing  practices 
security 
addition, 
FinnishSMEs are to some extent lagging behind in 
online  trade  within  and  beyond  the  EU.  Specific 
initiatives  may  help 
their  e-
commerce  business  and 
the  use  of  new 
technologies. 

increase 

them 

In 

The  government  plans  to  continue  setting  up  a 
real  time  economy.  This  means  that  information 
on  business  transactions  is  to  be  transferred  in 
electronic  format  and  in  real  time  from  one 
company  to  another  and  from  companies  to  the 
authorities.  For  the  information  exchange  to  work 
automatically,  receipts  and  invoices  need  to  be  in 
electronic  format.  The  Finnish  State  Treasury  has 
been  developing  e-invoicing  and  electronic 
receipts,  and  now  the  work  is  continuing  on  a 
Nordic level through the Nordic smart government 
project. The Finnish Patent and Registration Office 
in  collaboration  with  the  State  Treasury  and  the 
Tax Administration lead this  project for Finland’s 
part. 

is  a  member  of 

Finland  is  committed  to  advancing  new  digital 
technologies  and  to  investing  strategically  in 
them  through  EU-coordinated  programmes. 
the  Euro-High-
Finland 
Performance-Computing-Joint  Undertaking.  It  has 
also  signed  the  Declaration  on  Cooperation  on 
Artificial 
for 
supercomputing  centres  have  been  selected  across 
the EU to host the first European supercomputers. 
One of the hosting sites will be located in Finland 
at Kajaani. 

Intelligence. 

Eight 

sites 

3.4.3.  INSTITUTIONAL QUALITY 

is  a 

top  performer 

Finland 
in  public 
administration  and  governance  and  continues 
to  maintain  its  competitive  edge.  The  public 
procurement  system  is  being  modernised.  The 
merger  of  the  two  main  procurement  bodies 
(Hansel  and  KL-Kuntahankinnat)  eventually  took 
place in September 2019, instead of January 2019 
as  initially  planned.  The  rationale  behind  this 
merger  is  to  create  a  single  national  purchasing 
body, serving contracting authorities at all levels of 
government.  The  merger  is  expected  to  increase 
efficiency 
procurement 
expenditure  (representing  about  16%  of  GDP  and 

centralise 

and 

to 

51 

 
                                                           
3.4. Competitiveness, reforms and investment  

the  EU  on  average  (30).  Still, 
considerable  gap 
Helsinki and North and East Finland.  

is  a 
(approx.  20  pps)  between 

there 

(30)

https://ec.europa.eu/regional_policy/en/information/

maps/regional_competitiveness 

Productivity  growth  is  steady  across  Finnish 
regions.  Productivity  is  slowly  recovering  from 
losses  incurred  during  the  2008  economic  crisis, 
although  productivity  remains  below  pre-crisis 
levels.  However,  even  in  the  least  productive 
region,  North  and  East  Finland,  productivity  is 
clearly  above  the  EU  average.  At  the  same  time, 
the productivity patterns appear largely static, with 
unchanged  ranking  over  the  last  18  years  (see 
Graph 3.4.7). Between 2000 and 2017, the changes 
in  labour  productivity  were  modest:  from  2 %  in 
Åland to 11 % in North and East Finland.  

Graph 3.4.7:  Regional value added per worker 

Source: European Commission 

Finnish  regions  benefit  from  higher  quality 
governance than the EU on average. All Finnish 
regions register a very strong performance in terms 
of quality of governance: all regions mark at least 
around  80  against  an  EU  average  of  49  in  the 
European  Quality  of  Governance  Index  (29).  As  a 
result,  Finnish  regions  are  more  competitive  than 

is 

(29)  The  European  Quality  of  Government  Index  (EQI),  2017 
edition, developed by the Quality of  Government  Institute 
of  Gothenburg  University, 
the  only  measure  of 
institutional  quality  available  at  the  regional  level  in  the 
European Union. Institutional quality is defined as a multi-
dimensional  concept  consisting  of  high  impartiality  and 
low 
quality  of  public  service  delivery,  along  with 
corruption. Funded by the European Commission in 2010, 
2013 and 2017, the EQI aims at capturing average citizens’ 
perceptions and experiences with corruption, and the extent 
to which they rate their public services as impartial and of 
good 
residence. 
https://ec.europa.eu/regional_policy/en/information/maps/q
uality_of_governance 

quality 

region 

their 

of 

in 

52 

556065707580859095100105000102030405060708091011121314151617thousands of EUR per  personHelsinkiOther NUTS2 regionsEU28Finland's average 
     
                                                           
                                                           
 
3.5.  ENVIRONMENTAL SUSTAINABILITY 

Sustainable development governance 

track 

Finland  has  a  good 
record  on 
environmental  sustainability  and  governance. 
Finland has an action plan on ‘open government’, 
which encourages citizens to participate across the 
board. While education plays an important role in 
training experts in the circular economy, Finland is 
paving the way by including ‘circular economy’ in 
university  curricula.  Moreover,  as  Finland  uses 
about €35 billion annually for public procurement, 
(16% 
for  European 
Environmental  Policy,  2019),  it  has  introduced  a 
national strategy on green public procurement with 
specific  targets  for  central,  regional  and  local 
governments.  The  strategy  has  set  targets  that 
time.  Finnish  SMEs 
gradually 
perform 
the 
the  EU 
environmental  dimension  of  the  Small  Business 
Act (European Commission, 2018d). 

increase  over 
above 

of  GDP; 

Institute 

average 

in 

EU emissions trading  scheme are still  higher than 
the  2020  target  and  reaching  carbon  neutrality  by 
2035 will require additional measures to deal with 
emissions  in  these  sectors.  To  achieve  the  carbon 
neutrality objective, emissions reduction measures 
will  need  to  address  all  greenhouse  gas  emissions 
sources. Currently, although the energy mix of the 
country  is  already  80%  carbon-free,  the  energy 
supply  sector  still  represents  31%  of  the  total 
(20%), 
emissions 
manufacturing 
(7%). 
Mitigation  policies  will  also  need  to  factor  in  the 
decrease  of  Finland’s  forest-based  carbon  sink 
witnessed  in  recent  years,  which  may  further 
challenge  the  country’s  objective  of  achieving 
carbon  neutrality.  Given  the  weight  of  the  forest 
sector in Finland’s economy (second largest export 
sector),  policies  affecting 
sector  bear 
significance both for the economy and the climate 
policy. 

(31),  ahead  of 
(12%) 

transport 
and  buildings 

the 

faster  pace 

A 
economy  

towards  a  carbon  neutral 

The new government programme for 2019-2023 
includes  an  ambitious  objective  of  attaining 
carbon  neutrality  by  2035.  Finland  has  fully 
embraced  climate  objectives 
its  domestic 
policies  and  the  government  has  stepped  up 
ambitions  by  setting  an  objective  to  reach  carbon 
neutrality  by  2035.  Reaching  this  target  will 
require  a  comprehensive  set  of  policies  and 
measures in a whole-economy approach. 

in 

starts 

Accordingly, 
the 
the  government 
preparation  of  a  medium-term  climate  change 
policy plan in 2021, as laid down in the Climate 
Change Act. The government also plans to amend 
the  country’s  original  Climate  Change  Act  to 
include  legally  binding  greenhouse  gas  emission 
reduction  targets,  including  land  use,  land  use 
change  and  forestry.  It  will  be  important  to  offset 
any  negative 
regional  economic  and  social 
impacts, including energy poverty. 

significant 
including 

increased  ambition  needs  to  be 
Finland’s 
step-up  of 
translated 
into  a 
mitigation  policies, 
for 
those 
emissions  in  sectors  not  covered  previously. 
Greenhouse-gas  emissions 
in  Finland  have 
decreased at the same pace as in the EU as a whole 
(-20.5%  in  2017  since  1990).  However,  the 
country’s  emissions  in  sectors  not  covered  by  the 

The government’s climate policies are expected 
to have a significant impact on the structure of 
the  national  budget,  and  given  the  increased 
ambition,  this  effect  could  become  manifest  at 
an  earlier  stage.  The  government  has  announced 
an  overhaul  of  energy  taxation  to  help  achieve  a 
carbon  neutral  economy  and  to  benefit  renewable 
energy.  It  has  notably  pledged  to  phase  out  fossil 
fuel subsidies for oil, coal and, possibly, peat. Tax 
expenditure  allocated  to  the  energy  sector  is 
expected to decrease and consumption taxes are to 
include  a  CO2-content  element.  Mining  activities 
will  be  removed  from  the  scope  of  the  tax  rebate 
for  energy-intensive  companies,  while  the  rebate 
itself  will  be  abolished  over  a  transition  period, 
with  cost  neutrality  to  be  achieved  by  means  of 
tax.  However,  no 
reducing 
assessment of the measures’ environmental impact 
is  available  at  this  stage  (32).  To  ensure  that  the 
transition  to  a  climate  neutral  economy  leaves  no 
one behind, the government will need to take into 
account the distributional effects of environmental 
taxation  and  its  effects  on  the  most  vulnerable 
households (European Commission, 2019f). 

the  electricity 

(31)  Sectoral  GHG  emissions:  https://www.eea.europa.eu/data-
and-maps/data/data-viewers/greenhouse-gases-viewer  
(32)  In  connection  with  the  budget  negotiations  of  the  2020 
budget, the Government announced that it intends to launch 
preparatory work aimed at making cuts to environmentally 
harmful  subsidies  and  redirect  the  funds  released  to  more 
productive  and  sustainable  uses.  Decisions  based  on  this 
preparatory work are scheduled for autumn 2020. 

53 

 
 
                                                           
3.5. Environmental sustainability 

clean  energy  and  SDG  12  –  Responsible 
consumption and production (see Annex E). 

its  2020  renewable 
Finland  already  meets 
energy target. The proportion of renewables in the 
gross  final  energy  consumption  stood  at  41%  in 
2018,  3  pps  above  the  target,  thanks  notably  to 
contributions  of  biomass  (29%  of  total  energy  in 
2017) and wind (7% of electricity). The proportion 
of renewables is expected to keep increasing in the 
future,  with  the  final  NECP  indicating  a  target  of 
51%  in  2030  (in  line  with  the  Commission 
recommendation). This would contribute to further 
progress on SDG7 — Affordable clean energy —, 
on  SDG12  —  Responsible  consumption  and 
production  —  and  on  SDG13  —  Climate  action 
(see Annex E). 

Moving  towards  more  sustainable  transport 
and  housing  can  bring  along  considerable 
savings.  As  transport  alone  accounts  for  one  fifth 
of  Finland’s  emissions,  it  will  play  a  key  role  in 
reaching  carbon  neutrality.  The  new  government 
has  set  an  ambitious  target  of  halving  transport 
emissions  by  2030,  through  tightening  fossil  fuel 
taxation  and  subsidising  the  electrification  of 
transport.  Further  investment  in  railways  is  also 
planned  (see  below  under  ‘Sustainable  transport 
infrastructure  investment’).  Studies  suggest  that 
improving the energy efficiency of buildings could 
reduce  total  heating  demand  by  half  (MEAC, 
2017). 

Low carbon and energy transition investment 

The  planned  transformation  towards  carbon 
neutrality  is  expected  to  require  substantial 
investment,  particularly  in  the  energy  sector. 
The  largest  investment  needs  are  identified  in  the 
area of electricity networks.. Total investments by 
distribution  grid  companies  amounted  to  €9.5 
billion for 2016-2028. Finland is already above the 
EU  target  level  for  electricity  interconnection  for 
each Member State in 2020 (10%) and, for 2030, it 
aims to keep its connectivity level above the 2030 
target of 15% for each EU Member State. There is 
potential  for  intensifying  the  existing  cooperation 
arrangements  between  Nordic  countries  and  for 
broadening  the  geographic  reach  to  include  the 
Baltic States.  

The  projected 
contribution  of 
increased 
renewable  energy,  notably  to  the  power  sector, 

The climate and energy challenge  

The  contributions  of  fossil  fuels  to  domestic 
energy production are progressively decreasing, 
while  biofuels  and  electricity  are  expected  to 
progressively  replace  those  in  transport.    In 
2018,  contributions  of  fossil  fuels  to  domestic 
energy  production  reached  8.3%  for  coal,  26.9% 
for  oil  and  6.6%  for  natural  gas.  Coal-fired 
electricity  still  represents  about  13%  of  the  total 
production of Finland (in 2017). Almost half of the 
coal-fired power plants are over 35 years old, and 
most  are  over  20  years  old.  The  decided  coal 
to  no  new 
phase-out  for  2029  should 
(33). 
investments 
According  to  the  national  energy  climate  plan 
(NECP)  (34),  the  coal  phase-out  should  cost  about 
€34  million.  The  NECP  also  significantly  targets 
the  reduction  of  oil  consumption  in  the  transport 
sector, to be substituted by biofuels (which  would 
increase  to  an  expected  share  of  30%)  and  by 
electricity not generated by fossil fuels. 

in  coal-fired  power  plants 

lead 

uses 

target.  Finland 

Finland  is  currently  meeting  its  2020  energy 
efficiency target, but its progress will have to be 
monitored in view of the 2030 target. The NECP 
envisages a very moderate decrease in final energy 
consumption  as  well  as  an  increase  in  primary 
energy  consumption 
for  2030.  This  would 
constitute a very low contribution to the EU energy 
efficiency 
voluntary 
agreements  with  industry  and  has  sector-specific 
energy efficiency targets for transport and building 
codes  setting  high  energy  performance  standards 
for  new  buildings.  However,  improving  energy 
efficiency  in  the  existing  building  stock  (35) 
consistently  with  the  EU  2030  energy  efficiency 
substantial 
likely 
target  will  very 
investment,  notably  from  households  (see  below 
under  ‘Low  carbon  and  energy  investment’). 
Addressing  this  challenge  would  contribute  to 
further progress on the United Nations Sustainable 
Development  Goal  (SDG)  7  –  Affordable  and 

require 

(33)  According  to  the  final  NECP,  this  covers  ‘premature 

investment cost’ to replace coal in boilers. 

(34)  Finland  submitted  the  final  version  of  its  NECP  to  the 
European  Commission  on  20  December  2019.  The 
Commission  monitors  the  attainment  of  the  EU’s  2030 
energy  and  climate  targets  with  the  help  of  each  Member 
State’s plans. The Commission will assess, in the course of 
2020,  the  final  energy  and  climate  plans  submitted by  the 
Member States. 

(35)  Which represented 35% of the final energy demand in 2017 
(23%  for  residential  and  12%  for  services)  and  has  been 
increasing since 2015. 

54 

 
                                                           
3.5. Environmental sustainability 

China  and  Japan  is  delayed  due  to  political 
discussions  with  Finland’s  neighbours,  but  the 
whole  project  could  be  constructed  between  2020 
and  2022.  For  now,  the  new  government  has 
decided not to join the Rail Baltica consortium, but 
continues  to  take  part  as  an  observer.  The  Rail 
Baltica  project  remains  an  important  part  of  the 
(TEN-T) 
Trans-European  Transport  Network 
Scandinavia-Mediterranean corridor.  

Just Transition analysis 

Phasing  out  peat  could  notably  contribute  to 
Finland’s goal of achieving carbon neutrality by 
2035. Finland is one of the main producers and the 
main  consumers  of  peat  in  Europe  (36).  The 
country  uses  peat  mainly  as  an  energy  source. 
According  to  the  final  NECP,  peat  accounted  for 
4-5% of the total energy supply in 2018. Peat plays 
a  significant  role  as  a  fuel  in  combined  heat  and 
power plants. The  CO2 emission intensity of peat 
is  higher  than  that  of  brown  coal  or  natural  gas, 
and peat used as a domestic fuel enjoys favourable 
tax  treatment  to  ensure  it  can  compete  with 
imported fossil fuels (IEA 2018).  

intends 

to  assess 

The government is committed to decreasing the 
use of peat for energy by at least half  by 2030. 
As  part  of  the  overhaul  of  energy  taxation,  the 
government 
the  necessary 
changes to the taxation of peat, so that the country 
can achieve  its 2030 target. At the  same  time, the 
government  wants  to  ensure  that  timber  material 
does not end up being incinerated. The government 
will  have  to  take  into  account  the  distributional 
effects 
respective 
taxation 
compensatory  measures  for  the  most  vulnerable 
households (European Commission, 2019g). 

peat 

and 

of 

The  peat  stock,  the  production  of  peat,  and  its 
use  for  energy  is  particularly  concentrated  in 
the  north  and  centre  of  the  country.  The 
sparsely  populated  East  and  North  of  the  country 
appears  to  be  the  NUTS2  region  that  is  most 
affected  by  the  transition  from  peat  to  carbon 
neutral  energy  production.  As  a  region  that  is 
slightly  weaker  economically  (37),  it  may  have  a 

(36)  Production:  0.7  Mtoe  or  45.6%  of  EU  total  in  2017; 

consumption 1.28 Mtoe or 60% of EU total in 2017. 

(37)  The GDP per head (PPS) of the East and North region was 
91%  of  EU  average  in  2017,  while  the  national  average 
was  109%.  The  East  and  North´s  employment  rate  was 
73% in 2018, while that of Finland was 76.3%.  

will  require  further  investment  in  this  sector. 
According to the NECP, Finland intends to reach a 
51% proportion of renewable energy in gross final 
consumption of energy in 2030. This will make the 
country  one  of  the  EU  frontrunners  in  renewable 
energy.  In  this  context,  in  2018,  the  government 
reformed the renewable support scheme to increase 
tenders.  The  country’s  aim  of 
competitive 
increasing  the  proportion  of  transport  biofuels  (to 
30%)  and  of  ramping  up  the  number  of  electric 
in  biofuel 
vehicles  will  require 
facilities  (estimated  €1.3 billion 
the  final 
NECP),  as  well  as  in  recharging  infrastructure 
(estimated,  in  the  final  NECP,  at  €415 million  by 
2030).  

investments 

in 

Based  on  Finland’s  plans,  nuclear  energy 
represents  another  significant  part  of  the 
investment needs for the energy supply sector in 
the coming years. First of all, two nuclear reactors 
are under construction: Olkiluoto 3 (OL3), planned 
for commissioning in 2020-2021, and Hanhikivi 1 
(reactor  supplied  by  Russia’s  Rosatom),  which 
should  be  commissioned  in  the  end  of  the  2020s. 
In  addition,  a  site  for  long-term  nuclear  waste 
storage is to be commissioned in the mid-2020s.  

Sustainable transport infrastructure investment 

aim 

investment  plans 

Infrastructure 
at 
increasing  sustainable  mobility.  A  new  national 
transport system is being developed by 2021 under 
the  lead  of  a  parliamentary  steering  group.  The 
plan  is  expected  to  cover  2021-2032  and  thereby 
move  towards  a  long-term  planning  scheme,  the 
lack of  which  has been criticised by  stakeholders. 
Three  high-speed 
lines  are  being 
railroad 
considered; however, these are at an early stage of 
preparation.  The  2020  budget  proposal  includes 
funding  for  preparatory  works  and  studies  for  the 
Helsinki-Turku  and  Helsinki-Tampere  high-speed 
lines  (estimated  8-9  million  annual  passengers). 
Improvements  could  contribute  to  progress  on 
SDG9  —  Industry,  innovation  and  infrastructure 
(see  Annex  E).  As  regards  electronic  data 
transmission  networks,  commercial  networks  of 
technology  are  becoming  available.  The 
5G 
government 
the 
allocation of market segments.  

taking  care  of 

is  currently 

Some  major  international  connection  projects 
have  suffered  delays  or  have  been  suspended. 
The  northeast  broadband  cable  connection  to 

55 

 
                                                           
3.5. Environmental sustainability 

EU average (24%). However, the recycling rate for 
municipal waste, using calculation method 2 as set 
out  in  Commission  decision  2011/753/EU,  was 
49%  in  2017,  above  the  EU  average  of  47%.  It 
seems quite likely that Finland will achieve the EU 
2020 municipal waste recycling target of 50%.  In 
any  case,  further  measures  are  needed  to  achieve 
the  ambitious  targets  laid  down  in  the  revised 
Waste  Framework  Directive  for  years  2025,  2030 
and  2035.The  ‘Early  Warning  report’  on  waste 
(European  Commission,  2018e) 
management 
recommended 
set  mandatory 
that  Finland 
recycling targets for municipalities in line with the 
national  targets  of  50%.  It  also  recommended 
greater 
producer 
responsibility organisations (39), municipalities and 
waste  collection  companies  to  drive  efficiency 
savings  and  to  reduce  fragmentation.  Measures  to 
increase  the  recycling  rate  would  contribute  to 
advancing  further  towards  SDG  11  –  Sustainable 
cities and communities and SDG12 – Responsible 
consumption and production (see Annex E).  

cooperation 

between 

more  limited  capacity  to  absorb  transition  shocks 
on its own. 

in 

It is important that people can benefit from new 
opportunities 
the  green  economy.  The 
industry has estimated that the direct employment 
effect of peat production was 2,300 person-years in 
2018  and,  when  the  indirect  effect  is  taken  into 
account,  the  number  increases  to  4,200  person-
years  (Maaseudun  tulevaisuus,  2019)  (38).  If  peat 
production were to be phased out,  it would mainly 
be  employees  in  direct  jobs who  would  be  at  risk 
of unemployment. Some indirect jobs may also be 
at  risk,  due  to  decreasing  economic  activity  in 
peat-producing regions. This calls for the regional 
economy 
the 
attractiveness of the region for future investments, 
as  well  as  the  reskilling  and  upskilling  of  the 
workers  concerned.  The  European  Commission 
has proposed a Just Transition Fund to support the 
people and the territories most affected. Dedicated 
investment guidance for the Fund is in Annex D.  

to  be  diversified, 

ensuring 

Moving towards a more circular economy 

Finland strives to move towards a more circular 
economy,  but  the  challenge  is  big.  In  2020, 
Finland is preparing a National Circular Economy 
Action Plan with concrete actions and initiatives to 
accelerate  the  transition  towards  a  climate  neutral 
circular  economy.  Furthermore,  a  digital  market 
place was established in 2019 to serve as a digital 
platform  for  producers  and  suppliers  to  announce 
waste,  side  streams,  and  services  connected  to 
recycling  and  waste  management.  Finland  is  also 
promoting  the  circular  economy  higher  up  on  the 
international agenda. However, compared to other 
EU countries, Finland remains a resource intensive 
economy.  In  particular,  materials  and  energy 
consumption intensities are well above EU average 
(European Commission, 2019g).  

Waste  management  is  advanced,  but  there  is 
room for further improvements. The generation 
of  municipal  waste  in  Finland  was  above  the  EU 
average  (Eurostat,  2019b)  and  has  fluctuated  over 
recent  years.  The  landfilling  rate  is  among  the 
lowest  in  the  EU  (1%  in  2016)  and  far  below  the 

(38)  VTT  2010  report  held  that  employment  of  fuel  and 
horticultural peat production and fuel peat use was 12,350 
person-years.  At  2.19  Mtoe,  production  of  peat  was  three 
times higher in 2009 than in 2017, however. 

Graph 3.5.1:  NUTS2-region the most affected by the 

transition from peat to carbon neutral energy 
production 

Source: European Commission 

Finland  ranks  among  the  best  performing 
countries  regarding  eco-innovation  in  the  EU, 
while  public 
in  environmental 
protection  appears  to  be  rather  modest.  The 

investment 

(39)  A  producer  may  choose  to  delegate  its  environmental 
responsibility  to  a  third  party,  a  so-called  producer 
responsibility  organization,  which  is  paid  by  the  producer 
for used-product management. 

56 

 
                                                           
 
                                                           
3.5. Environmental sustainability 

country’s ranking is very high in terms of both the 
EU eco-innovation index and the development and 
diffusion  of  environmental  technologies.  Most  of 
the  investment  in  environmental  protection  is 
carried  out  by  industry  and  specialised  providers, 
while  the  government  contributes  comparatively 
little,  both  relative 
to  government  spending 
elsewhere  in  the  environmental  field  and  relative 
to 
the 
the  private  sector.  More  generally, 
government’s  stake  in  environmental  protection 
appears relatively modest as reflected by the GDP  
proportion  of 
environmental  protection 
expenditures  and  output,  both  ranking  among  the 
lowest in the EU. 

its 

Achieving 
climate  neutrality  will  bring 
significant  opportunities  to  create  jobs.  The 
transition  to  climate  neutrality  is  expected  to 
favour 
job  creation  for  all  skill  groups.  In 
particular, it is expected to introduce  more low to 
middle-skilled,  middle-paying  jobs  in  the  service, 
industry  and  construction  sectors  (Eurofound 
2019). It is essential to prepare the labour force in 
order  for  the  green  transition  to  be  successful.  To 
transition  effective  and  socially 
make 
balanced,  Finland  needs  to  continue  investing  in 
up-skilling  and  re-skilling  its  labour  force  to 
support the deployment of green technologies and 
the  overall 
learning  schemes 
target 
greening of the economy.   

towards 

this 

compensate 

help  Finland 

Just  transition  includes  a  gender  dimension. 
New  green  jobs  are  expected  mainly  in  sectors 
with  traditionally  limited  female  representation, 
such  as  forestry  and  clean-tech  (Ministry  of 
Economic  Affairs  and  Employment,  2017).  This 
might 
the 
comparatively  high  inactivity  of  men  between  25 
and  54  (see  chapter  3.3),  if  the  appropriate 
activation  and  support  measures  are  in  place. 
Nevertheless, education and training schemes need 
to  be  geared  towards  mitigating  existing  gender 
inequalities  by  encouraging  women  to  participate 
more  in  science,  technology  and  engineering 
studies.  In  this  context,  social  dialogue  also  plays 
role.
important 
an 

for 

57 

 
ANNEX A: OVERVIEW TABLE 

Commitments  

Summary assessment (40) 

2019 country-specific recommendations (CSRs)  

CSR  1:  Ensure  that  the  nominal  growth  rate  of  net 
primary  government  expenditure  does  not  exceed  
1.9%  in  2020,  corresponding  to  an  annual  structural 
adjustment  of  0.5%  of  GDP.  Improve  the  cost-
effectiveness  of  and  equal  access  to  social  and 
healthcare services.  

Finland  was  not  assessed  as  regards  addressing 
CSR 1  

Ensure  that  the  nominal  growth  rate  of  net  primary 
government  expenditure  does  not  exceed  1.9%  in 
2020,  corresponding 
structural 
adjustment of 0.5% of GDP.  

to  an  annual 

The  compliance  assessment  with  the  Stability 
and  Growth  Pact  will  be  carried  out  in  spring 
2020, when final data for 2019 will be available.  

Improve the cost-effectiveness of and equal access to 
social and healthcare services.  

Limited  progress  has  been  achieved  on 
improving cost-effectiveness of and equal access 
to social and healthcare services. The government 
plans  to  continue  with  the  healthcare  reform 
initiated  by  the  previous  government.  The  reform 
still  aims  at  addressing  the  fragmentation  of  the 
system and the related financial challenges faced by 
small, 
remote  municipalities.  The  considered 
centralisation of service provision to county level is 
in  efficiency. 
likely 
Accessibility  would  be  promoted 
through  a 
strengthening  of  the  primary  care  system.  The 
government plans to adopt the reform by the end of 
its term. 

increases 

lead 

to 

to 

(40)  The  following  categories  are  used  to  assess  progress  in  implementing  the  country-specific  recommendations  (CSRs):  
No  progress:  The  Member  State  has  not  credibly  announced  nor  adopted  any  measures  to  address  the  CSR.  This  category 
covers a number of typical situations to be interpreted on a case by case basis taking into account country-specific conditions. 
They include the following:  

no legal, administrative, or budgetary measures have been announced  
in the national reform programme, 
in any other official communication to the national Parliament/relevant parliamentary committees or the European Commission, 
publicly (e.g. in a press statement or on the government's website); 
no non-legislative acts have been presented by the governing or legislative body; 
the  Member  State  has  taken  initial  steps  in  addressing  the  CSR,  such  as  commissioning  a  study  or  setting  up  a  study  group  to 
analyse possible measures to be taken (unless the CSR explicitly asks for orientations or exploratory actions). However, it has 
not proposed any clearly-specified measure(s) to address the CSR. 

Limited progress: The Member State has:  
announced certain measures but these address the CSR only to a limited extent; and/or 
presented  legislative  acts  in  the  governing  or  legislative  body  but  these  have  not  been  adopted  yet  and  substantial  further,  non-

legislative work is needed before the CSR is implemented; 

presented non-legislative acts, but has not followed these up with the implementation needed to address the CSR. 
Some progress: The Member State has adopted measures  
that partly address the CSR; and/or  
that address the CSR, but a fair amount of work is still needed to fully address the CSR as only a few of the measures have been 
implemented. For instance, a measure or measures have been adopted by the national Parliament or by ministerial decision but 
no implementing decisions are in place.  

Substantial progress: The Member State has adopted measures that go a long way towards addressing the CSR and most of them 

have been implemented.  

Full implementation: The Member State has implemented all measures needed to address the CSR appropriately.  

58 

 
 
                                                           
 
A. Overview Table 

CSR  2:  Improve  incentives  to  work  and  enhance 
skills  and  enhance  active  inclusion,  notably  through 
well-integrated  services  for  the  unemployed  and  the 
inactive.  

Finland  has  made  some  progress  in  addressing 
CSR 2  

Improve incentives to work  

and enhance skills  

Limited  progress  has  been  made  on  reducing 
inactivity  and  unemployment  traps.  The  social 
security  reform  is  a  long-term  process  aiming  at 
simplifying the benefit system. The reform could be 
a  major  component  in  helping  the  government 
attain  its  objective  of  a  75%  employment  rate  for 
people aged 15-64 by making work pay more in all 
circumstances.  Moreover,  it  should  improve  the 
coordination  of  different  benefits.  The  government 
plans  to  implement  the  reform  gradually,  over  the 
course  of  two  government  terms.  The  groundwork 
started  during  Sipilä’s  government  term.  In  2019, 
Finland  deployed  a  real-time  income  register  that 
could  reduce  the  bureaucratic  traps.  This  register 
has  the  potential  to  speed  up  handling  times  of 
benefits,  thus  increasing  the  ‘certainty  of  income’ 
level,  whenever  part-time  or  short-term  work  is 
taken  up.  Moreover,  it  could  open  up  possibilities 
for  a  more  effective  combination  of  work-income 
and  benefits  in  the  future.  The  government  has  set 
up seven  ministerial  working groups  with tripartite 
sub-groups  to  prepare  labour  market  reforms  to 
explore ways to increase employment.  

recognises 

Some  progress  has  been  achieved  on  skills.  The 
government  programme 
inequality, 
exclusion  and  differences  in  learning  outcomes  as 
the  most  serious  threats  in  education.  The  budget 
has been increased to address these challenges. The 
recent VET reform pushes for more responsiveness 
to the labour market needs and is in its final stages 
of  implementation.  Participation  in  adult  education 
is concentrated on the highly educated, high-skilled, 
and  high-earning  employees.  The  government  is 
launching a ‘continuous learning’ reform to address 
skills  shortages  of  adult  workers.  Notwithstanding, 
labour shortages, especially of high-skilled workers, 
are  reported  to  be  the  most  important  obstacle  to 
investment  and  risk  becoming  a  drag  on  growth. 
There is a concern about the lack of sufficient funds 
to  implement  recent  educational  reforms  in  early 
childhood education, as  well  as in compulsory and 
tertiary education.  

and  enhance  active  inclusion,  notably  through  well-
integrated  services  for  the  unemployed  and  the 

Some  progress  has  been  achieved  on  active 
inclusion.  The  announced  ‘work  ability’  reform  is 
expected  to  result  in  better  coordinated  benefits, 

59 

 
inactive.  

A. Overview Table 

more  personalised,  more  integrated  services.  The 
same  results  are  also  expected  from  trials  carried 
out  in  municipalities  to  improve  integration  of 
training 
employment  services,  education  and 
services,  and  social  and  health  services  in  order  to 
support employability of jobseekers who have weak 
labour market status (those receiving labour market 
support,,  i.e.  basic  unemployment  benefit,  young 
people  under  30  years  old,  and  immigrants).  The 
assumption  is  that  more  locally  provided  services 
would be more efficient. The Parliament will decide 
on  the  law  in  February-March  2020,  and  the  trials 
in  April-May.  The 
follow 
are  expected 
government  has  earmarked  €36  million 
for 
implementing  the  ‘work  ability’  programme.  This 
programme aims to increase the inclusion of people 
with  partial  work  abilities  in  the  labour  market. 
Employment  services,  and  social  and  health 
services will be strengthened. Some 20 work ability 
coordinators  will  be  hired  in  the  employment 
offices.  As  a  part  of  the  work  ability  programme, 
public  procurement  will  be  used  to  hire  those 
people in the weakest position in the labour market.  

to 

CSR  3:  Focus  investment-related  economic  policy 
on  research  and  innovation,  taking  into  account 
focus 
regional 
investment-related 
disparities, 
economic  policy  on 
low  carbon  and  energy 
transition,  taking  into  account  regional  disparities, 
and  focus  investment-related  economic  policy  on 
sustainable  transport,  taking  into  account  regional 
disparities  

Finland  has  made  limited  progress  in  addressing 
CSR 3  

Focus 
investment-related  economic  policy  on 
research and innovation, taking into account regional 
disparities,  

Limited  progress  has  been  made  on  public 
research and innovation investment. The amount 
of  public  money  for  research  and  development 
support is expected to increase, but remain broadly 
stable  as  a  proportion  of  GDP.  A  roadmap  will  be 
drawn up to raise overall R&D investment to 4% of 
GDP  and  to  make  Finland  the  best  place  in  the 
world for innovation and experiment. 

focus  investment-related  economic  policy  on  low 
carbon  and  energy  transition,  taking  into  account 
regional disparities,  

Limited  progress  has  been  made  on  investment 
in 
low  carbon  and  energy  transition.  The 
government’s  objective  is  to  make  Finland  carbon 
neutral  by  2035  and  the  world’s  first  fossil-free 
social  society.  This  will  require  a  comprehensive 
agenda  of  policies  and  measures.  The  government 
has  announced  an  overhaul  of  energy  taxation  by 
the 2020 budget, notably with a pledge to phase out 
fossil fuel subsidies on oil, coal and, possibly, peat. 

60 

 
A. Overview Table 

and  focus  investment-related  economic  policy  on 
sustainable  transport,  taking  into  account  regional 
disparities  

Limited  progress  has  been  achieved  on 
investment  in  sustainable  transport.  Sustainable 
infrastructure  investment  is  being  planned,  notably 
to  increase  labour  mobility.  Three  high-speed 
railroad  lines  are  being  considered  to  improve 
labour  mobility,  but  economic  studies  have  not 
been carried out yet by independent analysts. A new 
national  transport  system  will  be  developed  in 
2020-2021  under  the  lead  of  a  parliamentary 
steering group. 

CSR 4: Strengthen the monitoring of household debt 
and establish the credit registry system  

Finland has made some progress in addressing CSR 
4  

Strengthen the monitoring of household debt  

and establish the credit registry system  

Some progress has been made on monitoring the 
household  debt.  In  October  2019,  the  Ministry  of 
Finance proposed to limit to 60% the loan to value 
ratio  (selling  price  ratio)  applicable  to  housing 
companies.  In  parallel,  a  debt-to-income  ratio  cap 
will  be  applied  to  households  when  their  loan 
requests exceed a certain threshold. The Ministry of 
Finance 
further  macro-prudential 
measures.  The  legislation  on  consumer  credit  has 
been tightened. An interest cap at 20% entered into 
force in September 2019. 

is  drafting 

is 

registry 

Limited  progress  has  been  made  on  the  setting 
up  a  credit  registry  system.  The  work  on  the 
still  being  planned.  The 
credit 
government  has  recently  decided  that  the  credit 
registry  is  to  be  managed  by  a  public  entity.  The 
official working group is expected to be established 
in  early  2020.  The  necessary  legislative  work  on 
data protection is expected to start in January 2020, 
while work on the registry itself might incur delays. 
Nevertheless,  the  authorities  are  committed  to 
having the necessary legislation in place by 2023. 

Europe 2020 (national targets and progress)  

Employment rate target set in the NRP: 78%.  

Latest figure: 76.7% (October 2019). 

R&D target set in the NRP: 4% of GDP  

According  to  Statistics  Finland,  R&D  expenditure 
amounted  to  €6.4  billion  in  2018.  Expenditure  had 
increased  by  as  much  as  €265  million  from  the 
previous  year.  This  was  the  biggest  increase  in 
volume  terms  since  2008.  Growth  occurred  in  all 
sectors:  in  the  business  sector  it  was  5%,  in  the 

61 

 
 
 
A. Overview Table 

public sector 2% and in the higher education sector 
4%  compared  to  2017.  This  was  the  second 
favourable  year  in  a  row  following  the  decreasing 
trend  of  R&D  expenditure  that  lasted  for  5  years 
before that. 

The  GDP  proportion  of  R&D  expenditure  in  2018 
was  2.75%  (cf.  2.73%  in  2017).  At  its  highest,  the 
proportion  was 3.75% in 2009. Although Finland’s 
proportion  has  dropped  by  1  pp.  over  the  past  10 
years, it is still significantly above the Organisation 
for  Economic  Co-operation  and  Development  and 
EU average. 

sector’s  proportion  of 

In  2018,  businesses  accounted  for  66%  of  R&D 
expenditure  and  for  61%  of  R&D  funding.  The 
total  R&D 
business 
expenditure has declined markedly from 2008 when 
it was 74%. The public sector is responsible for 9% 
of R&D expenditure. However,  for R&D funding, 
its  proportion  is  32%,  including  basic  funding  for 
the  higher  education  sector  provided  by 
the 
Ministry of Education and Culture. 

According  to  the  official  estimates  by  Statistics 
Finland, the GDP proportion of R&D will decrease 
again  in  2019.  Although  R&D  expenditure  will 
most likely grow in 2019 by over €110 million, the 
GDP  proportion  will  go  down  to  2.71%.  This  is 
because  the  growth  rate  of  the  economy  is  higher 
than that of R&D expenditure. According to recent 
estimates  from  the  Ministry  of  Economic  Affairs 
and Employment,  the proportion  will remain at the 
level of 2.70-2.75% over the next few years. 

National  greenhouse  gas  (GHG)  emissions  target:  
-  16%  in  2020  compared  with  2005  (in  sectors  not 
included in the EU emissions trading scheme)  

According to Statistics Finland’s instant preliminary 
data,  the  total  emissions  of  greenhouse  gases  in 
2018 totalled 56.5 million tonnes of carbon dioxide 
(CO2  eq.).  Emissions  grew  by  2%  from  the 
previous  year.  The  growth  in  emissions  was  most 
influenced by increased consumption of natural gas 
and  peat.  Those  emissions  not  included  in  the  EU 
emissions  trading  system  remained  at  last  year’s 
level,  but  exceeded  the  EU’s  annual  emission 
allocations by 0.4 million tonnes of CO2 equivalent. 

According to  most recent projections, the  non-ETS 
emissions,  with  existing  national  policies  and 
measures in place, will be slightly over the emission 
target in the year 2020. However, it is expected that 
Finland  can  close  the  projected  gap  between  the 
emission  target  in  2020  and  actual  emissions  by 

62 

 
A. Overview Table 

2020 renewable energy target: 38%  

using  flexibility  measures  such  as  the  transfer  of 
surplus  annual  emission  allocation  from  the  earlier 
years to the later years of the period 2013-2020. 

Finland's  renewable  energy  share,  expressed  in 
percentage  of  gross  final  energy  consumption,  was 
41% in 2017. Also in 2018, the share is expected to 
have  been  clearly  over  40%,  thus  already  above 
Finland’s 2020 target. 

Energy efficiency, 2020 energy consumption targets:  

The  primary  energy  consumption  amounted  to 
approximately 32.3 Mtoe in 2018. 

Finland’s 2020 energy efficiency target is 35.9 Mtoe 
expressed 
consumption 
(26.7 Mtoe expressed in final energy consumption)  

primary 

energy 

in 

With  existing  policies  and  measures,  the  energy 
consumption is projected to be 32.4 Mtoe in 2020. 

Early school/training leaving target: 8%.  

Eurostat figure for 2018: 8.3%.  

Tertiary  education  target:  42%  of  population  aged 
30-34.  

Eurostat figure for 2018: 44.2%. 

Target  for  reducing  the  number  of  people  at  risk  of 
poverty or social exclusion, expressed as an absolute 
number  of  people:  770,000  less  people  at  risk  of 
poverty or exclusion (base year 2010: 911,000).  

The  latest  statistics  (May  2019)  show  that  890,000 
Finns, or 16.4% of the  household population,  were 
at  risk  of  poverty  or  social  exclusion  in  2017 
(compared to 849,000 in 2016). Most of the people 
that are at risk of poverty or social exclusion live in 
low  income  households,  which  made  up  12.1%  of 
the  population.  The  second  most  at  risk  group  of 
poverty  or  social  exclusion  were  those  who  live  in 
households with low work intensity, affecting 7.6% 
of  the  population.  Only  2.6%  of  households  in 
Finland suffer from severe material deprivation.  

63 

 
ANNEX B: COMMISSION DEBT SUSTAINABILITY ANALYSIS AND 

FISCAL RISKS 

64 

General government debt projections under baseline, alternative scenarios and sensitivity tests2018201920202021202220232024202520262027202820292030Gross debt ratio59.059.259.359.859.960.160.460.761.161.361.561.762.1Changes in the ratio (-1+2+3)-1.80.20.10.50.10.20.30.30.30.30.20.20.4of which(1) Primary balance (1.1+1.2+1.3)0.1-0.3-0.7-0.9-1.1-1.2-1.3-1.4-1.5-1.5-1.6-1.6-1.8(1.1) Structural primary balance (1.1.1-1.1.2+1.1.3)-0.1-0.6-0.8-0.9-1.1-1.2-1.3-1.4-1.5-1.5-1.6-1.6-1.8(1.1.1) Structural primary balance (bef. CoA)-0.1-0.6-0.8-0.9-0.9-0.9-0.9-0.9-0.9-0.9-0.9-0.9-0.9(1.1.2) Cost of ageing0.30.60.81.01.21.41.61.71.8(1.1.3) Others (taxes and property incomes)0.10.30.40.50.70.80.91.01.0(1.2) Cyclical component0.20.20.10.00.00.00.00.00.00.00.00.00.0(1.3) One-off and other temporary measures-0.10.10.00.00.00.00.00.00.00.00.00.00.0(2) Snowball effect (2.1+2.2+2.3)-1.4-0.8-0.9-1.0-1.0-1.0-1.0-1.1-1.2-1.3-1.4-1.4-1.4(2.1) Interest expenditure0.90.80.80.70.70.70.60.60.60.60.60.50.5(2.2) Growth effect-1.0-0.8-0.6-0.6-0.5-0.5-0.5-0.5-0.6-0.6-0.7-0.8-0.7(2.3) Inflation effect-1.3-0.8-1.1-1.1-1.2-1.2-1.2-1.2-1.2-1.2-1.2-1.2-1.2(3) Stock-flow adjustments-0.40.60.30.60.00.00.00.00.00.00.00.00.0Note: For further information, see the European Commission Debt Sustainability Monitor (DSM) 2019. b. For the medium term, the risk category (low/medium/high) is based on the joint use of the S1 indicator and of the DSA results. The S1 indicator measures the fiscal adjustment required (cumulated over the 5 years following the forecast horizon and sustained after that) to bring the debt-to-GDP ratio to 60 % by 2034. The critical values used are 0 and 2.5 pps of GDP. The DSA classification is based on the results of five deterministic scenarios (baseline, historical SPB, higher interest rate, lower GDP growth and negative shock on the SPB scenarios) and the stochastic projections. Different criteria are used such as the projected debt level, the debt path, the realism of fiscal assumptions, the probability of debt stabilisation, and the size of uncertainties. c. For the long term, the risk category (low/medium/high) is based on the joint use of the S2 indicator and the DSA results. The S2 indicator measures the upfront and permanent fiscal adjustment required to stabilise the debt-to-GDP ratio over the infinite horizon, including the costs of ageing. The critical values used are 2 and 6 pps of GDP. The DSA results are used to further qualify the long term risk classification, in particular in cases when debt vulnerabilities are identified (a medium / high DSA risk category). [2]Thechartspresentaseriesofsensitivitytestsaroundthebaselinescenario,aswellasalternativepolicyscenarios,inparticular:thehistoricalstructuralprimarybalance(SPB)scenario(wheretheSPBissetatitshistoricalaverage),theStabilityandGrowthPact(SGP)scenario(wherefiscalpolicyisassumedtoevolveinlinewiththemainprovisionsoftheSGP),ahigherinterestratescenario(+1pp.comparedtothebaseline),alowerGDPgrowthscenario(-0.5pp.comparedtothebaseline)andanegativeshockontheSPB(calibratedonthebasisoftheforecastedchange).Anadversecombinedscenarioandenhancedsensitivitytests(ontheinterestrateandgrowth)arealsoincluded,aswellasstochasticprojections. Detailed information on the design of these projections can be found in the FSR 2018 and the DSM 2019.FI - Debt projections baseline scenario[1]Thefirsttablepresentsthebaselineno-fiscalpolicychangescenarioprojections.Itshowstheprojectedgovernmentdebtdynamicsanditsdecompositionbetweentheprimarybalance,snowballeffectsandstock-flowadjustments.Snowballeffectsmeasurethenetimpactofthecounteractingeffectsofinterestrates,inflation,realGDPgrowth(andexchangerates in some countries). Stock-flow adjustments include differences in cash and accrual accounting, net accumulation of assets, as well as valuation and other residual effects.[3] The second table presents the overall fiscal risk classification over the short, medium and long term. a. For the short-term, the risk category (low/high) is based on the S0 indicator. S0 is an early-detection indicator of fiscal stress in the upcoming year, based on 25 fiscal and financial-competitiveness variables that have proven in the past to be leading indicators of fiscal stress. The critical threshold beyond which fiscal distress is signalled is 0.46. 40455055606570758020172018201920202021202220232024202520262027202820292030Debt as % of GDP -FIBaselineEnhanced lower GDP growth scenarioAdverse combined scenarioEnhanced higher interest rate scenario405060708020172018201920202021202220232024(% of GDP)Stochastic debt projections 2020-2024 -FIp10_p20p20_p40p40_p60p60_p80p80_p90p50Baseline40455055606570758020172018201920202021202220232024202520262027202820292030Debt as % of GDP -FIBaselineHistorical SPB scenarioSGP scenario40455055606570758020172018201920202021202220232024202520262027202820292030Debt as % of GDP -FIBaselineHigher interest rate scenarioNegative shock on the SPBLower GDP growth scenarioBaselineHistorical SPBLower GDP growthHigher interest rateNegative shock on SPBStochastic projectionsRisk categoryMEDIUMLOWMEDIUMMEDIUMMEDIUMMEDIUMDebt level (2030)62.147.265.164.563.4Debt peak year20302021203020302030Percentile rank72.0%43.0%Probability debt higher60.0%Dif. between percentiles18.9MEDIUMLong termMEDIUM(S2 = 3.6)S1S2Short termLOW(S0 = 0.3)DSAMEDIUMDebt sustainability analysis (detail)Medium termMEDIUMMEDIUM(S1 = 0.5) 
 
ANNEX C: STANDARD TABLES 

Table C.1: 

Financial market indicators 

(1) Latest data Q3 2019. Includes not only banks but all monetary financial institutions excluding central banks. 
(2) Latest data Q2 2019. 
(3) Quarterly values are annualized. 
* Measured in basis points. 
Source: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all 
other indicators). 

65 

201420152016201720182019Total assets of the banking sector (% of GDP)(1)280.0262.9251.6200.1268.1293.4Share of assets of the five largest banks (% of total assets)89.788.080.573.581.6-Foreign ownership of banking system (% of total assets)(2)71.667.565.554.010.813.1Financial soundness indicators:(2)              - non-performing loans (% of total loans)1.61.51.41.21.51.4              - capital adequacy ratio (%)17.523.824.623.420.920.6              - return on equity (%)(3)9.18.38.78.88.17.2Bank loans to the private sector (year-on-year % change)(1)3.80.21.63.14.54.6Lending for house purchase (year-on-year % change)(1)1.72.52.32.21.72.3Loan-to-deposit ratio(2)103.6102.494.394.8133.2127.2Central bank liquidity as % of liabilities(1)0.40.31.92.51.80.9Private debt (% of GDP)148.8151.5148.0145.3142.1-Gross external debt (% of GDP)(2) - public53.551.548.245.940.741.3    - private43.648.044.045.648.851.9Long-term interest rate spread versus Bund (basis points)*28.622.427.523.126.632.4Credit default swap spreads for sovereign securities (5-year)*24.020.624.419.010.39.8 
 
 
 
    
 
C. Standard Tables 

Table C.2: 

Headline Social Scoreboard indicators 

(1) People at risk of poverty or social exclusion (AROPE): individuals who are at risk of poverty (AROP) and/or suffering from 
severe material deprivation (SMD) and/or living in households with zero or very low work intensity (LWI).       
(2) Unemployed persons are all those who were not employed but had actively sought work and were ready to begin 
working immediately or within two weeks.       
(3) Gross disposable household income is defined in unadjusted terms, according to the draft Joint Employment Report 2019.       
(4) Reduction in percentage of the risk of poverty rate, due to social transfers (calculated comparing at-risk-of poverty rates 
before social transfers with those after transfers; pensions are not considered as social transfers in the calculation).       
(5) Average of first three quarters of 2019 for the employment rate, unemployment rate and gender employment gap.  
Source: Eurostat 

66 

201420152016201720182019 5Equal opportunities and access to the labour marketEarly leavers from education and training (% of population aged 18-24)9.59.27.98.28.3:Gender employment gap (pps)1.92.13.33.53.72.8Income inequality, measured as quintile share ratio (S80/S20)3.63.63.63.53.6:At-risk-of-poverty or social exclusion rate(1) (AROPE)17.316.816.615.716.5:Young people neither in employment nor in education and training (% of population aged 15-24)10.210.69.99.48.5:Dynamic labour markets and fair working conditionsEmployment rate (20-64 years)73.172.973.474.276.377.2Unemployment rate(2) (15-74 years)8.79.48.88.67.46.7Long-term unemployment rate (as % of active population)1.92.32.32.11.61.2Gross disposable income of households in real terms per capita(3) (Index 2008=100) 101.3102.1103.3104.6106.5:Annual net earnings of a full-time single worker without children earning an average wage (levels in PPS, three-year average)241542434624545:::Annual net earnings of a full-time single worker without children earning an average wage (percentage change, real terms, three-year average)-0.76-0.250.27:::Public support / Social protection and inclusionImpact of social transfers (excluding pensions) on poverty reduction(4)53.653.757.056.953.7:Children aged less than 3 years in formal childcare33.232.532.733.337.2:Self-reported unmet need for medical care3.34.34.13.64.7:Individuals who have basic or above basic overall digital skills (% of population aged 16-74):74.073.076.0:: 
 
 
    
 
C. Standard Tables 

Table C.3: 

Labour market and education indicators 

* Non-scoreboard indicator       
(1) Long-term unemployed are people who have been unemployed for at least 12 months.       
(2) Difference between the average gross hourly earnings of male paid employees and of female paid employees as a 
percentage of average gross hourly earnings of male paid employees. It is defined as "unadjusted", as it does not correct for 
the distribution of individual characteristics (and thus gives an overall picture of gender inequalities in terms of pay). All 
employees working in firms with ten or more employees, without restrictions for age and hours worked, are included.       
(3) PISA (OECD) results for low achievement in mathematics for 15 year-olds.       
(4) Impact of socio-economic and cultural status on PISA (OECD) scores.       
(5) Average of first three quarters of 2019. Data for youth unemployment rate is seasonally adjusted. 
Source: Eurostat, OECD 

67 

Labour market indicators201420152016201720182019 5Activity rate (15-64)75.475.875.976.777.978.6Employment in current job by durationFrom 0 to 11 months16.116.017.618.519.6:From 12 to 23 months9.18.48.69.310.1:From 24 to 59 months16.716.414.914.414.3:60 months or over57.958.958.757.755.9:Employment growth* (% change from previous year)-0.4-0.10.51.02.61.0Employment rate of women(% of female population aged 20-64)72.171.871.772.474.575.8Employment rate of men (% of male population aged 20-64)74.073.975.075.978.278.6Employment rate of older workers* (% of population aged 55-64)59.160.061.462.565.466.6Part-time employment* (% of total employment, aged 15-64)14.114.114.915.015.115.6Fixed-term employment* (% of employees with a fixed term contract, aged 15-64)15.415.115.615.816.215.9Transition rate from temporary to permanent employment(3-year average)31.128.825.926.527.5:Youth unemployment rate (% active population aged 15-24)20.522.420.120.117.016.9Gender gap in part-time employment9.48.49.59.910.010.1Gender pay gap(2) (in undadjusted form)18.417.617.416.7::Education and training indicators201420152016201720182019Adult participation in learning(% of people aged 25-64 participating in education and  training)25.125.426.427.428.5:Underachievement in education(3):13.6::::Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)45.345.546.144.644.2:Variation in performance explained by students' socio-economic status(4):10.0:::: 
 
 
    
 
C. Standard Tables 

Table C.4: 

Social inclusion and health indicators 

* Non-scoreboard indicator       
(1) At-risk-of-poverty rate (AROP): proportion of people with an equivalised disposable income below 60 % of the national 
equivalised median income.        
(2) Proportion of people who experience at least four of the following forms of deprivation: not being able to afford to i) pay 
their rent or utility bills, ii) keep their home adequately warm, iii) face unexpected expenses, iv) eat meat, fish or a protein 
equivalent every second day, v) enjoy a week of holiday away from home once a year, vi) have a car, vii) have a washing 
machine, viii) have a colour TV, or ix) have a telephone.       
(3) Percentage of total population living in overcrowded dwellings and exhibiting housing deprivation.       
(4) People living in households with very low work intensity: proportion of people aged 0-59 living in households where the 
adults (excluding dependent children) worked less than 20 % of their total work-time potential in the previous 12 months.       
(5) Ratio of the median individual gross pensions of people aged 65-74 relative to the median individual gross earnings of 
people aged 50-59.       
(6) Fixed broadband take up (33%), mobile broadband take up (22%), speed (33%) and affordability (11%), from the Digital 
Scoreboard.  
Source: Eurostat, OECD 

68 

201320142015201620172018Expenditure on social protection benefits* (% of GDP)Sickness/healthcare7.47.47.47.16.8:Disability3.43.43.23.12.9:Old age and survivors12.412.913.313.513.6:Family/children3.23.23.23.12.9:Unemployment2.32.52.62.62.2:Housing0.60.60.70.80.8:Social exclusion n.e.c.0.90.90.91.10.9:Total30.230.931.231.130.1:of which: means-tested benefits1.61.71.92.02.0:General government expenditure by function (% of GDP)Social protection24.825.425.525.624.9:Health8.38.37.37.27.1:Education6.46.46.26.15.7:Out-of-pocket expenditure on healthcare18.918.919.820.520.2:Children at risk of poverty or social exclusion (% of people aged 0-17)*13.015.614.914.715.116.0At-risk-of-poverty  rate(1) (% of total population)11.812.812.411.611.512.0In-work at-risk-of-poverty rate (% of persons employed)3.73.73.53.12.73.1Severe material deprivation rate(2)  (% of total population)2.52.82.22.22.12.8Severe housing deprivation rate(3), by tenure statusOwner, with mortgage or loan0.10.20.20.10.20.3Tenant, rent at market price2.02.41.82.41.92.0Proportion of people living in low work intensity households(4) (% of people aged 0-59)9.010.010.811.410.710.8Poverty thresholds, expressed in national currency at constant prices*120091196511852118151193612113Healthy life yearsFemales:9.39.08.99.4:Males:8.89.39.48.9:Aggregate replacement ratio for pensions(5)0.50.50.50.50.50.5Connectivity dimension of the Digital Economy and Society Index (DESI)(6):56.161.061.764.5:GINI coefficient before taxes and transfers*48.549.149.250.350.2:GINI coefficient after taxes and transfers*25.425.625.225.425.3: 
 
 
    
 
C. Standard Tables 

Table C.5: 

Product market performance and policy indicators 

1 Value added in constant prices divided by the number of persons employed.       
2 Compensation of employees in current prices divided by value added in constant prices.       
3 The methodologies, including the assumptions, for this indicator are shown in detail here: 
http://www.doingbusiness.org/methodology.        
4 Average of the answer to question Q7B_a. "[Bank loan]: If you applied and tried to negotiate for this type of financing over 
the past six months, what was the outcome?". Answers were codified as follows: zero if received everything, one if received 
75% and above, two if received below 75%, three if refused or rejected and treated as missing values if the application is still 
pending or don't know.       
5 Percentage population aged 15-64 having completed tertiary education.       
6 Percentage population aged 20-24 having attained at least upper secondary education.       
7 Index: 0 = not regulated; 6 = most regulated. The methodologies of the OECD product market regulation indicators are 
shown in detail here: http://www.oecd.org/competition/reform/indicatorsofproductmarketregulationhomepage.htm       
8 Simple average of the indicators of regulation for lawyers, accountants, architects and engineers.       
9 Aggregate OECD indicators of regulation in energy, transport and communications (ETCR).  
* Please be aware that the indicator values from 2003 to 2013 are comparable, however the methodology has considerably 
changed in 2018 and therefore past vintages cannot be compared with the 2018 PMR indicators. 
Source: European Commission; World Bank — Doing Business (for enforcing contracts and time to start a business); OECD (for 
the product market regulation 
indicators); European Central Bank, 2019 (for outcome of SMEs' applications for bank loans). 

69 

Performance indicators201320142015201620172018Labour productivity per person1 growth (t/t-1) in %Labour productivity growth in industry3.412.491.664.858.28-1.45Labour productivity growth in construction-0.61-2.021.340.84-2.53-1.88Labour productivity growth in market services-1.14-0.160.460.802.41-1.10Unit Labour Cost (ULC) index2 growth (t/t-1) in %ULC growth in industry-2.86-0.910.89-3.32-8.352.81ULC growth in construction2.921.91-0.060.504.253.80ULC growth in market services3.670.660.640.95-1.021.50Business environment201320142015201620172018Time needed to enforce contracts3 (days)485485485485485485Time needed to start a business3 (days)17.017.017.017.017.017.0Outcome of applications by SMEs for bank loans40.410.570.230.260.390.30Research and innovation201320142015201620172018R&D intensity3.273.152.872.722.732.75General government expenditure on education as % of GDP6.406.406.206.105.70:Employed people with tertiary education and/or people employed in S&T as % of total employment515152525354Population having completed tertiary education5343536363637Young people with upper secondary education6868687888787Trade balance of high technology products as % of GDP-1.02-0.97-1.22-1.39-1.44-1.47Product and service markets and competition2003200820132018*OECD product market regulation (PMR)7, overall1.491.341.291.37OECD PMR7, retail2.862.892.861.65OECD PMR7, professional services80.610.710.620.63OECD PMR7, network industries92.722.612.471.52 
 
 
  
 
C. Standard Tables 

Table C.6:  Green growth 

All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2010 prices)         
          Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR)         
          Carbon intensity: greenhouse gas emissions (in kg CO2 equivalents) divided by GDP (in EUR)         
          Resource intensity: domestic material consumption (in kg) divided by GDP (in EUR)         
          Waste intensity: waste (in kg) divided by GDP (in EUR)         
Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP.          
Weighting of energy in HICP: the proportion of 'energy' items in the consumption basket used for the construction of the HICP.         
Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual % 
change).         
Real unit energy cost: real energy costs as % of total value added for the economy.         
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2010 
EUR).         
Real unit energy costs for manufacturing industry excluding refining: real costs as % of value added for manufacturing sectors.         
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP.         
Electricity and gas prices for medium-sized industrial users: consumption band 500–20 00MWh and 10 000 -100 000 GJ; figures 
excl. VAT.         
Recycling rate of municipal waste: ratio of recycled and composted municipal waste to total municipal waste.         
Public R&D for energy or for the environment: government spending on R&D for these categories as % of GDP.         
Proportion of GHG emissions covered by EU emissions trading system (ETS) (excluding aviation): based on GHG emissions.         
(excl. land use, land use change and forestry) as reported by Member States to the European Environment Agency.         
Transport energy intensity: final energy consumption of transport activity including international aviation (kgoe) divided by 
gross value added in transportation and storage sector (in 2010 EUR).         
Transport carbon intensity: GHG emissions in transportation and storage sector divided by gross value added in transportation 
and storage sector (in 2010 EUR).         
Energy import dependency: net energy imports divided by gross inland energy consumption incl. consumption of 
international bunker fuels.         
Aggregated supplier concentration index: Herfindahl index covering oil, gas and coal. Smaller values indicate larger 
diversification and hence lower risk.         
Diversification of the energy mix: Herfindahl index covering natural gas, total petrol products, nuclear heat, renewable 
energies and solid fuels. Smaller values indicate larger diversification.         
* European Commission and European Environment Agency - 2018 provisional data. 
Source: European Commission and European Environment Agency (Share of GHG emissions covered by ETS); European 
Commission (Environmental taxes over labour taxes and GDP); Eurostat (all other indicators). 

70 

Green growth performance201320142015201620172018MacroeconomicEnergy intensity kgoe / €0.180.180.170.170.17-Carbon intensity kg / €0.330.310.290.300.28-Resource intensity (reciprocal of resource productivity)kg / €1.080.900.890.890.910.95Waste intensity kg / €-0.51-0.63--Energy balance of trade % GDP-2.6-2.4-1.8-1.4-1.6-2.0Weighting of energy in HICP%8.127.847.637.097.087.19Difference between energy price change and inflation p.p.-1.6-2.6-2.3-1.34.53.4Real unit of energy cost% of value added17.015.115.515.8--Ratio of environmental taxes to labour taxesratio0.110.110.110.110.11-Environmental taxes% GDP2.92.92.93.13.02.9Sectoral Industry energy intensity kgoe / € 0.230.230.230.220.21-Real unit energy cost for manufacturing industry excl. refining% of value added19.818.419.320.1--Share of energy-intensive industries in the economy% GDP10.8610.6510.6410.6811.6611.19Electricity prices for medium-sized industrial users€ / kWh0.070.070.070.070.070.07Gas prices for medium-sized industrial users€ / kWh0.050.050.040.040.050.06Public R&D for energy % GDP0.080.080.080.030.020.02Public R&D for environmental protection% GDP0.010.010.010.020.020.02Municipal waste recycling rate%32.532.540.642.040.5-Share of GHG emissions covered by ETS*%49.948.846.046.545.546.6Transport energy intensitykgoe / €0.540.540.570.570.56-Transport carbon intensitykg / €1.141.061.131.251.171.17Security of energy supplyEnergy import dependency%50.050.248.246.044.0-Aggregated supplier concentration indexHHI70.866.870.670.567.1-Diversification of energy mixHHI20.021.021.521.322.3- 
 
    
 
ANNEX D: INVESTMENT GUIDANCE ON JUST TRANSITION FUND 

2021-2017 FOR FINLAND 

Building  on  the  Commission  proposal,  this  Annex  D  presents  the  preliminary  Commission  services’ 
views on priority investment areas and framework conditions for effective delivery for the 2021-2027 Just 
Transition  Fund  investments  in  Finland.  These  priority  investment  areas  are  derived  from  the  broader 
analysis  of  territories  facing  serious  socio-economic  challenges  deriving  from  the  transition  process 
towards a climate-neutral economy of the Union by 2050 in Finland, assessed in the report. This Annex 
provides the basis for a dialogue between Finland and the  Commission services as  well  as the relevant 
guidance  for  the  Member  States  in  preparing  their  territorial  just  transition  plans,  which  will  form  the 
basis for programming the Just Transition Fund. The Just Transition Fund investments complement those 
under  Cohesion  Policy  funding  for  which  guidance  in  the  form  of  Annex  D  was  given  in  the  2019 
Country Report for Finland41. 

Finland  is  one  of  the  main  producers  and  the  main  consumer  of  peat  in  Europe.  Peat  production,  used 
mainly as an energy source, employs the equivalent to 2300 persons/year. Peat use in energy production 
is equivalent to coal in terms of CO2 intensity. Phasing out peat could contribute notably to Finland´s goal 
to  achieve  carbon  neutrality  by  2035.  The  sparsely  populated  East  and  North  Finland  (Etelä-Savo, 
Pohjois-Savo, Pohjois-Karjala, Kainuu, Keski-Pohjanmaa,  Pohjois-Pohjanmaa,  Lappi) appears to be  the 
most  affected  region  by  transition  from  peat  to  carbon  neutral  energy  production.  Based  on  this 
preliminary assessment, it appears warranted that the Just Transition Fund concentrates its intervention on 
this region. 

Finland´s government is committed to decrease the use of peat for energy by at least half by 2030. As a 
result, many workers would be at risk of unemployment in this sparsely populated region where labour 
demand is otherwise limited. The smart specialisation strategy42 provides an important framework to set 
priorities for innovation in support of economic transformation and it could offer a framework for making 
the transition towards a more diversified, competitive and green economy. 

In order to tackle these transition challenges, high priority investment needs have been identified for the 
development and deployment of innovative solutions for efficient and clean production and energy use. 
Key actions of the Just Transition Fund could target in particular:  

• 

• 

in  research  and  innovation  activities  and  fostering  transfer  of  advanced 

investments 
technologies; 
investments  in  the  deployment  of  technology  and  infrastructures  for  affordable  clean  energy, 
greenhouse gas emission reduction, energy efficiency and renewable energy. 

In order to seize the opportunities stemming from ambitious decarbonisation policies, priority investment 
needs have been identified for the diversification of the local economy and ensuring the necessary skills 
for those affected by the transition. Key actions of the Just Transition Fund could target in particular: 

• 

• 

• 

productive  investments  in  SMEs,  including  start-ups,  leading  to  economic  diversification  and 
reconversion; 
investments in the creation of new firms, including through business incubators and consulting 
services; 
upskilling and reskilling of workers. 

In order to minimise the greenhouse effect of the areas released from peat production, related investment 
needs have been identified. Key actions of the Just Transition Fund could target in particular:  

• 

investments in regeneration of sites, land restoration and repurposing projects. 

41 SWD(2019) 1025 final 
42 As defined in Article 2(3) of Regulation EU 1303/2013 (CPR) 

71 

 
 
 
 
                                                           
ANNEX E: PROGRESS TOWARDS THE SUSTAINABLE 

DEVELOPMENT GOALS (SDGS) 

Assessment of Finland’s short-term progress towards the SDGs (43) 

Table E.1 shows the data for Finland and the EU-28 for the indicators included in the EU SDG indicator 
set used by Eurostat for  monitoring progress towards the SDGs in an EU context (44). As the short-term 
trend at EU-level is assessed over a 5-year period, both the value at the beginning of the period and the 
latest available value is presented. The indicators are regularly updated on the  SDI dedicated section of 
the Eurostat website. 

Table E.1: 

Indicators measuring Finland’s progress towards the SDGs 

(Continued on the next page) 

(43)  Data  extracted  on  15 

January  2020 

from 

the  Eurostat  database 

(official  EU  SDG 

indicator 

set; 

see 

https://ec.europa.eu/eurostat/web/sdi/main-tables). 

(44)  The EU SDG indicator set is aligned as far as appropriate with the UN list of global indicators, noting that the UN indicators are 
selected for global level reporting and are therefore not always relevant in an EU context. The EU SDG indicators have strong 
links with EU policy initiatives. 

72 

 
 
 
 
                                                           
 
  
 
E. Progress towards the Sustainable Development Goals (SDGs) 

Table (continued) 

(Continued on the next page) 

73 

 
 
 
   
 
E. Progress towards the Sustainable Development Goals (SDGs) 

Table (continued) 

(Continued on the next page) 

74 

 
 
 
   
 
E. Progress towards the Sustainable Development Goals (SDGs) 

Table (continued) 

(Continued on the next page) 

75 

 
 
 
   
 
E. Progress towards the Sustainable Development Goals (SDGs) 

Table (continued) 

More detailed information regarding the data used for the assessment available on the Eurostat SDI dedicated section 
Source: Eurostat 

76 

 
 
   
 
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