The situation in Finland is two-sided: on the one hand there have been some positive developments in tax changes and in social benefits; on the other hand, a “productivity program” is being implemented by the government which aims to reduce the number of public employees.
General information and figures
The situation in Finland is two-sided: on the one hand there have been some positive developments in tax changes and in social benefits; on the other hand, a “productivity program” is being implemented by the government which aims to reduce the number of public employees.
Unemployment rate (June 2010): 8.4%
GDP (bn euro – 2010): 176.13
General Government debt (2009 - % GDP): 43.8
Public deficit (2009 - % GDP): 2.5
Source: Eurostat
Public Employees
Central Government: No cuts in salaries or other work benefits but a “Productivity program” aimed at reducing the number of central government employees by 9,645 full-time workers between 2007 and 2011 has been introduced. Further reduction of 4,800 government jobs is envisaged between 2011 and 2014. The program is more or less an across-the-board staff cut in all central government sectors and will be achieved by non-replacement of retired staff in order to avoid direct lay-offs.
Although officially the aim is to increase the productivity in the central government sector, there is in most cases little evidence about how this is done, so trade unions object to it because of fears for increasing work load and worse government services.
A further problem has been the parallel ambition to “decentralize” central government employment away from Helsinki towards other regional centers, which has led to tension between the government and its employees. This process has been working in exactly the opposite direction of the “productivity program”.
Local Government: No cuts in salaries or other work benefits but during the crisis some municipalities have used temporary lay-offs to keep their finances under control. Trade unions have vigorously objected to such actions, because they have endangered the citizens’ rights to educational, social and health-care services. Municipalities in Finland are responsible for the provision of these services and these are provided almost exclusively mainly by municipality schools, kindergartens, health and social service centers.
Cuts in social benefits
No cuts, rather improvements. Minimum pensions have been increased and almost all minimal benefits have been tied to the Consumer Price Index to keep their purchasing power intact.
Pension reforms
The government tried to unilaterally increase the minimum old-age pension retirement age from 63 to 65 years. This initiative was successfully countered by the Trade Unions. However it is possible that the pension issues will be on the agenda again after the 2011 parliament elections if the current centre-right coalition forms the next government.
Cuts in public services, transfers and public investments
No investment cuts have been introduced. Measures were adopted to spur infrastructure investment during the crisis (2009-2010). However, the government has not invested as planned in R&D. Paradoxically, the target of 4 % share of overall R&D (public+private) investment was reached in 2009, but only because the Finnish GDP fell by almost 9 %! Trade unions are also worried about investments in education, particularly higher education. A large number of students in tertiary education are not matched by correspondingly high level of teachers, which is a major threat for the quality of education.
Collective bargaining and labour reform
After decades of centralized bargaining, Finland has moved to branch-level negotiations because the employers have unilaterally withdrawn from the centralized bargaining mechanism.
They are trying to impose an employer-side co-ordination model which will eventually lead to lower average wages. Trade unions oppose that model in particular because the employers formal reason for withdrawing from centralized bargaining was “the need to consider branch and enterprise-level differences” in wage formation.
Tax changes
The current government continued to reduce the tax burden on wages during the recession.
The employers so-called “people’s pension” tax, which was used to finance the minimum, non income-related old-age pension was abolished, leaving a deficit of more than €800m. Energy taxes were subsequently increased to pay for this.
There is a common understanding that direct taxes on income should not be increased. However Finnish businesses are aggressively campaigning for large cuts in corporate tax and oppose any possible offsetting increases in personal tax on income from investments (dividends, capital gains etc.).