Finnish Economy and Society Visit of Headteachers 07.03.2007

1. Finnish Economy and SocietyVisit of Headteachers 07.03.2007 Penna Urrila, Senior Economist Confederation of Finnish Industries EK

2. Main Topics • Presentation of EK • Finnish Economy • history and background • Economic Structures • Outlook for the Future • Finnish Society and Political Situation

3. Finnish Economy

4. Finland in the Global Economy Population GDP Industial production Exports Exports of pulp and paper Exports of electronics industry Production of mobile phones

5. GDP by Sector, (%)

6. Employment by Sector, %

7. Finnish Exports

8. GDP, index 1995 = 100 Source: OECD

11. Industrial production, index 1990 = 100

12. Industrial production, index 1990 = 100

13. Growth of Telecommunications Industry

14. Stock of Direct Investments, EUR billion

15. Finnish Exports of Goods in 2005 (total 52,4 bill. EUR)

16. Finnish Exports by Country

18. 3-month Interest Rates

19. Consumer Prices

20. Unemployment

21. Public Sector Balance, % of GDP

24. R&D expenditure, EUR billion

25. R&D investments in some countries Percentage of GDP Israel Sweden FINLAND Japan Iceland South Korea USA Denmark Germany Austria OECD France Singapore Canada Great Britain Norway China 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5

26. Main Economic Forecasts (ETLA)

27. Some structural challenges for the future

28. High taxation • Finland is a country with high overall taxation • Tax revenues rely heavily on direct taxation • share of direct taxes (incl. social security contributions) is the highest in EU-25 countries • Some tax changes have been made in the last few years: • State income tax has gradually been lowered in all income groups • Tax on net wealth was abolished from 1.1.2006 • Corporate tax reform in 2004: corporate tax rate down from 29 % to 26 % but dividends are subject to double taxation • Will the international tax competition become more severe and how can Finland respond to it?

29. Source: OECD

30. Tax Rates on Wage Income 2006 Taxes, social security contributions of employees and basic tax allowances.

31. Ageing population • Finnish population is growing slowly: population estimate 5,25 million in 2005 (+ 16 000 persons compared to 2004) • About 50 % natural increase, 50 % net immigration • ”Baby-boom generation” (born in 1946-1950) is soon retiring • Current age structure relatively good but it will deteriorate dramatically • Finland will face the problem 10-15 years earlier than many other countries • Workforce will turn down before 2010: serious economic implications • Solutions?? • Reducing unemployment, longer working time, increasing immigration? • Pension reform in 2004 not enough in the long run, public sector balance in danger

32. Summary • Finnish economic development has been a success story in the 20th century • Late but rapid structural change from agriculture into industry and services • Fast recovery from the deep crisis in the early 1990s: electronics industry! • GDP/capita above EU-15 average • Current economic situation is relatively good • Despite a slowdown in early 2000s, Finnish growth figures are above EU average • Public sector in balance, low inflation but unemployment still a problem • Also the short-term outlook is favourable: positive expectations • Long-term growth potential still uncertain • Ageing population will be a big challenge • Can Finland match the global competition in the future, too?