Finnish Market Update

The Finnish Government puts a strong focus on growth, employment, equality and stability

In its mid-term review that concluded on 21 March 2013, the Finnish Government reached agreement on the budget framework for 2014-2017. The review lays out a number of proposals that are aimed at stimulating growth in the economy, adding jobs and improving productivity, while at the same time maintaining welfare services, social equality and participation.

As an active advisor in the Finnish market, it is the view of Avance that the review represents a clear positive message to current and potential investors in Finland, a market which already boasts a stable political and regulatory environment, a highly skilled labor force and the rare triple-A credit rating.

Key highlights of the review:

Reduction in the corporate tax rate from 24.5% to 20%: dividend tax reform

This significant reduction in the corporate tax rate is a bold step from the government and has been well received by the market. The reduction is expected to boost investment and employment and will result in Finland having the lowest corporate tax rate in the Nordic region. The review also contemplates a slight increase in taxes on dividends paid by listed companies (dividends would become fully taxable whereas now only 70% are taxable, thus making a listing arguably somewhat less attractive) while maintaining certain favorable characteristics of the taxation of dividends paid by privately held companies. Together, these changes will shift the point of taxation from corporate profits to the distribution of such profits.

Increased Infrastructure Investments

The government proposes significant increases in overall infrastructure projects, including investments in LNG, road and logistic infrastructure projects, aimed at stimulating growth, increasing employment and achieving significant long term savings in overall transportation costs. The review also includes proposals to stimulate construction of residential properties to facilitate workforce mobility within the country.

Supporting Growth Companies

The government plans to allocate further resources (alongside the private sector) to fund the growth of promising small businesses. As recently covered by the likes of WSJ, The Economist and the BBC, a vibrant ecosystem has formed in Finland around the birth and growth of new companies, with the venture and angel investor community, the academia, and players like the Startup Sauna, a non-profit organization that annually screens and coaches numerous start-up companies from Northern and Eastern Europe and Russia, playing an active role.

Reduction in the Number of Municipalities

The review reinforces the government’s plan to significantly reduce the number of municipalities from the current over 300. With the overall aim of increasing the efficiency of local government, municipalities are given strong fiscal incentives to seek voluntary combinations and new programs are implemented to guide such combinations and, in limited cases, impose mandatory combinations. New programs are also introduced to allow for the reduction of statutory responsibilities of municipalities, as well as the sharing of responsibilities among municipalities and with the state.

Overhaul of Social and Health Care Systems

In order to ensure continued availability and quality of services, and to eliminate overlap and structural inefficiencies, the government plans to move ahead with a broad overhaul of the social and healthcare systems. The new system would be organized at the municipal level and layered so that the scope of municipal responsibility to organize services will be tied to population, with smaller municipalities participating only in the funding of centralized services or providing the most basic services. It is expected that there will be roughly 20 centralized areas of geographic responsibility for specialized health care and 5 areas of responsibility for the most demanding services. Services within the Helsinki metropolitan area will be organized separately.

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