The document summarizes Minister of Economic Affairs Olli Rehn's speech on reforming the Finnish economy to improve competitiveness and sustainable growth. It outlines that Finland's GDP growth has lagged behind the Euro area average in recent years. It then describes the "Competitiveness Pact" which aims to reduce labor costs by 4% through measures like increasing annual working hours, reducing public sector bonuses, and implementing a pay freeze to improve cost competitiveness. The Pact is estimated to create 35,000-45,000 new jobs and improve public finances by 600 million euros. Finally, it briefly outlines other measures to enhance the business environment through tax reforms, innovation programs, and reducing red tape.

1. Competitiveness and sustainable
growth: Reforming the Finnish
economy
Minister of Economic Affairs Olli Rehn
Bruegel Annual Meetings
6 September 2016

2. Real GDP, euro area
6.9.2016Työ- ja elinkeinoministeriö • www.tem.fi 2
85
90
95
100
105
-3
-2
-1
0
1
2
3
08 09 10 11 12 13 14 15 16 17
GDP growth rate (lhs) GDP (quarterly), index (rhs) GDP (annual), index (rhs)
forecast
q-o-q% index, 2007=100
0.5
-4.5
2.0 -0.9
-0.3
Source: Commission. Figures above horizontal bars are annual growth rates.
1.6 0.9
1.7
1.6
1.8

3. Government deficit in Euro area 2000-2017*
Net lending (+) or net borrowing (-): general government
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-7
-6
-5
-4
-3
-2
-1
0
1
2000 2005 2010 2015* 2017*
*Forecast for 2015 - 2017

4. Balance of current transactions with the rest of
the world, % of GDP
6.9.2016Työ- ja elinkeinoministeriö • www.tem.fi 4
-3
-2
-1
0
1
2
3
4
5
-6
-4
-2
0
2
4
6
8
10
2005 2010 2015* 2017*
deficit countries
surplus countries
Euro area
*Forecast for 2015 - 2017
Maat:
Surplus countries: DE,NL,FI,AT,SL,BE,LU
Decifit countries: FR,IT,ES,PT,IRL,GR,CY

5. 5
Unit labour costs in Finland, Germany and
Sweden compared with euro area average
(EA=100)
Finland
Ministry of Finance baseline
scenario
2017–2021
Finland
Competitiveness Pact
+ no change in real earnings
from 2018
Sweden
Euro area
Commission forecasts
2016–2017
+ same proportionate
changes from 2018
Germany
90
95
100
105
110
115
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: Ministry of Finance, Economics Department, 24 May 2016

6. Competitiveness Pact
• will improve the cost competitiveness of Finnish labour and production.
• will be comparable to internal devaluation through reducing labour costs by
about 4 per cent in relation to Finland's most important competitor countries.
• has a current coverage of around 91 per cent.
6
1. Annual working hours to be extended by 24 hours.
2. Public sector holiday bonuses to be reduced.
3. Transfer of 2.05 percentage points of the unemployment insurance and social
security contributions from employers to employees. Also a reduction in the health
insurance contribution.
4. Finnish model: Policy of pay moderation. Pay freeze in 2016 and 2017.
Actions:

7. +
+ €
Impact on growth and jobs
• Target of 110,000 new jobs and 72 % employment
rate during the parliamentary term.
• The Competitiveness Pact will create an estimated
35,000–45,000 new jobs and will improve public
sector sustainability by about EUR 600 million.
• Tax concessions determined by the Government
will compensate for the increase in contributions
and will boost domestic purchasing power and
demand.
• The entrepreneurship package will support the
achievement of the employment target. Operating
conditions for companies will be improved.
Negotiations to complement employment package
1.-2.9.2016.
• Next step: shift of focus from cost competitiveness
to structural reforms
7
600 million
35,000–45,000

8. 8
Unit labour costs in Finland, Germany and
Sweden compared with euro area average
(EA=100)
Finland
Ministry of Finance baseline
scenario
2017–2021
Finland
Competitiveness Pact
+ no change in real earnings
from 2018
Sweden
Euro area
Commission forecasts
2016–2017
+ same proportionate
changes from 2018
Germany
90
95
100
105
110
115
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: Ministry of Finance, Economics Department, 24 May 2016

9. 9
Already launched measures for the
competitiveness spearhead project:
New measures for the
competitiveness spearhead
project:
Taxation
Growth funding
Enhancing
Team Finland
services
Deregulation
and increasing
competition
Support package for the
self-employed
Self-employed
- reforms to social security
Innovation voucher
Innovation bank
Streamlining the
recruitment of foreign
experts
Granting residence permit
based on start-up
entrepreneurship
National genome strategy

10. Basic income: a pilot study 2017-18
• The pilot study is one of the measures aimed to reform social security
benefits in a way that promotes employment and taking up jobs.
• The pilot study is conducted to be able to assess whether basic income
would allow to reform social security benefits by reducing and helping to
avoid incentive traps relating to employment.
• A test group of 2 000 persons is selected by random sampling. The level of
basic income proposed to be set at 560 euros a month (a tax-free benefit).
• The Government will decide on further measures and, possibly, on
expanding the scope of the experiment from the beginning of 2018.
6.9.2016Ministry of Economic Affairs and Employment of Finland • www.tem.fi 10

11. Thank you