Radical reforms proposed to stop decade of economic loss

Economists who worked on the new report urge more spending and investment now, with more taxes later.

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File picture of Professor Vesa Vihriälä at Helsinki press conference, 8th May 2020 / Credit: Laura Kotila, VNK

A working group tasked with coming up with ideas for Finland to return to financial good health after the coronavirus crisis has laid out a set of radical reform proposals impacting education, the economy and working life.

The economic advisory group headed by Vesa Vihriälä – which also included Professor Roope Uusitalo, and economists Sixten Korkman and Bengt Holmström – presented the findings of its research to the government on Friday and Vihriälä, an economist and Professor of Practice at the University of Helsinki, says the measures are needed because Finland could face a decade of economic fallout from the pandemic.

First should come a period of increased spending, then taxation, the report recommends.

“Our relatively pessimistic view is that there will be a big loss of production this year and after that the recovery will be slow. If nothing special can be done in politics here or elsewhere, a decade has been lost in the same way as after the 2008 financial crisis” Vihriälä told journalists on Friday.

The economists say that Finland’s economy will shrink by 9% this year and the debt ratio will rise to 90% of GDP by 2030.

Among the key recommendations in the report are extending compulsory education, introducing modest tuition fees at universities, and increasing the number of places in tertiary education. The report’s authors also want to remove incentives for early retirement, and reduce barriers to bringing foreign workers into Finland.

The economists also want to see more direct financial support given to small and medium-sized companies to specifically help those whose turnovers have been hardest hit by the pandemic.

Among the recommendations is investment and subsidies for road projects and construction, and a temporary reduction in VAT.

In terms of taxation after the spend, Vihriälä’s report suggests property taxes and new taxes on fossil fuels.