Finland [1996-1997]

135 Pages·1997·1.011 MB·English

by  OECD

D OECD
ECONOMIC
SURVEYS
C
E
FINLAND
O
1997
SPECIAL FEATURES
• PENSION REFORM
OECD
ECONOMIC
SURVEYS
1996-1997
FINLAND
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
(cid:211) OECD, 1997.
(cid:211) Software: 1987-1996, Acrobat is a trademark of ADOBE.
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ORGANISATION FOR ECONOMIC CO-OPERATION
AND DEVELOPMENT
Pursuant to Article 1 of the Convention signed in Paris on 14th December 1960,
and which came into force on 30th September 1961, the Organisation for Economic
Co-operation and Development (OECD) shall promote policies designed:
– to achieve the highest sustainable economic growth and employment and a rising
standard of living in Member countries, while maintaining financial stability, and
thus to contribute to the development of the world economy;
– to contribute to sound economic expansion in Member as well as non-member
countries in the process of economic development; and
– to contribute to the expansion of world trade on a multilateral, non-discriminatory
basis in accordance with international obligations.
The original Member countries of the OECD are Austria, Belgium, Canada,
Denmark, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the
Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the
United Kingdom and the United States. The following countries became Members subse-
quently through accession at the dates indicated hereafter: Japan (28th April 1964),
Finland (28th January 1969), Australia (7th June 1971), New Zealand (29th May 1973),
Mexico (18th May 1994), the Czech Republic (21st December 1995), Hungary
(7th May 1996), Poland (22nd November 1996) and the Republic of Korea
(12th December 1996). The Commission of the European Communities takes part in the
work of the OECD (Article 13 of the OECD Convention).
Publie´ e´galement en franc¸ais.
(cid:211) OECD 1997
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Table of contents
Assessment and recommendations 1
I. Recent trends and short-term prospects 11
A broader recovery 11
Sustained and more diverse exports 14
Rebound of household demand 16
Stabilisation of business investment 19
Slow progress in absorbing the labour market slack 19
Low inflation supported by moderate wage developments 23
A strong external position 27
Short-term outlook 27
II. Macroeconomic policies 30
Overview 30
The fiscal stance 31
Monetary management 37
Assessment 46
III. Structural initiatives 47
Labour market 47
Product market competition 58
Banking 62
Environment 64
IV. Reform of the pension system 67
The original design of the system 68
The reform process 76
Future challenges 85
iii
Notes 92
Bibliography 96
Annex
I. Chronology of main economic events and policy measures 98
Statistical annex and structural indicators 105
Tables
Text
1. Demand and output 12
2. Household appropriation account 16
3. Labour market developments 20
4. Wages, costs and prices 24
5. Short-term projections 28
6. Public finances in the 1990s 32
7. State expenditure cuts 32
8. Initial budget proposals and outcomes 34
9. Money growth 43
10. Implementing the OECD Jobs Strategy – an overview 51
11. Non-wage labour costs and the tax wedge 56
12. Rationalisation in the banking sector 62
13. Concentration in the banking industry 63
14. Environmental taxes and charges 65
15. The main pension schemes 68
16. Financial assets of the employment pension schemes 70
17. Reform of the employment pension rules 78
18. Income and expenditure account of the employment pension funds 81
19. Portfolio composition of the employment pension funds 82
20. Employment pension scenarios 86
21. Optimal portfolio compositions of pension funds 87
22. Key characteristics of pension systems 89
iv
Statistical annex and structural indicators
A. Selected background statistics 106
B. Supply and use of resources 107
C. Supply and use of resources (volume) 108
D. Gross domestic product by industry of origin 109
E. General government account 110
F. Balance of payments 111
G. Labour market 112
H. Imports: prices, volumes and values by commodity group 113
I. Exports: prices, volumes and values by commodity group 114
J. Foreign trade by area 115
K. Prices and wages 116
L. Interest rates, money and credit 117
M. Production, structure and performance indicators 118
N. Public sector 120
Figures
Text
1. GDP and its main components 13
2. Cost competitiveness and export performance 15
3. Household spending 17
4. Business investment 18
5. The labour market 21
6. Unemployment and vacancies by occupation 22
7. Price and wage developments 25
8. The external position 26
9. Progress in fiscal consolidation 31
10. General government balances 35
11. Inflation performance 38
12. Movements in short-term interest rates and in exchange rates 40
13. Central bank interventions and foreign exchange reserves 41
14. Long-term interest rate developments 42
15. Profitability of deposit banks 44
v
16. Indicators of credit behaviour 45
17. Transfers to working age population 48
18. Labour force participation by age group 48
19. Reforms of benefit entitlements by duration of unemployment 53
20. Services and low-skilled jobs 55
21. Financial support to manufacturing and services 59
22. Scope for privatisation 60
23. Public old age pension expenditure in OECD countries 70
24. Elderly dependency ratios 72
25. Projected expenditure of the employment pension schemes 72
26. Projected contributions to the employment pension schemes 73
27. Required rate of return on pension funds assets 75
28. The funding of employment pensions in the private sector 80
29. Financial sustainability of the employment pension system 84
vi
BASIC STATISTICS OF FINLAND
THE LAND
Area (1 000 sq. km) 338 Population in major cities, 31.12.1995:
of which: Helsinki 525 031
Cultivated land 27 Espoo 191 247
Forests 230 Tampere 182 742
Lakes 34 Turku 164 744
THE PEOPLE
Total population (31.12.1995), thousands 5 117 Manpower by industry in 1995 (per cent of total):
Per sq. km of land area 15.1 Agriculture and forestry 11.3
Per thousand inhabitants (1995): Industry and construction 39.0
Live births 12.3 Commerce 21.0
Deaths 9.6 Transport and communication 10.6
Net natural increase 2.7 Services 17.3
Net increase of population 3.5
PARLIAMENT AND GOVERNMENT
Composition of Parliament, number of seats (1995): Government, number of ministers from:
Centre Party 44 Social Democratic Party 7
Social Democratic Party 63 National Coalition (Conservatives) 5
National Coalition (Conservatives) 39 Swedish People’s Party 2
Left-Wing Alliance 22 Left Wing Alliance 2
Swedish People’s Party 12 Green League 1
Green League 9 Independent 1
Christian League 7 Total 18
Rural Party 1
Progressive Finnish Party 2
Ecological Party 1
Total 200
PRODUCTION
Gross Domestic Product 1996 Gross Domestic Product by industry in 1995
(Mk million) 569 446 (per cent of total):
GDP per head, US dollars, 1996 24 235 Agriculture and forestry 5.2
Gross fixed capital formation 1996 Industry and construction 44.1
(Mk million) 88 020 Commerce 3.5
Transport and communication 10.7
Other services 26.6
PUBLIC SECTOR
Public consumption 1996, per cent of GDP 22.1 General government revenue and expenditure,
Gross fixed capital formation 1996, 1996 (Mk million):
per cent of GDP: Current revenue 308 250
General government 2.6 Current expenditure 319 689
of which:
Consumption 125 915
Transfers 144 732
Subsidies 16 052
Interest on public debt 32 990
FOREIGN TRADE
Exports of goods and services, per cent of GDP, Imports of goods and services, per cent of GDP,
1996 38.1 1996 30.2
Main exports in 1995 (per cent of total): Main imports in 1995 (per cent of total):
Agricultural products 1.2 Raw materials 59.6
Wood products 7.6 Fuels and lubricants 3.4
Pulp and paper 27.7 Investment goods 15.3
Metal and engines 39.4 Consumer goods 19.6
Other goods 24.1
THE CURRENCY
Monetary unit: Markka Currency units per US$, average of daily figures:
Year 1996 4.59
June 1997 5.17
Note: An international comparison of certain basic statistics is given in an annex table.
This Survey is based on the Secretariat’s study
prepared for the annual review of Finland by the
Economic and Development Review Committee
on 16 June 1997.
•
After revisions in the light of discussions during the
review, final approval of the Survey for publication was
given by the Committee on 4 July 1997.
•
The previous Survey of Finland was issued in
August 1996.