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Finland
Finland's
economic freedom score is 74.5, making its economy the 17th freest in the
2009 Index. Its score remains almost unchanged, decreasing by only 0.1
point. Finland is ranked 9th out of 43 countries in the Europe region, and
its overall score is well above the world average.
Despite small reductions
in six of the 10 economic freedoms, Finland is still a world leader in
business freedom, trade freedom, monetary freedom, property rights, and
freedom from corruption. Private enterprise continues to blossom in a
minimally regulated, business-friendly environment. Finland is one of the
least corrupt countries in the world, and the result is a business
environment that is free from political influence. Property is protected
by transparent laws and even-handed enforcement, and foreign investors
enjoy excellent market access. As a member of the euro zone, Finland has a
standardised monetary policy that yields low inflation despite some
government distortion in the agricultural sector.
Finland's labor freedom
is weak, and government size is problematic. As in many other European
social democracies, high government spending supports an extensive welfare
state that is continually expanding even though government spending
already equals half of Finland's GDP. Restrictive labor regulations hurt
employment and productivity growth by mandating maximum work hours and
unusually high unemployment benefits.
Background
Finland joined the
European Union in 1995 and adopted the euro in 1999. Finland is sparsely
populated, with about one-fourth of its land mass above the Arctic Circle,
but boasts a modern, competitive, and transparent economy with vibrant
information and communications technology sectors. Finland is a member of
NATO's Partnership for Peace program but has not pursued full NATO
membership because of its neutral military status.
Business freedom 95.1%
The overall freedom to
start, operate, and close a business is strongly protected under Finland's
regulatory environment. Starting a business takes an average of 14 days,
compared to the world average of 38 days. Obtaining a business license
requires less than the world average of 18 procedures and 225 days.
Bankruptcy proceedings are straightforward and not costly.
Trade freedom 85.8%
Finland's trade policy
is the same as that of other members of the European Union. The common EU
weighted average tariff rate was 2.1 per cent in 2005. Non-tariff barriers
reflected in EU policy include agricultural and manufacturing subsidies,
import restrictions and bans for some goods and services, market access
restrictions in some service sectors, non-transparent and restrictive
regulations and standards, and inconsistent customs administration across
EU members. Ten points were deducted from Finland's trade freedom score to
account for these factors.
Fiscal freedom 64.3%
Finland has a high
income tax and a moderate corporate tax. The top income tax rate is 31.5
per cent, reduced from 32 per cent. The top corporate tax rate is 26 per
cent. Other taxes include a value-added tax (VAT), a real estate tax, and
a flat 28 per cent capital gains tax. In the most recent year, overall tax
revenue as a percentage of GDP was 43.6 per cent.
Government size 28.6%
Total government
expenditures, including consumption and transfer payments, are very high.
In the most recent year, government spending equaled 48.8 per cent of GDP.
State ownership of productive assets is considerable. The government has
plans for income tax cuts and increased spending on welfare programs, and
revenue from alcohol and tobacco taxes can offset only a fraction of the
cost.
Monetary freedom 87.4%
Finland uses the euro as
its currency. Between 2005 and 2007, Finland's weighted average annual
rate of inflation was 1.4 per cent. As a participant in the EU's Common
Agricultural Policy, the government subsidises agricultural production,
distorting the prices of agricultural products. It also imposes
artificially low prices on pharmaceutical products. Five points were
deducted from Finland's monetary freedom score to account for measures
that distort domestic prices.
Investment freedom 70.0%
Finland is open to
foreign direct investment. Certain acquisitions of large Finnish companies
may require follow-up clearance from the Ministry of Trade and Industry.
Non–European Economic Area investors must apply for a license to invest
in many sectors, including security, electrical contracting, alcohol,
telecommunications, aviation, and restaurants. Some residency restrictions
apply to foreign investment to ensure the jurisdiction of the court
system. There are no exchange controls and no restrictions on current
transfers or repatriation of profits, and residents and non-residents may
hold foreign exchange accounts. Restrictions on the purchase of land apply
only to non-residents purchasing land in the Aaland Islands.
Financial freedom 80.0%
Finland's sophisticated
financial system provides a wide range of services. Deregulation in the
1980s and a banking and financial crisis in the 1990s led to
consolidation, international mergers, and links to insurance companies.
There were more than 300 domestic banks in 2008, but three bank groups (Nordea,
OP Bank Group, and the Sampo Group) dominate the system. The government
owns about 14 per cent of the Sampo Group. Banking is open to foreign
competition. Capital markets determine interest rates, and credit is
available to nationals and foreigners equally. The stock exchange is part
of an integrated network of Baltic and Nordic exchanges and has strong
high-tech equity representation. Under legislation submitted to Parliament
in mid-2008, the Financial Supervision Authority and Insurance Supervisory
Authority would be merged to create a single national supervisory agency.
Property rights 95.0%
Property rights are well
protected, and contractual agreements are strictly honored. The quality of
the judiciary and civil service is generally high. Expropriation is
unlikely. Finland adheres to numerous international agreements concerning
intellectual property.
Freedom from corruption
94.0%
Corruption is perceived
as almost nonexistent. Finland is tied for 1st place out of 179 countries
in Transparency International's Corruption Perceptions Index for 2007.
Finland is a signatory to the OECD Anti-Bribery Convention, and it is a
criminal act to give or accept a bribe.
Labour freedom 44.8%
Burdensome labour market
regulations hamper employment opportunities and productivity growth. The
non-salary cost of employing a worker is high, and dismissing a redundant
employee is relatively costly. Restrictions on the number of work hours
remain rigid.
— Courtesy: The
Heritage Foundation
Quick Facts
Population
5.3 million
GDP (PPP)
$173.9 billion
4.9% growth
3.0% 5-year compound
annual growth
$33022 per capita
Unemployment
6.8%
Inflation (CPI)
1.6%
FDI Inflow
$3.7 billion
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