Working group proposes extensive package to improve employment

In March 2003, a working group on employment appointed by the Prime Minister published its final report on the economic and employment policy strategies by which the Finnish employment rate could be raised to 75% and unemployment reduced to below 5% by the end of the decade. The proposed actions cover policy areas such as innovation and education, economics and taxation, employment and pensions and regional policy. The response of social partners to these proposals has been mixed. Employers’ organisations welcomed proposed tax cuts whereas trade unions rejected proposed cuts in unemployment and pension benefits.

On 19 September 2002, Prime Minister Paavo Lipponen appointed a working group with a mandate to establish the economic and employment policy strategies by which the Finnish employment rate could be raised to 75% and unemployment reduced to less than 5% by the end of the decade. To this end, the working group was to propose:

• policies and means to cut structural unemployment significantly; and

• other policies and means to increase employment and safeguard an adequate level of labour supply.

The working group submitted an interim report on 22 January 2003, providing an overall view of the labour market situation and the outlook for the coming decades, and an assessment of the challenges to the achievement of the goals set for the group. The interim report contained no proposals for action. The final report was published on 31 March 2003 and contains an action programme through which the goals set for the working group can be attained.

The proposed actions extend far into the various sectors of social policy, comprising guidelines and proposals connected with areas such as innovation and education policy, economic and tax policy, employment and pensions policy and regional policy. The social partners have reacted most strongly to the proposed measures related to tax policy and employment and pensions policy (though these represent only part of a larger package).

The main recommendations concerning taxation policy are as follows:

• the income tax rate should be reduced during the term of the present parliament by 4 percentage points for all income brackets, reducing the highest marginal tax rate to 52%;

• employers' state pension contributions should be gradually phased out;

• corporate and capital tax rates should be reduced from the present 29% to 27% in 2004; and

• the current value added tax (VAT) rates of 8% and 17% should be merged, thus lowering the tax on food to 14%.

The Confederation of Finnish Industry and Employers (Teollisuuden ja Työnantajain Keskusliitto, TT) finds the working group's proposals to be well founded but would have preferred larger tax cuts in the face of international tax competition (FI0201142N). The Finnish Food and Drink Industries’ Federation (Elintarviketeollisuusliitto) welcomed the proposed cut in VAT on food from the present 17% to 14% but noted that the proposed 14% level is higher than the federation’s target level of VAT on food, 12%. The Employers’ Confederation of Service Industries (Palvelutyönantajat, PT) agrees with the general conclusions of the working group but states that the proposal to increase the lowest VAT rate of 8% to 14% is in contradiction with the overall employment goals and would have a negative impact on service sector employment. The VAT rate of 8% currently applies to books, medicine, public transport, accommodation, sports services, tickets to cultural and sports events, and TV licences.

The Confederation of Unions for Academic Professionals (AKAVA) is pleased with the proposal that tax rates should be cut for all income brackets, but strongly rejects, together with other trade union confederations, the changes proposed in the areas of unemployment and pension benefits. These are as follows:

• the duration of unemployment benefits should be based on the length of the recipient’s working history;

• a 500-day maximum period should be imposed on 'labour market support' (paid after the expiry of unemployment benefit entitlement) paid unconditionally;

• the use of employment subsidies - ie subsidies paid to employers for recruiting unemployed people - should be expanded;

• measures should be taken to dismantle the current 'fast track' for unemployed people to receive an 'unemployment pension' at the age of 60; and

• the conditions for receiving a part-time pension (ie combined with part-time work) should be made stricter.

At present, unemployed people can receive earnings-related or basic unemployment benefit for 500 days if they have worked for at least 34 weeks during the two years prior to becoming unemployed (receipt of earnings-related unemployment benefit requires an equally long membership of an unemployment fund, which in most cases is tied to membership of a trade union - FI0302204F). The working group proposes cutting this basic period of receipt of benefits to 200 days. After five years’ of employment, this period would be extended to 300 days, after 10 years to 400 days and after 15 years to the present 500 days. Unemployed people who receive earnings-related unemployment benefit would have a right to an employment subsidy when their unemployment allowance period expires. For other unemployed people, this right would commence when unemployment has lasted for at least 200 days. The employment subsidy would be paid to the employer and its maximum duration would be 12 months.

According to current regulations, after receiving unemployment allowance for the maximum 500 days an unemployed person may receive means-tested 'labour market support' for an unlimited period. The working group wants to limit this period to 500 days. Receiving labour market support for a longer period would be conditional on the unemployed person participating in 'activation' programmes.

At present, entitlement to unemployment benefits does not expire after the normal 500 days in the case of unemployed people aged 57 years or more, but continues until the age of 60, when unemployed people can become eligible for an 'unemployment pension'. This is known as the 'fast track' to an unemployment pension. The social partners had earlier agreed (FI9908114F) that unemployed people born after 1949 should receive unemployment benefit instead of an unemployment pension, and that the age from which unemployed people are entitled to extended unemployment benefits will be raised from 57 to 59, while at the same time protecting the unemployment pension of those born in or before 1949. The working group now wants to introduce new measures to dismantle the 'fast track' to unemployment pension for those born in or before 1949 as well, and it questions the possibility of an extended period of unemployment benefit for those born in 1950 or later. The working group would also like to raise the age limit for receiving a part-time pension from 58 to 60 and to introduce stricter rules for the working time and pension rights related to part-time pensions. The age limit for part-time pensions was lifted from 56 to 58 at the beginning of 2003.

The Central Organisation of Finnish Trade Unions (Suomen Ammattiliittojen Keskusjärjestö, SAK) and Finnish Confederation of Salaried Employees (Toimihenkilökeskusjärjestö, STTK), together with AKAVA, strongly reject the working group’s suggestions on unemployment benefits and pensions. According to the trade union confederations, these issues are a matter for tripartite negotiations. They point out that legislative changes on have only recently been made in these areas- based on tripartite negotiations (FI0112170F) - and state that previously agreed unemployment benefit and pension packages should not be unilaterally challenged. STTK further states that the proposal that the duration of unemployment benefit should be tied to the length of a person's working history discriminates against women who, due to childcare responsibilities, tend to have shorter working histories than men. In Finland half of the labour force are women, and the unemployment rate among men and women is about the same, at 9.1%.

A member of the working group, Per-Erik Lundh, a former president of the Metalworkers’ Union (Metallityöväen liitto), issued a statement in which he disagreed with the rest of the working group on the proposed changes to unemployment benefit and pensions. According to Mr Lundh, these changes would not bring new jobs but would cause restlessness and create poverty. When receiving the final report of the working group, the Prime Minister suggested that, together with the current negotiations over the formation of a new government (following a general election in March), tripartite negotiations should be launched on employment.