Finland - Politics, government, and taxation

Finland is a parliamentary republic, with a president and a prime minister. The president is elected by popular vote for a 6-year term. The prime minister and a deputy prime minister are nominated by the president after the parliamentary elections, and the Eduskunta (parliament) must approve the president's nominations. The prime minister nominates ministers for the Council of State, or Valtioneuvosto (also simply called "the Government"), which is divided into 13 ministries overseeing various aspects of government. Nominations are approved by the president, and responsible to the Eduskunta.

The Eduskunta is responsible for legislation. Members are elected popularly under a system of proportional representation (voters elect parties, who have a number of seats in government related to the percentage of votes they receive). The election on 15 April 1999 put 10 parties in the 200-member Eduskunta. The Social Democrats (SDP) received 25.5 percent of the votes cast, the Center Party 23.5 percent, and the National Coalition (Conservative Party) 23 percent.

Women do not participate equally in government, but Finland's showing is better than most countries in this respect. In 2000, about 35 percent of the Eduskunta and 33 percent of the Cabinet were females. The Ministers of Foreign Affairs and Defense were female, as was the Speaker of Parliament. By comparison, in the United States women held 12 percent of the Congressional seats and 41.4 percent of the Cabinet seats in 2000.

The SDP has been the largest party in the legislature in almost every election since 1907. Its main base of support is skilled laborers, lower-class white-collar workers, small farmers, and professionals. It is also the closest party to the labor unions. SDP supported Finnish membership in the EU and voted in favor of Finland's entering the EMU in 1999. The National Coalition (also called Conservative Party, Kansallinen Kokoomus or "the Kok"), mainly represents private enterprise and the business community. The Kok strongly supported EU membership, favors limited spending, deregulation, and lower taxes but is still in favor of the welfare state. The Center Party has in recent years been split on the EU question, and it opposed Finland's joining of the EMU in 1999. Many of its voters live in rural areas, and the party especially represents agricultural interests.

In 1990, a conglomeration of socialists, ex-communists, and disenchanted Social Democrats, who believed that the SDP had compromised on social issues and international human rights, formed the Left Wing Alliance. There has been pressure on the government to cut costs and spending, and it has been difficult for the Alliance to remain in government alongside the Social Democrats and Conservatives. The long-established minority of Swedish-speaking people is represented by the Swedish People's Party (RKP), which consistently receives 5 to 6 percent of the vote and has a strong base of support in the Åland islands. The RKP generally supports center-right causes and also was in favor of EU membership. Since the party is able to compromise with both socialist and non-socialist governments, its swing vote has been used to protect Swedish-speaking community interests. As of 2000, Finland had the first Green Party in government in all of Europe. The Greens strongly oppose nuclear energy but favor a moderate approach to key economic issues such as forestry, taxation, and the welfare state. They have strong appeal to young, urban voters and to women. Of the party's 9 Eduskunta members, 6 are women.

Many other small parties in Finland also influence debate, although few make it into the Eduskunta. As in other Nordic countries, public debate in the 1990s and beyond is more likely to include a few voices from some extreme right-wing parties, some of which argue for tightening borders against immigrants and refugees, others for abolishing taxes and regulations on business.

Indirect state management of the economy is aided by regular meetings with representatives from industry and trade unions, as well as incentive programs that the government uses to promote investment in areas deemed to be in need of development. The programs include cash grants, loans, tax benefits, and investments in equity , guarantees, and employee training. One institution that demonstrates the Finnish government's ability to influence the economy in this way is the Technology Development Center (TEKES), founded in 1983 to fund R&D in technology. TEKES set the stage for advances and innovation in Finnish technology in the early 1980s and business in the 1990s. The government continues to invest in this direction, contributing almost one-third of the total spending on R&D in 1999. Total R&D spending in Finland is higher than in most other highly advanced economies like the United States and Japan; it was estimated at FMk22,334 million (including private investment) in 1999, or around 3 percent of the GDP. R&D expenditure had risen in real terms by almost 15 percent from the year before.

In Finland, 3 of the 10 largest companies were majority state-owned in 1998; "majority state-owned" means that the state has a majority of share-determined votes, ranging from 53.4 percent control to total control. State ownership occurs mainly in metals and mining, chemicals, and utilities. These companies do not receive subsidies or special treatment, and private companies are not excluded from these sectors (with the exception of Alko, the state's monopoly on liquor sales). Sonera, a telecommunications company, was the largest state-owned company in 1999, but it competes like any other firm in the market. In addition, the state is authorized to sell off all of its remaining shares in Sonera and is likely to do so. The state still owns significant shares in metals and mining, chemical, and utility companies, as well as Finland Post and the Finnish State Railways. Total state ownership has become rare. In November 2000, among the 15 most significant state-owned companies only Patria, a defense company; Vapo, a peat manufacturer; and Alko were 100 percent state-owned.

Until the 1970s, Finland also had a much smaller public sector (as a percentage of the GDP) than its neighbors. In fact, the ratio of the public sector to the GDP did not approach the rest of Scandinavia until the recession of 1990 to 1993, when the overall GDP shrank dramatically. Rather than increase spending, Finland simply did not decrease it at the rate that the other sectors had declined, so its share of the GDP overall was increased. When recovery began, the public sector grew, although still at a slower rate than other Scandinavian countries. The public sector in 1998 employed almost one-third of the population and accounted for well over half of the GDP.

The state may help to provide a new direction for Finnish agriculture, which has been challenged by EU requirements, by funding R&D for agricultural products in the "functional foods" category. The EU agricultural regime has led to falling domestic prices (as they must be on par with EU levels) and fiercer competition from EU agricultural imports. Most Finnish producers still supply the same amount of goods to the Finnish market but have thus far seen significantly lower profits.

Taxes are the government's main source of revenue. Total central government tax revenue in 1999 was FMk188,499 million, about 32 percent of which came from income and property taxes, and 32 percent from value-added tax (VAT). In the 1990s, Finland lowered and adjusted its VAT, especially after EU membership, since VAT rates must eventually harmonize with the EU taxation system. The standard Finnish VAT in 2000 was 22 percent, the VAT on foodstuffs and animal feed was 17 percent, and there was an 8 percent rate for entertainment events tickets, passenger transport, pharmaceuticals, and books. Personal income taxes are quite high; the highest bracket was officially 34.9 percent in 1999. Both the OECD and the International Monetary Fund (IMF) have urged Finland to cut its income tax to encourage employment. Corporate taxation is 29 percent, giving Finland one of the lowest rates among OECD countries, along with Sweden and Norway. To replace revenue lost from income tax and VAT reductions, the government has been imposing "green taxes," or taxes supporting environmental regulations. In 1995, over 6 percent of tax revenue came from environment-related taxes (approximately 3 percent of the GDP).

Communications
Country	Newspapers	Radios	TV Sets a	Cable subscribers a	Mobile Phones a	Fax Machines a	Personal Computers a	Internet Hosts b	Internet Users b
	1996	1997	1998	1998	1998	1998	1998	1999	1999
Finland	455	1,496	640	175.7	572	38.5	349.2	1,116.78	2,143
United States	215	2,146	847	244.3	256	78.4	458.6	1,508.77	74,100
Russia	105	418	420	78.5	5	0.4	40.6	13.06	2,700
Sweden	445	932	531	221.4	464	50.9	361.4	581.47	3,666
a Data are from International Telecommunication Union, World Telecommunication Development Report 1999 and are per 1,000 people.
b Data are from the Internet Software Consortium ( http://www.isc.org ) and are per 10,000 people.
SOURCE: World Bank. World Development Indicators 2000.