Statements

Statement by the Board of Directors of Finnish Enterprises on 18 November 2014:

The entrepreneur deduction is about equality between business forms

Juha Sipilä's government proposes that a new entrepreneur's deduction be introduced from the beginning of 2017. The deduction would be five percent of the profit of business entities, general partnerships and limited partnerships. In total, the deduction would mean a reduction of about two percent in entrepreneurs' taxation. The Government of the Federation of Finnish Enterprises supports the reform, as it puts different forms of company on a more equal footing in taxation. It is above all a question of equality between different forms of company.

Companies, general partnerships and limited partnerships have lagged behind the encouraging tax developments. In 2014, a corporate tax reduction came into effect, reducing the corporate tax rate from 24,5 percent to 20 percent. Corporate tax only applies to limited liability companies, meaning that companies, general partnerships and limited partnerships did not benefit from the reform. They were therefore left in a worse tax position than limited liability companies. In contrast, the capital tax increases made during the last government term apply to all forms of business.

About half of SMEs are non-limited companies, and they are not subject to the corporate tax rate. In practice, almost all new jobs are currently created in SMEs. Small businesses are also important job creators, as more than 10 percent of private sector jobs are in these companies. When the capital tax rate has been increased, but only the corporate tax rate has been reduced, the relative tax position of business forms has changed. At the same time, the earned income tax rate for the lowest income earners has been reduced somewhat, but not significantly. Incentives must be available for businesses of all sizes.

It is populist to claim that the entrepreneur deduction is crony capitalism. Of course, the deduction also benefits those who earn more, but it is particularly targeted at the smallest companies, which have often operated without any incentive compared to salaried work. According to the Tax Administration, there are approximately 176,000 business owners in Finland – legal entities, general partnerships and limited partnerships. Of these, 77 percent, or over 135,000 companies, have an annual taxable income of less than 30,000 euros. With the average income of YEL entrepreneurs of 47,000 euros, the deduction reduces the entrepreneur's taxation by approximately 940 euros per year. Only approximately 5000 high-income companies operating with an income of over 100,000 euros are covered by the deduction.

There is no reason to set an upper limit for the entrepreneur's deduction, because it is about bringing different types of companies more in line. The Federation of Finnish Enterprises believes that there is no reason to treat companies of different sizes differently. This was not done, for example, in connection with corporate tax reductions. The Federation of Finnish Enterprises proposed the introduction of the entrepreneur's deduction in its target programme for 2015–2019.

Statement by the Federation of Finnish Entrepreneurs on 25 August 2016:

Using adult education support to support the studies of the unemployed

1. Summary

The Federation of Finnish Entrepreneurs proposes using adult education support to support the studies of the unemployed. The key elements of the proposal are as follows:

• An unemployed person who meets the conditions would also be entitled to adult education support, not just those who are employed.
• The proposal can be implemented cost-neutrally and with minor legislative changes, utilizing current structures.
• In the proposal, the state would be responsible for the basic part of the adult education allowance for the unemployed, and the adult education allowance days used would count towards the person's maximum unemployment benefit period.
• If implemented, the proposal would encourage the unemployed to study for a degree that interests them or complete parts of one, thereby improving their labor market suitability without their livelihood suffering. Especially for those on basic security, livelihood would be even better, which would increase the incentive.
• The proposal would encourage the unemployed to specifically apply for training that promotes their employment, as adult education support days would consume the maximum period of unemployment benefit.
• The proposal would be almost cost-neutral for the state. Even if the state were to finance the improvement of the labor market eligibility of unemployed people through active labor policy to the extent of the basic component of the benefit, the proposed model would result in savings in basic security expenditures, because the basic component of adult education support is being reduced by 15% in 2017.
• Expenditures for Kela benefits paid alongside unemployment benefits could increase slightly.
• The proposal would also be close to cost-neutral for the unemployment insurance fund. The increase in expenditure would mainly come from the fact that people currently receiving basic security benefits would be entitled to adult education allowance. However, expenditure would be limited by the other conditions set for receiving adult education allowance (8 years of insured work history, studying at an educational institution under the supervision of a public authority). In this regard, it would be worth considering the utilisation of the share of unemployment insurance premium income paid by TVR to Kela.
• From the perspective of an SME entrepreneur, the model would produce professionals with modern training for the labor market.

2. Adult education support

2.1. Conditions for granting

Adult education support is paid by the Education Fund. The purpose of the benefit is to enable those in working life to renew, deepen and expand their skills and to move to a new profession. The Education Fund grants adult education support for studies leading to a degree, completion of a degree component and for additional and continuing vocational training at an educational institution under the supervision of a public authority. The educational institution must operate in Finland. The studies must be full-time during the support period.

In addition to a valid employment or civil service relationship, the following are required to receive adult education support:

1. the applicant has been in the workforce for a total of at least eight years [1] and
2. have been employed by the current employer or have been an entrepreneur for at least one year before the start of the subsidized studies and
3. takes unpaid study leave for a continuous period of at least two months or studies in shorter study periods or part-time for a total of at least 43 days and
4. does not receive any other support for studies.

2.2. Duration and amount

Adult education allowance is paid for a maximum of 19 months and its amount corresponds to the amount of earnings-related unemployment allowance without the increase components. The basic component of the allowance is the same as the basic unemployment allowance in 2016 (i.e. 702,62 euros/month, 32,68 euros/day).

The basic part of adult education support will be reduced by 15 percent as of 1 August 2017. In addition, for all applications received on or after 1 January 2017, the maximum duration of support will be reduced by four months to 15 months.

2.3. Financing

The basic part of the adult education allowance is paid from state funds. The Unemployment Insurance Fund (TVR) is responsible for financing the earnings-related part and the fund's administrative costs.

From the beginning of 2017, TVR will be fully responsible for the employee's adult education support.

3. Current situation

3.1. Adult education levels

In 2015, the Education Fund decided on just over 35,000 applications for adult education support. Of these, just under 31,000 were positive for the applicant. The use of adult education support has been on the rise in the 2010s.[2] In 2016, there will be a particularly large number of adult education support grants due to the upcoming legislative change.

Adult education support paid amounted to 136 million euros in 2015. The basic component accounted for just under half of this (63 million euros).

3.2. Unemployment insurance

According to Statistics Finland's labour force survey, there were 214,000 unemployed people in July 2016. At the end of the same month, there were 378,400 unemployed job seekers in TE offices. During August 2016, almost 200,000 people received unemployment benefits.

In 2015, unemployment benefits totaled just over 5 billion euros. Of this, almost 4 billion euros were for passive protection.[3]

According to Kela statistics, the number of recipients of earnings-related unemployment benefits has fluctuated over the past year between 160,000 and 190,000 people, basic unemployment benefits around 40,000 people, and labor market support between 190,000 and 200,000 people.

The average unemployment benefit from January to August 2016 was 47,57 euros, of which the basic unemployment benefit is 32,68 euros, meaning that 14,89 euros remains as earnings-related benefit.

3.3. Studying with unemployment benefits

As a general rule, a full-time student cannot receive unemployment benefits. However, during the period of employment training offered by the TE Office, the job seeker's livelihood is secured by unemployment benefits. The aim of vocational employment training is often to complete a basic, vocational or specialist vocational qualification or part of a qualification. In addition, further or supplementary training is organised in many different professional fields.

In 2015, approximately 12,000 job seekers completed vocational workforce training.[4]

Unemployment benefit can also support a job seeker's self-directed education. However, before the education, the TE Office assesses whether the prerequisites for the educational needs of the person planning to study and for supporting self-directed education are met. A person aged 25 can receive unemployment benefit during the period of study if the job application at the TE Office is valid and, according to the TE Office's assessment, the person is in need of education and the education will improve their professional skills. The studies must be full-time and lead to a basic vocational qualification, a vocational qualification or a specialist vocational qualification, a lower or higher higher education degree at a university or college, or to completing parts of the aforementioned qualifications.

4. Changing adult education support to also provide support for the unemployed during education

Although there is a large supply of labour, the availability of labour is perceived by SMEs as one of the most significant barriers to employment.[5] The skills of the unemployed and the needs of employers do not currently meet in an adequate way. To solve this problem, training started/continued while unemployed should also be supported, in addition to strengthening the skills of people in employment.

The purpose of the unemployment insurance system is to provide a person with income security in a situation where they are without it due to unemployment or lack of work. Students' income is mainly secured through student social benefits.

The Ministry of Employment and the Economy has considered reforming adult education support so that unemployed people could also receive the benefit under the same conditions as those currently granted to employed people. In practice, this would mean that the conditions of a valid employment relationship or entrepreneurial relationship and being on study leave would be waived. An unemployed entrepreneur or employee who meets the other requirements for receiving the benefit could study or complete part of a degree-oriented education course while receiving adult education support for the period of study.

Those in employment have not made very extensive use of the opportunity for adult education support. Unemployed people often have an interest in developing their own professional skills, so it is assumed that if a change were made, the use of adult education support would increase. It would be most sensible to implement the reform in a cost-neutral manner.

• According to statistics from the Finnish Centre for Pensions, at the end of 2015
• non-retired
• People aged 18–65
• with at least 8 years of work history

was slightly over 1,9 million. Of these, approximately 1,7 million people were insured in their employment at the time of their employment. In practice, this would mean that extending adult education support to unemployed people would mean that the circle of those entitled to the benefit would expand by approximately 200,000 people.

The transition to the unemployed adult education allowance would be particularly encouraging for those currently receiving unemployment benefits from Kela, as their adult education allowance could be even higher than the unemployment benefit due to the earnings component. This could lead to some increase in benefit costs for TVR.[6]

However, the use of unemployment benefits during the inactive period would decrease as people switched from unemployment benefit to adult education support. Also, the slightly lower level of adult education support than earnings-related allowance would in practice mean savings in benefit costs for those on earnings-related allowance. On the other hand, the costs of Kela benefits paid alongside unemployment benefit could increase slightly.

From the beginning of 2017, the financing of adult education support for employed persons will be transferred entirely to the Unemployment Insurance Fund, with the exception of entrepreneurs, whose basic level of adult education support will continue to be financed by the state. Since the basic level of adult education support is lower than the average unemployment benefit, the change would likely cause additional costs for the Unemployment Insurance Fund. Since the aim would be to improve the labour market suitability of unemployed persons through active labour market policy and by utilising current structures, it would be justified for the state to participate in the financing of their adult education support to the extent that it concerns the basic level of support. This would not increase state expenditure, since the state already finances an amount equivalent to the basic level of unemployment benefit for the unemployed, and the basic level of adult education support will in future be 15% lower than the basic level.[7]

It would also be justified that the adult education allowance received while unemployed would consume days that count towards the person's maximum unemployment benefit period, because their labour market eligibility would improve with the training. This would also direct the person to seek training, which would be beneficial in terms of employment. In addition, the change would also be cost-neutral from the perspective of the unemployment insurance fund.

[1] All employment relationships for which the employer has had an insurance obligation, and in addition, pension-insured business activities. Until 31 December 2006, according to the duration of employment and civil service relationships and entrepreneurial activities. For the period after 1 January 2007, it is calculated on the basis of annual earnings per calendar year. The number of months of cumulative work history is obtained by dividing the earnings of the calendar year by an annually confirmed divisor.

[2] Source: Education Fund: Number of beneficiaries and paid adult education subsidies 2001-2015

[3] Earnings-based unemployment allowance approx. 2,5 billion, basic unemployment allowance approx. 0,3 billion and labour market support approx. 1,2 billion. Source: Kela: Monthly statistics on unemployment benefits in Finland in August 2016.

[4] Source: Labour Policy Magazine 2/2016.

[5] Source: Ministry of Employment and the Economy: SMEs and labour market mismatch.

[6] On the other hand, TVR annually pays an amount to Kela from the unemployment insurance contribution income of employees, which corresponds to the share of employees not belonging to unemployment funds among all employees. In 2015, Kela paid unemployment benefits of approximately 2,1 billion euros. TVR's share of the benefit costs was 121 million, or approximately 6%. In this regard, it could be investigated whether the item is used to finance the earnings-related part of the unemployed adult education allowance. Source: Kela's Annual Report 2015

[7] On the other hand, if many long-term unemployed people receiving labour market support were to go to study after the change, it would have an effect on increasing state benefit costs, as the state pays 50% of the benefit costs for those receiving labour market support for more than 300 days and 30% for more than 1,000 days. The municipality is responsible for the rest.

Statement of the Confederation of Finnish Entrepreneurs on social welfare and regional reform, 7 October 2016

The social and health service and regional reform affects companies of all sizes in all sectors. The merger of municipalities and state regional administration creates an opportunity to make services aimed at companies more efficient. At the same time, energy is freed up in municipalities to make even better economic policy. It must be ensured that, in addition to municipalities, the regions also have sufficient interests and resources to provide services for companies. In connection with the reform, a one-stop service model for all business services must be created.

Reforming the service structure of social and health care is essential both from the perspective of the sustainability of public finances and basic services for citizens. If the costs of social and health services cannot be contained, the tax burden risks increasing to the point that it stifles the conditions for entrepreneurship through the deterioration of competitiveness.

The government's social and health reform aims to narrow the gaps in people's well-being and health, improve the equality and accessibility of services, and contain costs. The Federation of Finnish Enterprises shares the goals. However, they will not be achieved by changing administrative structures alone. Bold reform of operating methods is needed, which is only possible through open cost and quality comparisons and healthy competition.

Freedom of choice is the most important element of social and health care reform

The most important element of the health and social care reform is freedom of choice. The goal of the Finnish freedom of choice model should be “more health for the same money”. Freedom of choice must be implemented comprehensively and broadly so that the customer’s influence on the services that affect them increases. The government must adhere to the policy that freedom of choice should be the main rule in basic services and should be utilized in special services where appropriate.

The services that fall within the scope of freedom of choice should be defined and decided nationally. The regions should not be given their own decision-making power over the model or extent to which they implement freedom of choice.

It is very important to ensure that an enabling operating environment is created. In principle, a permit to operate as a service provider of social and health services should be sufficient to operate in a market of freedom of choice. It must also be ensured that unreasonable requirements are not set for entering the market. The province must ensure that freedom of choice is realized and that there are enough different service providers in the area.

Freedom of choice should enable the operation of SMEs

The government must stick to its policy of creating a system of freedom of choice that ensures the opportunities for new operators and SMEs to provide services. The freedom of choice model must be designed to strengthen domestic entrepreneurship and give professionals, sole proprietors and SMEs room to operate.

The freedom of choice model should be two-stage. In the first circle of freedom of choice, the customer chooses the provider of their basic services. The customer makes this choice even before they have a need for the services. The service provider receives basic funding through the listing, with which they must produce a basic service package for the customer.

The basic service package should be concise and include only the most used services, so that

• the customer's freedom of choice is as broad as possible
• Even in areas with smaller populations, several different providers of basic services will emerge.
• domestic SMEs can act as producers of basic services

When a customer needs additional services that are not part of the basic services but are part of the freedom of choice, the basic service provider applies for a service or customer voucher that entitles the customer to the necessary services. The customer can choose that service provider again.

A service or customer voucher system enables

• for simple and frequently used services, automating the service voucher process
• a service needs assessment made by the organizer as an official decision
• the activities of SMEs and the self-employed
• productization of services into service chains and unified cost accounting
• with the information produced by the electronic system for open comparison, monitoring and development

Multi-provider model and open cost comparison for special-level services

The province must also organize services that are not subject to freedom of choice using a multi-producer model, making the most extensive use of services and service vouchers produced by the private sector. A multi-producer model and open comparison of quality and costs can ensure efficient and quality-conscious use of common tax euros.

Statement of the Confederation of Finnish Entrepreneurs on 22 October 2010:

Personnel welcome in company decision-making

Unemployment is the biggest problem in Finnish society. There are over 450,000 people of working age without work. It costs society 7,6 billion euros a year. Unemployment is a tragedy for the unemployed person and their family. It is a huge waste of skills. Work is needed to maintain a welfare society. If Finland wants to continue to be a welfare state, a major change is needed in the labor market.

There is no work without competitiveness. Employment can only be strengthened in a sustainable way through profitable business. The most effective way to strengthen competitiveness and create new jobs is to significantly expand the possibilities for local agreements. The expansion was stalled in the Competitiveness Pact, but it is essential to return to the issue as soon as possible.

The Confederation of Finnish Entrepreneurs emphasizes that the government's program contains good entries on reforms. European countries have been able to implement structural and regulatory reforms in the labor market that have increased employment, which have still not been implemented in Finland. Overcoming unemployment requires reforms in our country as well. This fact must not be avoided.

The Confederation of Finnish Enterprises is ready to support a model in which a staff representative is involved in the company's administration, if it can be used to promote local agreements. The participation model would be agreed upon locally in the company with the staff representative. It must also be possible to agree on the model with the entire staff. The representative in the administration could, for example, be a shop steward, a shop steward or another representative chosen by the staff. This would help to ensure that employees have sufficient information about the company's situation, which is a prerequisite for successful local agreements.

There are excellent opportunities for negotiation in Finland. According to international studies, trust between people is the highest in Europe in Finland and there is very little tension between management and employees. Studies have shown that trust is strongest in small companies and information flows openly in the workplace. This is proven year after year by the Ministry of Employment and the Economy's Working Conditions Barometer.

The use of strong trust is underused in Finland, because we have an exceptionally rigid, top-down system for determining employment conditions. If we want more jobs in companies and the Finnish economy to grow, the dynamics of the labor market must be increased. Regulation can be relaxed and made more flexible without weakening the position of the employee.

Statement by the Federation of Finnish Entrepreneurs on 25 August 2016:

Work in Finland – changes to structures

1. Forecasted economic growth will not bring relief to the labor market

Although the economy has picked up slightly and many SMEs are optimistic about the outlook, Finland's economic situation will remain weak in the coming years. According to preliminary statistics, the Finnish economy grew by only 0,2 percent last year after three years of recession. The consensus view is that economic growth will be around 1 percent over the current and next couple of years, and that growth will come almost entirely from domestic demand, i.e. mainly private consumption and private investment.

The weak development of the real economy also means that no turnaround is expected in the weak situation of public finances and that the problems in the labour market will continue. The weak development of the real economy is by far the biggest problem of the Finnish economy. Exports have grown and are growing more slowly than world trade. This means that Finland is losing market shares. The loss of market shares is due to Finland's acute competitiveness problem. The Competitiveness Pact is a move in the right direction, but it is completely insufficient. The pact does not change the structure of the labour market in a substantially more flexible direction and thus does not affect the availability of the production input needed by companies on competitive terms.

It is clear that the government's target of a 72 percent employment rate will not be achieved during this term of government. The downward trend in the unemployment rate has stopped and the growth in long-term unemployment is rising sharply. The costs of unemployment are becoming a larger decline for society than previously estimated. There are already almost 130,000 people who have been unemployed for more than a year, and the number has increased by just under 20,000 per year. The growth in long-term unemployment has been strongest among those in prime working age, i.e. those aged 25–54. So-called widespread unemployment, i.e. the total number of unemployed job seekers and people in activation services, is already over 450,000 people.

When interpreting Statistics Finland's sample-based unemployment figures, it is important to remember that some of the unemployed have given up actively seeking work. Statistics Finland's concept of unemployment requires active job search during the last 4 weeks, and thus the inactive unemployed are classified as hidden unemployed. There are currently approximately 1,37 million people outside the labour force, which is 25,000 more than a year earlier. There are already 165,000 hidden unemployed people outside the labour force, an increase of approximately 22,000 from a year ago.

2. Raising the employment rate as a strategic goal

The strategic goal in developing employment legislation must be to facilitate employment and increase the employment rate. It must be realized that labor and social legislation also regulates market operations, affecting demand, supply, and labor market dynamics.

Addressing Finland's difficult unemployment situation and raising its low employment rate require bold changes to the labor market structures. Otherwise, Finland cannot succeed. The Finnish labor market is inflexible, the regulatory system is complex, and there is little freedom to agree on working conditions. According to studies by the World Economic Forum (WEF), wage formation is the most rigid in the world.

The system of universally binding collective agreements is uniquely strict and is not known in any other European country. The system is also questionable from a fundamental rights perspective, for example because companies that are members of an employer's association can agree on exceptions to the provisions of the collective agreement more freely than non-union companies. The inequality between companies in the local bargaining permitted by collective agreements must be remedied in a way that does not discriminate against employees who are not members of an employee association.

3. Making work easier

3.1 Freedom of contract to be increased

Legislation must be developed so that all companies and workplaces have the opportunity to agree on arrangements that deviate from the collective agreement together between the personnel or their chosen representative and the employer. Based on data from the SME Barometer, the Confederation of Finnish Enterprises has estimated that a significant expansion of workplace agreements would create up to 65,000 new jobs in Finland within a few years. It is also possible to investigate the effects of workplace agreements by testing a model for a few years in which companies are given the opportunity to deviate from the provisions of collective agreements together with employees.

The majority of Finnish employers are very small. The approximately 50,000 employers that follow a generally binding collective agreement have an average of five employees. Companies are diverse, and companies operating in the domestic market also face the challenges of global competition. Companies and their employees need more freedom to organize work and employment conditions in a mutually agreed manner. Rigid structures and limited freedom of agreement do not provide the necessary tools to respond to the changing competitive situation.

In determining employment conditions, we must therefore take a leap towards local bargaining, as is the case in the rest of Europe. According to studies conducted both internationally and in Finland, for example, the key success factor in Germany and the most significant change that has improved employment has been the significant increase in local bargaining.

3.2 Reducing the risk of employment

One of the main obstacles to recruitment related to employment law is the overly strict individual-based dismissal protection. Every employee is an important key person in a small company, and therefore the relative risk of hiring is also considerably high.

Hiring can be made easier directly through legislation by relaxing the grounds for dismissal related to the employee in the Employment Contracts Act in companies employing fewer than 30 people. The change is likely to quickly achieve visible positive effects on the willingness of small companies to hire and thereby on employment.

3.3 Labor legislation as a focus of deregulation

Increasing the flexibility of labour legislation must be defined as the focus of the deregulation. All labour legislation must be assessed from the perspective of the extent to which the current mandatory provisions are needed. Mandatoryness must be relaxed by changing absolute provisions and provisions agreed between the parties to collective agreements to provisions directly agreed between the employer and the employee. This would allow for more extensive agreements than currently possible on, for example, sick pay and overtime and Sunday work compensation.

4. Making work motivating

4.1 Incentive traps must be dismantled

An employment relationship only arises if hiring makes economic sense for the company and if it is worth the person to accept the job. Currently, a lot of work is not done because the wage level required by collective agreements is too high in relation to the individual's productivity. This leads to an increase in unemployment with all its negative consequences.

The current wage subsidy system is based on supporting the employer. The structures need to be changed so that the income transfer is directed directly to the individual. In this case, the company can pay wages according to the person's productivity, and if necessary, income is supplemented with income transfers. This reduces the bureaucracy related to wages for the company, thus facilitating employment and improving employment. Income transfers can be gradually phased out as the employee's productivity and, through it, their wages increase.

To encourage people to take up work, it is urgent to identify which aspects of the social security system are slowing down employment. Incentive traps must be dismantled so that taking up work is always profitable.

4.2 The unemployment security system must be developed

The unemployment insurance system must be changed in an activating direction. Social benefits paid to the unemployed during the period of study must be developed and the level of unemployment insurance must be graded based on the duration of unemployment. Grading activates job search and is also an economically efficient labor policy.

5. More pathways to working life

5.1 Apprenticeship model for young people and training contract for use

Companies concluded only a few apprenticeship contracts with young people. In 2014, 4,1 percent of apprenticeship contracts were concluded with people under 19 years of age. The main reason for the low figure is that the apprenticeship wage does not correspond to the student's skills. Therefore, the apprenticeship wage of young people without vocational training must be tied to the development of skills. Apprenticeship training would continue to be based on an employment contract.

The new apprenticeship model for young people would significantly lower the threshold for entrepreneurs to train and employ. Young people would receive a salary tied to their professional and skills development. The model would be almost cost-neutral for society. The state contribution paid by the state would be returned in taxes, productivity and employment already during the training.

In addition to the apprenticeship contract, the training contract, which will be introduced from the beginning of 2018, is an important route towards working life. For example, the training contract can be part of a combination that can also include studies at an educational institution or apprenticeship training. The aim is to increase the working-life orientation of studies and facilitate employment after completion of studies. The entry into force of the training contract is linked to the comprehensive reform of vocational education. However, the use of the training contract in the integration of immigrants should be brought forward so that it is introduced already in 2017.

5.2 Integration agreement for immigrants

The integration of immigrants into Finnish society and working life must be made a priority of labour policy. Last year, over 32,000 asylum seekers arrived in Finland. A significant number of them receive a residence permit in Finland. Some of those who receive a residence permit find employment in the open labour market.

However, other avenues into working life must also be created. A special integration agreement model must be created for immigrants. In it, a person who has received a residence permit and a company enter into an integration agreement, within the framework of which the person comes to the company for a fixed period to learn the language, culture and Finnish working life. The integration agreement does not create an employment relationship between the parties, but the person receives labour market support for the duration of the agreement. In addition, the company can, however, pay an agreed amount of salary if it wishes. After the integration agreement ends, the person's readiness to find employment in the open labour market would be significantly better. The integration agreement model would also contribute to implementing the state's integration programme outlined in the government's decision-in-principle.

6. Accelerate investments

According to the SME Barometer, companies' financing intentions will increase slightly over the next year. The financing intentions are driven by observations of an economic recovery and the subsequent increase in investment activity.

There are still many challenges in securing financing for SMEs. Strict regulation of banking activities, lower than normal demand for credit and weakened creditworthiness of companies are reflected in the external financing of SMEs. According to the autumn SME Barometer, fewer than one in two companies have a loan from a bank or other financial institution.

The Barometer shows that one in ten SMEs has not applied for financing, even though there was a need for financing. A significant proportion of SMEs that need financing do not apply for it. The reason is primarily the strict collateral and loan requirements.

The terms and availability of financing have a direct impact on how companies are able to implement various projects. The SME Barometer shows that just under a fifth of the projects planned by companies were not implemented or were implemented differently than planned due to difficulties related to the availability and terms of financing.

Although it gradually seems that the biggest changes in credit policy are over, almost half of the barometer respondents report that credit policy has continued to tighten. The credit policy of financiers has changed very extensively. In addition to rising margins and stricter collateral requirements, equity requirements have also increased and loan requirements have become tighter.

In tax policy, the Federation of Finnish Entrepreneurs proposes a flexible investment and operating reserve. A broad-based and flexible reserve should be created for corporate taxation, which could be a step towards a more far-reaching structural reform to postpone corporate taxation. The flexible reserve will be used to obtain the working capital necessary for companies.

It is essential that SMEs' increasing need for financing is met. This will help to secure growth opportunities and the jobs created through new investments.

Statement by the Board of Directors of Finnish Enterprises on 18 November 2014:

The country's government is too much for labor market organizations to handle - the unemployed are suffering

The board of the Finnish Confederation of Entrepreneurs is disappointed that the country's government is not making necessary structural reforms to the economy. They are not being made when the government is forced to seek permission from the social partners through working groups.

The Board of the Federation of Finnish Entrepreneurs commends some of the policies in the government's budget proposal. The entrepreneur deduction, contribution-based VAT and the expansion of the household deduction have long been on the agenda of entrepreneurs.

These are important things for entrepreneurs. They encourage entrepreneurship, but they are not enough to create sufficient growth and employment.

The self-employed deduction and contribution-based VAT are important above all for small and sole proprietors, of which there are many in Finland. Many of them have very low incomes.

The rapid progress of local agreement on tax reduction conditions – where did it go?

The government promised tax breaks of 515 million euros, as the competitiveness pact's coverage is over 90 percent. Originally, the government also required progress in local agreements. Collective agreements were to include provisions on local agreements regarding working hours, wages, salary supplements and other compensation, as well as survival clauses.

No explanation has been presented on how local bargaining actually progresses in collective agreements. The government has granted tax breaks worth over half a billion euros without caring about the goals it has set itself.

According to the Finnish Enterprises Board, structural reforms to the labor market are urgently needed. For example, in other Nordic countries and Germany, local agreements, reducing employment risks, and modernizing labor regulations have created new jobs.

Why doesn't Finland use these proven, effective employment tools?

The public sector also needs to be reduced more, as it cannot afford to cover its expenses, taxation is too harsh, and debt is too high.

This generation is leaving an unreasonable debt burden for future generations.

Labor market organizations are taking a backseat to democracy

The Finnish Federation of Enterprises condemns the fact that the government seems to have taken the preparation alone with the labour market organisations as its normal practice. In the government programme, the government declared itself to be a government of solutions capable of reforms and that strengthens trust. A year and a half later, the government has surrendered to the labour market organisations.

New jobs are created in SMEs. Yet the government repeatedly bypasses entrepreneurs from key preparations. This is what happened with the competitiveness pact, this is what happened with the watering down of local agreements, and this is what is happening with this extension.

However, reforming unemployment benefits and wage systems is essential for employment. According to OECD research, Finnish unemployment benefits are one of the most lenient in Europe and do not provide sufficient incentives to take up work.

Statement by the Federation of Finnish Entrepreneurs on 25 August 2016:

10 ways to achieve economic growth and better employment

Economic growth has started in Finland, but unfortunately slowly. With foreign trade sluggish and global economic growth slowing, special attention should be paid to small and medium-sized enterprises, which are a strong source of growth.

Investments support economic growth immediately and play an important role in creating the conditions for longer-term growth. Therefore, it is justified to take investments into account in economic policy decisions.

The difficulties faced by the Finnish economy in recent years are long-term and only partly cyclical, highlighting the need for policies that support the long-term conditions for growth and investment.

The Federation of Finnish Entrepreneurs proposes ten reforms that would boost economic growth and employment.

Local agreements should be promoted through legal changes

According to the Government Programme, the Government will implement reforms that will increase the willingness of SMEs to employ in particular in order to create new jobs. The aim is for companies to be able to agree locally on improving competitiveness, strengthening employment and terms of employment, such as wages and working hours, to a greater extent than at present. The Federation of Finnish Enterprises has estimated, based on data from the SME Barometer, that a substantial expansion of workplace agreements would create 60,000–65,000 new jobs.

The government's goal of increasing the employment rate requires structural changes

Finland's rigid system for determining employment conditions. Therefore, it is important to make legislative changes in accordance with the government program that enable deviations from the provisions of the collective agreement regarding working hours, pay and various compensations through a workplace-specific agreement.

Amendment to the Employment Contracts Act to facilitate dismissals based on personal reasons in small businesses
Dismissal on personal grounds has proven difficult in practice. According to the law, the grounds must be “weighty and relevant”. Fear of recruitment errors makes it difficult to employ. The consequences of unsuccessful recruitment are all the more damaging to the company, the smaller the company.

It is therefore important to make it easier to terminate employment contracts on personal grounds in companies employing fewer than 30 people. The regulations should be changed so that a factual reason or acceptable justification is sufficient to terminate an employment contract on personal grounds. This would encourage small companies to hire new employees more boldly.

Encouragement to accept work

The government has proposed changes to the unemployment security system that aim to speed up the process of finding work and shorten periods of unemployment, for example by tightening the obligation of the unemployed to apply for offered work and the obligation to participate in measures that improve employment conditions under the threat of losing unemployment benefits.

It is still important to develop the unemployment security system so that more unemployed people can update their skills and find work. For example, it is worth developing social benefits paid to the unemployed during their studies and grading the level of unemployment security based on the duration of unemployment.

To encourage people to take up work, we need to identify which aspects of our social security system are slowing down employment and dismantle them so that work is always profitable.

Regulatory rationalization ambition needs to be increased

The government has launched a determined effort to rationalize legislation. The government has the right goals in deregulation, but the level of ambition needs to be increased. The additional costs caused by unnecessary regulation fall particularly heavily on small businesses. Therefore, the government must launch a deregulation operation that will ease the burden on SMEs in particular.

As part of Operation Deregulation, a concrete target for reducing the cost burden of regulation must be introduced. This is the one-in, two-out principle: the costs of new regulation must be offset by at least double the cost reduction. Only through a concrete target can the growth in overall regulatory costs be contained.

Increasing the flexibility of labour legislation must be defined as the focus of the deregulation. All labour legislation must be assessed from the perspective of the extent to which there is a need for current mandatory provisions. Mandatory provisions must be relaxed by changing absolute provisions to be negotiable between the employer and employee. This would allow for more extensive agreements than currently possible on, for example, sick pay and overtime and Sunday work compensation.

Training contract to be extended

The training agreement lowers the employment threshold for young people and immigrants. It creates jobs and reduces exclusion. The training agreement will enter into force on 1 January 2018 as part of the overall reform of vocational education. The use of the training agreement in the integration of immigrants should be brought forward so that it is introduced as early as 2017.

Housing construction in the Helsinki Metropolitan Area must be accelerated

The need for housing production is constantly increasing in growth centers. Employment and economic growth should not be jeopardized by undersized housing construction. Housing is most expensive in the Helsinki metropolitan area, where housing costs are also rising the fastest.

The rise in cost levels in the Helsinki Metropolitan Area and other growth centres is also fuelled by the imbalance between migration and insufficient housing construction. Municipalities have a monopoly on planning. A key obstacle to increasing affordable housing production is the shortage of land, which could be resolved through political decision-making.

Competition and market orientation must be increased

Improving competitive conditions requires, in particular, ensuring competitive neutrality. Competitive neutrality means a fair competitive environment between public and private business activities.

The consideration of the draft law on public procurement reform must emphasize competitive neutrality and the equal position of SMEs with other bidders. The keys to strengthening competitive neutrality and increasing market orientation are the division of public procurement into lots, a strict attitude towards affiliated entity procurement, and increased advice.

The value of public procurement in Finland alone is 35 billion euros per year. Excessively large individual procurements often prevent SMEs from participating in tenders. In the consideration of the bill and the implementation of the new law, care must be taken to ensure that the goal of distributing procurement is achieved across the board, from large to small procurements.

At the same time, it must be ensured that companies are offered advice on matters related to the Procurement Act. This benefits customers, bidders and taxpayers. Advice that promotes dialogue ensures better requests for tenders and offers, i.e. produces more benefits from competition.

The volume of mail subject to Posti's universal service obligation is decreasing at an annual rate of 10 percent and 70 million euros. The state does not subsidize Posti, so the current service obligations create an incentive for Posti to seek revenue from other activities. The problem from a public finance perspective is that different operators use the same routes (for example, municipal home care and Posti), and both routes are subsidized.

The state should retain only the responsibility for organizing Posti's universal services. The production of the delivery service should be opened to competition. The services should be put out to competition in sufficiently small parts to enable small operators to enter the market.

Flexible investment and operating reserves are needed

Deferring corporate taxation until the time of profit distribution or a provision encouraging investments would promote investment and employment. A broad-based and flexible investment and operating provision should be made for corporate taxation, which could be a step towards a more far-reaching structural reform to defer corporate taxation.

A flexible reserve is used to obtain the working capital needed by companies. When a company makes a reserve of, for example, 30 percent of its profit, taxation can be deferred and the reserve can be flexibly used for investments, salaries, product development costs and other expenses. A flexible reserve is also a useful supplement to the current loss carryover. When a reserve is made, it should not be financed by increasing other taxes, as this would eat into the growth boost brought by the reserve.

The reserve could promote recruitment in small businesses, as the hiring costs of the first employee could be deducted from the reserve at an increased rate.

Ownership changes should be promoted

There are approximately 78,000 entrepreneurs over the age of 55 in Finland. 39 percent of these intend to sell their companies to outsiders and 23 percent wish to have a generational change. It is socially justified to create incentives such that the change of ownership and generation is successful in as many cases as possible. The tax treatment of changes of ownership is key here.

The company's employees know the company's market. However, there are some problems with share transfers to employees. If the transfer is undervalued, the benefit is taxed as the employee's earned income, which can be difficult due to progression. If the shares are transferred at a fair price, it may be difficult for the employee to obtain financing. It should be possible for the company's employees to acquire shares or stakes at a lower valuation than other investors without tax consequences. The reform could promote the sale of companies to employees who continue to operate.

One way to encourage transfers is to change capital gains taxation from performance-based to mainly payment-based. This would mean the same main rule as in other personal taxation: payment and taxes in the same year. The abolition of the asset transfer tax could also help to speed up changes of ownership. Alternatively, an interest-free extension of the asset transfer tax payment period or changing it to also payment-based would ease tax penalties.

SME financing needs to be developed

Monetary and fiscal policy have contributed to supporting investment development in Finland during the economic difficulties that began in 2008, but financing conditions appear to have developed less well for small and medium-sized enterprises than for large enterprises in recent years. The financing conditions for small and medium-sized enterprises have been tightened by the tightening of banks' capital adequacy requirements. Therefore, it would be justified to continue to reduce the risk weights of SME loans.

It is particularly important to ensure that the risk weight reduction for SMEs is continued. According to the Capital Requirements Regulation (CRR Article 501), which entered into force at the beginning of 2014, the risk weights of loans to SMEs that meet certain criteria can be scaled down by almost a quarter of the baseline requirement. The risk weight reduction is not permanent, and the Commission must assess the need to continue the reduction by the beginning of January 2017. The provision is one of the few areas of the reform that attempts to balance the negative effects of the tightening requirements through reductions.

Investment decisions of companies are largely determined by expectations about the future. In a situation where growth expectations are low for a long time to come, more inflexible lending, with increasing collateral requirements and increased use of contractual guarantees, leads to a situation where the expected return on investments is insufficient in relation to financing costs. To alleviate this, the possibilities of utilizing interest rate subsidies in the SME sector to promote investments should be explored.

Statement by the Board of Directors of Finnish Enterprises on 18 November 2014:

The Finnish labor market must be reformed — workplace agreements would accelerate growth, universality must be abolished

One of the main reasons for Finland's sluggish economic growth and mass unemployment is a weakly functioning labor market and overly burdensome and outdated labor market regulations. Finland has not been able to reform the labor market in a way that would properly accelerate growth and encourage companies to invest and employ. Therefore, it is very important that the government implements its program to increase employment, as was emphasized at party meetings over the weekend.

Another year of stagnation has passed, with labour market organisations starting and ending negotiations numerous times. The negotiations finally led to the Competitiveness Pact on 10 June 2016. The Board of the Federation of Finnish Enterprises states that the Competitiveness Pact stabilises the Finnish economy and is therefore necessary. However, it is not the sufficient structural change that Finland needs.

The most important labor market reform in the government program was watered down when the government in February transferred local agreements to the negotiation table of the labor market partners. Therefore, there is still no significant progress in workplace agreements unless the government takes a determined approach to the matter. According to information from the Confederation of Finnish Industries (EK), for example, working time banks only apply to less than a quarter of the workforce of member unions, despite their registration in the competitiveness agreement. There is also room for improvement in the coverage of the survival clause. The union round did not even come close to achieving the goals of the government program.

If the law allowed a workplace to deviate from the provisions of the collective agreement on working hours, wages and various compensations by means of a joint workplace-specific agreement, the employment threshold for SMEs would drop significantly. The employment impact compared to the basic career would be 60,000–65,000 new jobs. The estimate is based on the SME Barometer of the Ministry of Employment and the Economy, Finnvera and the Federation of Finnish Enterprises.

Developing country for local agreement

Finland is a developing country in terms of local bargaining. The highest price is paid by the unemployed and their families. Finland has the world's most rigid wage formation and Europe's most centralized labor market system. Nowhere else is there a labor market like Finland and the universally binding nature of collective agreements that rigidifies bargaining and restricts competition. Bold measures are needed to make labor regulations more flexible, increase fair competition in the labor market, and genuinely liberalize bargaining in the workplace. SMEs have good conditions for bargaining because, according to research, they have the strongest trust.

Bringing companies in the generally binding field to an equal position in workplace agreements should be implemented in a way that does not discriminate against anyone and is not contrary to the Constitution. The board of the Finnish Confederation of Enterprises states that the organization could not accept the compromise proposal based on the Competitiveness Agreement, which would have strengthened the generally binding nature, increased structural discrimination, promoted forced organization and organizational power, and prevented small companies from negotiating directly with their own personnel. The Federation of Finnish Enterprises is disappointed that the government and the organizations were not willing to promote the proposal of the Finnish Confederation of Enterprises, which would have emphasized freedom of association and equality and taken into account the needs of the mainstream of Finnish companies, i.e. the SME sector. However, the organization appreciates that the government wanted to hear the position of the Finnish Confederation of Enterprises and decided on this basis not to promote the proposal that would make it difficult to reach agreements.

SY considers it harmful that central labour market organisations agree among themselves on matters concerning unorganised companies and employees, even though they do not represent them at all. It is also not part of democracy that the organisations in the competitiveness agreement demand that the government not promote local agreements more widely than agreed. In a democratic market economy, the government, which enjoys the support of a majority in Parliament, is responsible for making legislative proposals – of course, after consulting the parties.

A place for working life and labor market reform

The Confederation of Finnish Entrepreneurs proposes a broad and in-depth reform of working life and the labour market that will significantly increase workplace agreements, bring fair competition to the labour market, abolish universal obligations, ease the regulation of working life and bring it from the smokestack era to the present day and to the needs of modern working and business life. The starting point must be to accelerate the growth of companies and the entire national economy and to overcome unemployment. If the reform is not carried out quickly, the Finnish welfare model is under threat.

The comprehensive reform of the Working Hours and Annual Leave Act, based on the implementation plan of the Government Programme, which is intended to begin next autumn, will give the government the opportunity to modernise a key regulatory body.

We must urgently return to promoting workplace agreements in accordance with the provisions of the government programme. This is essential for Finland's growth and employment.

Finnish Enterprises is increasing and streamlining its advocacy and services related to labour market issues. Deputy Judge Janne Makkula, 39, has been appointed as the organisation's Labour Market Director. In addition, advocacy and advice for SY's significant membership group, sole proprietors, will be improved. Among other things, Finnish Enterprises is developing its advice services so that more and more companies can benefit from them. Finnish Enterprises already handles over 55000 advice calls a year.

Statement of the Finnish Federation of Entrepreneurs and Family Businesses, April 26, 2016:

Competitiveness agreement and local bargaining – shop steward compulsion is unconstitutional

As part of promoting local agreements, the government has committed to ensuring that employers who comply with a generally binding collective agreement have the same opportunity to deviate from the provisions of collective agreements through a local agreement as employers who comply with a standard binding collective agreement already have.

The labor market organizations reached a negotiation result on the competitiveness agreement in February 2016. The organizations interpret their agreement so that in a company that is not a member of an employers' association, only a shop steward can conclude a local agreement if the collective agreement specifies a shop steward as a party to the local agreement.

Freedom of association in danger

The Federation of Finnish Entrepreneurs and the Family Business Association oppose this interpretation, as it restricts the freedom of association of employees and entrepreneurs and destroys the important goal of increasing workplace agreements and thereby improving employment.

According to the interpretation of the labour market organisations, a local agreement would be concluded between the employer and the trade union, not between the parties at the workplace. Of the approximately 90,000 employer companies in Finland, only 20,000 companies belong to employer associations. This means that there are 70,000 companies outside the associations.

– It is important that the long-standing injustice is corrected and the ban on non-union companies from concluding local agreements is lifted. However, it is unacceptable that only a shop steward belonging to a trade union would be accepted as a party to the agreement if the collective agreement requires it, says Jyrki Mäkynen, Chairman of the Confederation of Finnish Entrepreneurs.

If the interpretation of the labour market organisations is accepted, some employees would therefore be forced to belong to a trade union if the employees and the employer wanted to take advantage of the possibility of agreeing to deviate from the collective agreement. The employer would also have to organise or agree with the trade union that it will commit to complying with the shop steward system. Without organising, the parties in the workplace would lose even the current narrow rights to agree on, for example, regular working hours in the workplace in accordance with the Working Hours Act.

– This interpretation is in blatant contradiction with the Constitution. The Constitution guarantees people freedom of association. In the current system, according to the Working Hours and Employment Contracts Act, a shop steward, another representative chosen by the personnel, or the personnel together are also eligible to be parties to the agreement. The current system is also sensible from the personnel's perspective, Jyrki Mäkynen states.

It's about employment and investment.

According to Heikki Kovanen, chairman of the Finnish Family Business Association, Finnish owner-entrepreneurs have been expected in various contexts to show the way in investments and employment.

– Promoting local bargaining is a key tool in achieving this goal, regardless of whether companies and employees belong to unions or not. We find it contradictory that at the same time we are pushing through a reform that would, on the contrary, narrow the opportunities for companies and employees for democratic representation and local bargaining, Kovanen points out.

Trust is good in small companies – good opportunities for agreement
Most Finnish companies are micro-enterprises with fewer than ten employees, where the entrepreneur does the same work alongside his or her employees. In small and medium-sized Finnish companies, the relationship between employees and employers is very good and confidential, and information flows. This provides good opportunities to reach agreements.

The Finnish Federation of Enterprises and the Finnish Family Business Association support the government in its efforts to increase opportunities for local agreements in a manner that safeguards freedom of association. A shop steward or other personnel representative democratically elected by employees must be accepted as an equal negotiating partner in local agreements.

For more information:

1. Sent to the Government Statement on the shop steward requirement proposed for workplace agreements.
2. Questions and answers about local bargaining and unorganized enterprises.
3. Background note: Shop steward, shop steward and freedom of association guaranteed by Section 13 of the Finnish Constitution.