Finland’s western neighbor Sweden is betting on the strength of its exports to boost business activity and creat jobs. Last week the Swedish central bank—Sveriges Riksbank – decided to lower its main interest rate in an attempt to weaken the local currency against the euro, making its exports cheaper for buyers abroad.
Sweden’s corporate sector was grateful for the tactical move, but they’re also looking forward to a further reduction in the country’s corporate tax rate to help spur business activity. In June a government working group proposed slashing the rate from 22 percent to 16.5 percent – a major cut, given that as recently as the end of 2012, the corporate tax rate stood at 26.3 percent.
The daring Swedish moves have stirred up Finnish forestry and technology interest groups, prompting them to call on government to follow suit.
“This race is about making improvements all the time. If we remain stagnant, the others will take the lead,” said Timo Jaatinen, chief executive of the Finnish Forest Industries Federation.
All the same, Jaatinen said he’d prefer to wait to see the outcome of the Swedish trial before Finland takes the same steps. On the other side of the coin chief economist of the Federation of Finnish Technology Industries Jukka Palokangas said he believes Finland should seize the initiative in the tax reduction race.
“We should proactively reduce corporate taxes because we are experiencing an investment drought. We do have some isolated investments, but they simply aren’t showing up in the big picture,” Palokangas commented.
Sweden wins, Finland whines
The perception of Sweden as winner of the competitiveness race holds sway even in government corridors. Last week chair of the Parliamentary Finance Committee Mauri Pekkarinen had harsh words for the appointment of Swede Karl-Henrik Sundström as chief executive of pulp and paper giant Stora Enso.
Pekkarinen openly questioned the government’s ownership policy, noting that the company’s chairman was also Swedish.
“We are becoming a Swedish dependent,” the veteran politician declared.
The forestry lobby’s Jaatinen said that companies within the same group often compete with each other particularly when it comes to paper factories, which are seeing a steadily declining demand for their products.
“The fate of individual factories depends on many variables and they all have their competitiveness factors. Some factors are factory-specific but there are also competitiveness differences among countries,” he added.
Lower corporate taxes and a more attractive currency are as good as gold for export-oriented paper plants. A country’s currency influences the prices paid by customers overseas and consequently the demand for its products.
Last March the Finnish government decided to slash corporate taxes from 24.5 percent to 20 percent in an effort to kick-start business investments and boost industrial competitiveness.
However Jaatinen noted that competitiveness requires more than a certain tax rate or currency. He commended other measures such as government’s decision to grant new nuclear power construction permits and agreements on moderate salary increases among labour market organisations.