Growth cannot be achieved without service sectors – quickly effective reduction of labour taxation at the heart of growth measures

The share of the private service sector of Finland’s gross value added, i.e. the country’s economic well-being, is approximately 51 per cent, while the corresponding share of industry is approximately 27 per cent. At the same time, the private service sector employs more than half of all employees in Finland and the industry sector employs 21 per cent of employees. Like industry, services and commerce are also in the midst of international competition through e-commerce, digitalisation and a genuinely international customer base, among other things.

Reducing the taxation of labour is the most quickly effective way to achieve growth and increase employment. It improves incentives to work, increases the purchasing power weakened by VAT increases and improves the international competitiveness of companies.

Service sector organisations are demanding a mid-term review decision to reduce labour taxation by one percentage point at all income levels for the remainder of the current government term. The static annual cost of the tax reduction would be approximately EUR 1.3 billion.

The reduction of labour taxation must be continued in the next electoral term. At the same time, the margin tax rates of the highest income tax categories must be reduced to a maximum of 50 per cent. The work must be started during this electoral term by removing the highest income tax category, which was originally intended to be temporary.

Through reducing the taxation of labour,

• the tax wedge* of services would be reduced and the purchasing power of Finns would improve without increasing costs
• the growth in the cost of labour would remain moderate, strengthening employment
• the incentive to work would improve, which would reduce the loss of talent from Finland and attract foreign talent
• the attractiveness of new business operations would improve, which would speed up the development of consumer services in particular
• the increasing private consumption would also support the development of VAT revenue.

*Tax wedge = Difference between the price of labour paid by the employer and the wage earner’s purchasing power

The productivity and intangible capital of private services must be taken into account more effectively in industrial policy

 Finland’s industrial and tax policy is still too strongly based on the divide between the domestic sector which focuses on services and the industrial sector which is open to international competition. In reality, this division has been obsolete for a long time now, and with digitalisation, Finnish service business and commerce are facing increasingly strong international competition.

The long-established industrial policy focused on supporting industry has not succeeded in creating new growth. The winning sectors and companies have not been selected in a sector-neutral manner. Instead, they have been selected based on political decisions. At the same time, the development of productivity in Finland is lagging behind our key competitor countries.

Service sector organisations require a sector-neutral industrial policy from the government, which also recognises the need of service companies to improve productivity and increase investments in intangible capital. Investments in intangible capital, such as data and software, strengthen the prerequisites of all companies in the use of AI, among other things.

The associations demand that the increasing research and development efforts should be directed more effectively towards applied research, the adaptation of technology, and the concrete needs of service sectors and commercial enterprises in the future. This will strengthen productivity, as well as Finland’s international competitiveness and the growth of new export industries and companies.

The government must also recognise tourism exports, i.e. revenue from international tourism, more strongly. It is like a low-hanging fruit that can be picked through innovation funding and targeted support for the development of Finland’s country image and other operations.

The Government Programme’s entry “The growth potential of the service economy will be strengthened and export structures will be diversified“ has been forgotten by the government and partly also by Risto Murto’s working group, which recently published its report. This must be corrected in the mid-term review.

Managing Director Kari Luoto, Finnish Commerce Federation

Tuomas Aarto, CEO, Service Sector Employers Palta

 Fact box: Commerce and private services

• The share is 51 per cent of the entire economy’s added value and 64 per cent of the private sector’s added value (2023).
• The share is 51 per cent of the entire economy’s employees and 68 per cent of the private sector’s employees. In 2023, the commerce sector and services employed 1.4 million people directly and, taking into account the indirect employment impacts, more than 2 million people through the export industry model.
• The share of services of Finland’s gross export value is 33 per cent (2024). The volume of exported services has increased by an average of 4.7 per cent per year in the years after the financial crisis (2011-), while the volume of exported goods has increased by 1.1 per cent.

For further information, please contact:

Kari Luoto, Managing Director, Finnish Commerce Federation, tel. +358 (0) 400 688 708, kari.luoto(at)kauppa.fi

Tuomas Aarto, CEO, Service Sector Employers Palta, tel. +358 (0)40 152 0073, tuomas.aarto (at)palta.fi