Economists give Orpo’s board a full thumbs up – “The business side seems to enjoy special protection” – 2024-04-29 02:27:16

Billions of euros in business subsidies are paid out of the state’s coffers every year, which has been slandered for years as, among other things, a waste of public funds. In addition, economists believe that business subsidies distort competition and actually slow down Finland’s economic growth.

In the government’s frame rush, business subsidies were barely ignored.

A clear majority of economists is of the strong opinion that business subsidies should be cut ambitiously. The people agree. In a survey by the Confederation of Finnish Business a couple of years ago, 78 percent of the respondents would choose business subsidies as the target for cuts.

Chief Economist of Suomen Ekonomi Elias Erämaja considers that up to 300–400 million euros could have been cut from company subsidies. In Kehysrihi, about 70 million was cut from subsidies. At the same time, additional cuts of 600–700 million euros targeting social and health services were also decided.

– In the midst of such large-scale adjustment measures and tax increases, one could have justifiably expected to cut back on business subsidies with a tight comb, Erämaja stated in Suomen Ekonomien’s bulletin last week.

Iltalehti asked the finance minister recently From Riikka Purra (ps) among other things, why business subsidies were not cut more. According to government sources, the coalition in particular opposed cutting business subsidies by a larger amount than what was decided in the tumult.

– Why wasn’t it cut from x, why was it cut from y? Because the government is a coalition of four parties, and all parties must accept a compromise. If, for example, one party absolutely and completely opposes some kind of action and it cannot even be negotiated, then no decision can be made about it. The savings have been negotiated for 9 weeks, Purra replied to Iltalehti by email.

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There would be other uses for the money

Erämaja tells Iltalehti that by cutting business subsidies, it would have been possible to save, for example, such a large increase in value added tax or cuts in student benefits. The money used for business subsidies could also have been allocated, for example, to the basic funding of higher education institutions, which would also increase the talent of the future.

– These things on the business side seem to enjoy some kind of special protection, Erämaja says.

Research Director of the Business Research Institute Heli Koski also criticized the government’s reluctance to cut business subsidies.

– Cuts have now been made by 1.6 billion and in addition tax increases by an estimated 1.4 billion. Business subsidies are an expenditure of billions annually and there would be a lot of scope for cutting them. I was especially thinking about how the government justifies much larger cuts to social and health care.

The purpose of business subsidies is to support research, development and innovation activities

According to the Ministry of Labor and Economy, the purpose of business subsidies is to encourage companies to pursue sustainable growth and productivity. Business subsidies also aim to increase, for example, research, development and innovation activities (TKI).

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Koski considers RDI subsidies to be important, but points out that due to the skills shortage, additional RDI funding allocated to companies will materialize, for example, in higher wages, which does not increase innovation and productivity.

Both Koski and Erämaja point out that the majority of business subsidies are not aimed at research and development activities. About three-quarters of the subsidies are maintenance, i.e., according to Koski, they are largely aimed at business activities that are unsustainable, inefficient or even harmful to the national economy.

– Business subsidies also maintain the operation of low-productivity companies, slow down their exit from the market and take resources from more productive companies. This has a negative effect on economic growth, says Koski.

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Koski points out that business subsidies are in practice free money given to companies, which not all companies receive. This gives some companies an unfair competitive advantage.

Erämaja also believes that supporting the old industry distorts the market.

– It may be that some other kind of business activity would be profitable in Finland, but this kind of thing will not be created because old structures are being maintained.

The basis of the subsidies to be granted should be evaluated more critically

Industry, shipping companies and horse racing eat the lion’s share of the annual subsidies. For example, last year Viking Line received business support of a good 20 million euros.

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From Erämaja, different industries and the subsidies granted to them should be subjected to a critical evaluation. Some of the subsidies are not direct financial support, but tax reliefs.

– Subsidies aimed at activities that are harmful to the environment and that use fossil fuels do not make sense. For example, the reduced tax rates for fuel for work machines encourage the fact that, for example, electrifying machines is not sensible, because we enjoy this support, Erämaja says.

– In the agriculture and forestry sector, one could think about how reasonable it is for a government with a deficit to support fur farmers who are already at a deficit by paying for their holidays, for example. It is difficult to find economic grounds for maintaining a questionable industry by supporting the operations of the industry. What social good does this industry produce that taxpayers still have to support separately.

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According to Erämaja, there should be grounds for every business support, that the production has a significant social benefit, and it would not be created without the support.

Business subsidies do not have a major impact on Finland’s competitiveness

Business subsidies are often justified by maintaining Finland’s competitiveness. Erämaja and Koski do not find the argument credible for non-TKI subsidies.

– For example, Etla has studied that, for example, energy subsidies had no effect on our large companies’ ability to make a profit or their ability to employ. In that respect too, business subsidies have been seen as very weak in the light of the research literature, says Erämaja.

Erämaja considers the “business support boom” of larger states to be a problem. In his opinion, Finland should not even participate in the competition between countries regarding business subsidies, because Finland is such a small country.

– We could focus specifically on the fact that our economic resources would be directed to the most economically profitable and functioning industries. Companies should not be maintained by giving them support, because then the companies will not renew their operations.

There are sloppy defenders for the recipients of subsidies

Even in the past, governments have hardly put their spoons in the soup to rake in business subsidies. Erämaja and Koski point out that there is strong lobbying in the background.

“Especially if preliminary information becomes public about where the cuts are going to be made or some support is questioned, then those who benefit from the support can raise a big fuss,” says Koski.

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Koski recently commented on Yleisradio’s story about business subsidies received by race tracks.

– These racetracks are indeed a strange thing. I don’t see that there will be any new innovations that could be used more broadly in society, Koski told Yle a couple of weeks ago.

Koski tells Iltalehte that he received a huge amount of hate mail after the publication of the article. Hevoslehti published an article in which Koske was accused of spreading incorrect information. Yle later published another story, which dealt with the trotters’ reaction to Koske’s comments in the previous story.

The central organization Suomen Hippos, in contrast to Koski, believes that trotting generates more money for the common fund than it receives subsidies.

– On the other hand, I understand well why they don’t want to cut business subsidies, because some defenders of the subsidies are really aggressive, says Koski.

– Now that we are facing tough cuts, it would be desirable for the decision-makers to quickly get down to business subsidies without listening to the lobbyists.