FINLAND: Ageing Population Weighs On Economy

HELSINKI, Finland (Reuters), November 29, 2007: The Finnish government said on Thursday it had cut its expectations for central government surpluses for the remainder of its term, citing labour shortage and the effects of an ageing population. When Finland's new centre-right government started its four-year term in early 2007, it set as one of its key aims reaching a central government surplus of 1 percent by 2011; but it now says it would manage only a slight surplus in 2011, if economic growth is as projected. "To reach the (1 percent) surplus target, we need policies which help (the) economy grow 1 percentage point faster," Finance Minister Jyrki Katainen told Reuters in a telephone interview. The government's baseline assumption is gross domestic product (GDP) growth to average 2.7 percent in 2008 to 2011. "The only thing which has changed is that this year's population forecasts from Statistics Finland have changed for the worse," Katainen said. Statistics Finland raised life expectancy estimates. "We have hope, even though the situation is enormously challenging. If we can get faster growth, we can manage," he said of meeting the higher surplus target. Katainen cited lowering taxes as being an important structural change boosting economic growth. The government said a higher surplus could be reached only if economic growth were stronger than projected, but also said risks to lower growth existed, including labour shortage and ageing population. STATE DEBT Finland's old-age dependency ratio -- the proportion of pensioners to workers -- is projected to reach 41 percent by 2025, the highest in Western Europe. By 2025, the Finnish Centre for Pensions forecasts that pension outlays would rise to above 15 percent of national income, growing at a rate nearly three times the EU average. Prime Minister Matti Vanhanen expressed more confidence in meeting its surplus target. "We are planning to live up to it," Vanhanen told Reuters on the sidelines of an environmental conference in Helsinki. The government said despite the lower surplus projections, Finland would fulfil its EU Stability and Growth Pact obligations in the medium term. Public sector surplus is expected to be 2.5 percent by 2011, with pension funds accounting for it, Katainen said. The government would use any surpluses to pay down debt, Katainen said. "Now we have to pay back state debt as much as humanly possible, when the times are good." Public sector debt would go down to 28 percent of GDP, the government said. Finland has experienced strong economic growth in recent years with its economy growing at twice the average for the euro zone, but the growth has started to slow. Daily Turun Sanomat first reported on the new governemnt report on Thursday morning. By Terhi Kinnunen & Sakari Suoninen Additional reporting by Tarmo Virki Editing by Ralph Boulton © Guardian News and Media Limited 2007