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Finnish report Finnish report
by Euro Reporter
2012-04-14 13:15:35
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Finland to raise VAT but opts for modest budget cuts

Finland, seeking to retain its triple-A credit rating, will raise VAT in 2013 but has opted for modest budget cuts in the next few years after the government bowed to pressure from left-leaning coalition parties. Unveiling a budget framework for 2013-2016 on Thursday, conservative Prime Minister Jyrki Katainen, who promised drastic fiscal reforms when he was sworn in last year, said the government will cut the budget by 2.7 billion Euros ($3.6 bln) from 2013 through 2016. That is nearly half the amount recommended by treasury officials after left-leaning coalition parties argued against bigger tax rises and tinkering with welfare benefits.

The general value-added tax rate will rise to 24 percent from 23 percent next January, still 1 percentage point lower than 25 percent VAT in neighbours Denmark, Norway and Sweden. Finland has one of the strongest balance sheets in Europe with public debt estimated at 49 percent of gross domestic product (GDP) at the end of 2011, and the government ran a budget deficit of just 0.5 percent of GDP last year. Some economists, however, say weak growth and a rapidly ageing population make it a fiscal time bomb. Central government debt, which was around 80 billion Euros at the end of 2011, is estimated to increase by 18 billion Euros over the 2013-2016 period, the finance ministry forecast on Thursday.

The Nordic country is one of few euro zone members to have retained a top-notch credit rating in the wake of the bloc's debt crisis, but Standard & Poor's has a negative outlook on Finland, meaning a ratings downgrade is possible this year or next. Katainen said the multi-year plan, which combines 1.2 billion Euros in spending cuts and 1.5 billion in tax hikes, aimed to strike a balance between securing economic growth and maintaining Finland's standing in the eyes of international investors.


Professor charged with spying for Russia

Authorities in Denmark have charged a Finnish academic with aiding alleged Russian spies in Copenhagen. Timo Kivimäki, 49, was first arrested and questioned by Danish detectives in 2010. The Finn, who has been suspended from his job as professor of international politics at the University of Copenhagen, admitted to providing consultancy services to four Russian diplomats between 2005 and 2010 and said he had charged some 16,000 euros for the work, the Helsingin Sanomat daily reported.

Denmark's security agency PET says the diplomats were spies. Kivimäki might have passed information about his students, who the Russians could have then used to recruit agents in Denmark; PET's former head told YLE earlier this week. But Kivimäki said there was no evidence to back the allegations and insisted that he was "innocent." He also said he was "relieved" that the matter was going to court. He faces up to six years in jail if convicted.


Nokia town faces dim future as jobs shift to Asia

Tomi Marjuaho repaired mobile phones for 10 years in the town of Salo in southern Finland, where Nokia, the world's top cell phone-maker, set up its wireless operations in the 1980s. He took a severance package in 2010, as Nokia started hitting hard times, and has not found work since. "I was the breadwinner in the family, and now it's difficult making ends meet," the 39-year-old said, at the local metal workers union club which is used by the town's unemployed as a meeting place. "It's the same story for so many people I know from Nokia days."

Salo — along with other Finnish towns inextricably linked to Nokia — is facing an uncertain future as Finland's most famous corporation shifts its mobile phone assembly to Asia. Squeezed by fierce competition from Apple Inc.'s iPhone, Samsung Electronics and cheaper brands running Google Inc.'s popular Android software, Nokia has been forced to slash costs, primarily affecting its operations in Europe. Nokia has already closed plants in Germany, Hungary and Romania; and now it's the turn of the Finnish assembly plant. Some 1,000 of the 3,500 jobs in Salo — which until recently was Nokia's flagship assembly hub — are being cut this year. The once-thriving technological centre has already become a town of dusty, empty storefronts.

"The latest layoffs will hit us hard," said Salo's mayor, Antti Rantakokko. He has a shiny office in a glass-plate and metal building that opened four months ago, partly paid for by Nokia's local taxes, which accounted for 95 percent of the town's corporate tax income that peaked at �� million ($78.85 million) in 2010. "Nokia has been a status symbol for us, but more than that it has been a major source of income," Rantakokko said.

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