Daily Management Review

Is Finland’s aging population turning the country into Japan?


Three weeks ago, parliamentary elections were held in Finland. The winner was the Social Democratic Party, led by Antti Juhani Rinne. According to most experts, the victory of the Social Democrats brought a promise to carry out major changes in the political system of the country. Now Rinne to create the ruling coalition of five parties, and her main task is neutralization of the demographic bomb, laid down under the social protection system.

Finland has one of the most developed social security systems in Europe. Just as in neighboring Sweden, health care, primary and secondary education, and many other services in the Scandinavian countries are free.

The population of Finland is aging faster than in the rest of Europe. According to demographers, the decline in the birth rate will lead to the fact that the proportion of the working-age population (15-64 years old) will decrease from the current 62 to 60% by 2030 and to 58% by the middle of the century. By 2050, the number of working-age population will decrease by 200 thousand people. This quite enough, because the population of all of Finland is now approximately 5.5 million people.

Such demographic trends will have very serious consequences for the country's financial system. The number of working Finns, i.e. taxpayers, is decreasing, but number of pensioners receiving pensions is growing.

Finnish economists are now discussing the so-called “sustainability gap”. Central bank analysts argue that although the ratio of public debt to GDP has recently declined, the growth in public spending associated with the aging of the population will reverse this trend in the near future.

“With regard to demography, Finland undoubtedly serves as something of an indicator for Europe,” explains Bert Colijn, an economist at the ING bank, in a recent analysis.

According to statistics, the birth rate in Finland has been declining for eight consecutive years. Thus, in South Karelia, the birth rate last year fell by 11%. This unpleasant trend, primarily for the economy, is increasing pressure on financial systems both locally and throughout the country. Hospitals and housing for the elderly are becoming increasingly burdensome for municipalities due to the high cost. As a result, in South Karelia, which, of course, does not stand out in particular among the rest of the territory, schools are being closed everywhere in small settlements in order to save money.

Every year, Finland increasingly resembles Japan, the country with the fastest growing aging population on the planet. Economic growth in the Land of the Rising Sun has slowed to almost 0. So far, all the efforts of the country's leadership aimed at imparting impetus to the Japanese economy have failed.

 “Finland faces problems that Japan has had to deal with for more than a decade,” the analysis of the Finnish Central Bank said in 2016. “The population is aging, the slow growth of the economy does not provide sufficient funds to finance the rising costs. Government debt is growing rapidly and threatens to become overwhelming.”

Finnish politicians are in a difficult situation as they have to make responsible decisions. The Prime Minister Juha Sipilä, who has been finalizing the past few days, is a supporter of a tough economic policy. He pursued a policy of reducing public spending and at the same time lowered the number of administrative staff and optimized the number of hospitals, schools, etc., to save money and resources.

Sipilä managed to return growth to the Finnish economy. However, his efforts to reform the social security system did not receive approval in parliament. Therefore, in March, his government was forced to resign.

Meanwhile, Sipilä’s center-right ally in the ruling coalition - the National Coalition Party - is promoting privatization as a way to alleviate the burden of public spending in the long run. However, the scandals around the poor performance of private centers specializing in caring for older people have led to strong voter discontent. As a result, at the April election, the Coalition Party showed a weak result.

The Social Democrats of Rinne are ready to raise taxes to finance public services, but they have yet to explain how to do this. 

source: politico.eu