Expert evaluation of Government Programme policies on business subsidies

The most significant Government Programme policies on business subsidies are related to energy subsidies. The plans for reforming these subsidies are mostly fit for purpose. The decisions to increase R&D funding granted to companies are also based on valid principles. R&D grants are mainly to be increased as part of a business-driven RDI package, the nature of which is still unclear and involves risks.

These assessments are included in the first annual report of the independent Research Division on Business Subsidies, which operates in conjunction with the Ministry of Economic Affairs and Employment. The report describes the actual development of business subsidies, evaluates the new Government's subsidy policies and provides a situational picture of research in this field.

“As Finland transitions into a low-carbon society, the levels of climate policy related subsidies will be maintained and even increased in the next few years. Making space for them by reducing business subsidies which have no proven effectiveness is justified”, says Seija Ilmakunnas, Professor of Practice, who chairs the Research Division.

The report does not examine the new business subsidy policies forged because of the coronavirus situation, as the report was prepared before the outbreak escalated into a global crisis.

EUR 1.5 million paid as direct business subsidies in 2019

The concept of business subsidies does not have an established definition. Estimates of the total amount of aid granted as business subsidies vary significantly. The definition of direct business subsidies used in the report is based on EU state aid regulation. For the part of tax subsidies, data obtained from the Ministry of Finance are used.

Based on these definitions, direct business subsidies amounted to approx. EUR 1.5 billion in 2019 if energy tax refunds are included in this category.

The total amount of direct subsidies increased between 2012 and 2019. A clear structural change also took place, with energy and climate subsidies increasing and investments in RDI decreasing. Efforts to shift the focus from subsidies that reduce costs to promoting economic regeneration did not make headway.

Tax subsidies clearly exceed direct subsidies

The number of business subsidy types granted as tax subsidies is great, or in excess of 60. In euro amounts, the number of subsidies granted as tax relief clearly exceeds the number of direct subsidies, even though estimates of the tax subsidies are indicative.

According to the Research Division, more specific criteria for granting tax subsidies are needed, and instead of creating new subsidies, efforts should be made to reduce their number. In addition, a business subsidy knowledge base should be established, in which the currently fragmented data could be collected.

In keeping with good practices, evaluating the effectiveness of business subsidies is important. Creating credible comparison scenarios between aid beneficiaries and those left without subsidies may become increasingly challenging, however, as subsidies are targeted at business ecosystems. In policy-making, the objectives of any reforms should be formulated in such a way that the effectiveness of subsidies can be monitored and examined in proportion to the objectives.

The Research Division on Business Subsidies is an independent expert body

The Research Division on Business Subsidies, which operates in conjunction with the Ministry of Economic Affairs and Employment, was appointed in spring 2019. It produces information on the development of the business subsidy scheme and promotes high-quality impact assessment and utilisation of research in policy-making and societal discussion.

The Research Division on Business Subsidies is chaired by Seija Ilmakunnas (Professor of Practice, University of Jyväskylä). Its members are Minna Martikainen (Professor, Hanken School of Economics), Mikko Puhakka (Professor, University of Oulu), Hannu Salonen (Professor, University of Turku) and Rune Stenbacka (Professor, Hanken School of Economics). Rasmus Reinikainen, Senior Specialist (Ministry of Economic Affairs and Employment), is the Secretary of the Division. The Division’s term of office runs from 2019 until 2023.

A background report on business subsidies for energy production and use drawn up by Marita Laukkanen (Research Leader, VATT Institute for Economic Research) was published together with the report.

Inquiries:
Senior Specialist Rasmus Reinikainen, Ministry of Economic Affairs and Employment, tel. +358 29 504 7113 and rasmus.reinikainen(at)tem.fi
Professor of Practice Seija Ilmakunnas, University of Jyväskylä, tel. +358 50 362 9270 (Chair of the Research Division)
Research Leader Marita Laukkanen, VATT Institute for Economic Research, tel. +358 295 519 429 (Background report on business subsidies for energy)