Weekly Web Release from the Ministry of Finance, October 31,2002

Excerpts from the Ministry of Finance}s Weekly Web Release
October 31, 2002

The New Economy in the Nordic Countries
A report highlighting some aspects of the new economy in the Nordic countries was presented at a meeting of the Nordic finance ministers held this week in conjunction with the 50th anniversary of the Nordic Council.
The expectations of the effects of the new economy with increased and steady growth have not been realised at the speed originally foreseen. The international stockmarket has experienced a down turn, resulting in a slow economic growth. On the other hand, it is the opinion of the working group responsible for the study that the new economy will produce an environment conducive to economic growth in the long term, with accelerating development of the information industry and application of the technologies that have contributed to economic growth in recent years. A lasting future economic growth does not only depend on new technology, but also on other aspects such as education, research and development, extensive possibilities for innovation, and organisational changes with the pertaining abolition of regulations and restrictions in the work force.

The report thoroughly analyses the production development in the Nordic region, and its trading partners, where prioductivity measures the output and efficiency in production, making it an important measuring point for the preconditions of economic growth. It is evident from the report that productivity has not improved in the Nordic region at the same rate as in the US. This could be due to measurement difficulties, a delay in the effects of investment in new technology and the point at which it generates income through production, and finally a shortage in the strong motive power which characterises the US market, creating effective competition and flexibility in the use of factors of production.

The report higlights the following areas of improvement:

Ø Organisational changes in the economy, leading to increased competition in the economy. New production technology leads to increased output, especially in sectors least affected by competition
Ø Measures to improve conditions for innovation and the start-ups of new companies
Ø Measures to strengthen the labour market through more education and training, flexibility, and increased participation rates.

	Internet hosts per 1000 inhabitants, 2001	Internet users per 1000 inhabitants, 2001	Research expenditure as % of GDP, 1999	Researchers per 1000 inhabitants, 1999
Denmark	105	447	2,09	64
Finland	171	430	3,22	99
Iceland	190	679	2,33	101
Norway	67	596	1,70	78
Sweden	83	516	3,78	91
United States	371	500	2,66	79
France	13	264	2,19	61
Italy	12	276	1,04	28
Germany	29	364	2,44	64
OECD	78	319	2,21	62
EU	78	317	1,86	53

Corporate income tax
New figures are now available from the Internal Revenue Directory relating to the levying of corporate tax for 2002 with regards to operations in 2001. According to these figures, the total levy of corporate taxes amounted to 33.5 billion krónur, which is an increase of 10.9 per cent from 2001. The taxation is threefold, with the social security contributions being the single biggest fee; 60 per cent of all levied corporate taxes, or 20.4 billion krónur. Corporate income tax amounted to 10.2 billion krónur, and capital tax was 2.5 billion krónur. The total number of companies levied was a little over 16 400, an increase of about 1 000 from the previous year. According to these figures, the levyon each individual company increased by 4% on average.
The taxation environment has changed greatly during the last decade. The main changes have meant a lowering of the corporate income tax, from 51% in 1990 to 18% as of the income year 2002. Equally, waivers have decreased thereby broadening the tax base. It is interesting to observe the development of corporate tax levying during this period, as a whole as well as on average:

This development confirms the successful objectives of changed taxation rules. The lowering of the tax rate has contributed to the boost to the economy, apparent in a great increase in the number of companies. This further explaines the increased treasury revenue from tax at the same time as corporate tax in lowered.

Similar views were behind the moves to significantly lower the corporate capital and income taxation, legislated as of last year. Against this weighs an increase in social security contributions. The result is estimated to bring an increase to the treasury revenue due to the positive effect on the economy. It should be noted that the effects of these changes are not included in these figures, as the levying of corporations for operation 2002 does not come into effect until next year.