Changes in the way government provides funds to Finnish universities from 2010 are causing them a few unnecessary headaches. Universities will become responsible for monitoring their own cash flow and will be responsible for paying their own VAT, workers' compensation insurance and the 'unemployment tax surcharge' that is levied on all employers.

Naturally the universities expected to be compensated for all the expenses previously handled centrally in government ministries. But life was not meant to be easy!

The changes to funding and accounting are part of a new Universities Act that will radically reform Finland's higher education sector. The act comes into force on 1 January and legislates for three major reforms: there will be changes in the ownership and management of university buildings; university governance will be transformed; and universities will become independent legal entities, rather than continuing to be organised as though they were a branch of government.

Although the bulk of funding will continue to come from the government, the money will henceforth be in the form of monthly payments to be managed by the universities themselves. As their finance officers have been working around the clock preparing for these radical changes to accounting procedures, they have started to notice the additional costs occasioned by the reforms.

New accounting systems have to be ready to go live on 1 January and large numbers of university staff have to be trained in 'the new ways' while consultants' bills have to be paid. It has come as a surprise that the government appears to be a doing a little cost-cutting by stealth, meaning that the costs to the universities of the reforms will be even higher.

Finnish universities are not currently involved with matters such as VAT and insurance; the government looked after it all centrally. As university education is tuition-fee free for all in Finland, and this is protected under the constitution, even the newly 'independent' institutions from 2010 will continue to rely heavily on government funds.

Universities were expecting that new funding arrangements would see their budgets automatically augmented to meet all the additional costs they will have under the new legislation. While this has happened to a point, universities have now discovered they are expected to pay the unemployment tax surcharge themselves.

Apparently the Ministry of Education budgeted to cover this tax but it was rescinded by taxation officials at the Ministry of Finance. This surcharge is collected from all Finnish employers and is set at 2.6% of the gross salaries bill.

For the university sector, that means more than EUR35million (US$53 million) that might otherwise have been spent on teaching or research. The University of Helsinki, the largest, would be hardest hit with an extra EUR8 million added to its wages bill.

This is not the first time the Finance Ministry has reacted unexpectedly to the university reforms. One aim of the new University Act is to foster an 'entrepreneurial culture' in the sector but, as previously reported in University World News, according to tax officials the new 'entrepreneurial' universities will be subject to tax on so-called 'business activities', even those that do not cover their real costs although they were always exempt from this form of taxation as well.

Most of the preparations for the university reforms have been going smoothly but different branches of government seem uncertain about what should happen, and how. Nothing is certain except for death and taxes.

* Dr Ian Dobson is an Australian scholar based in Finland. He is editor of the Australian Universities Review.

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