Government gets serious about reaching R&D target of 4%

Proposed legislation in Finland that will secure the consistent annual allocation of 4% of gross domestic product (GDP) to research and development (R&D) is under review but has already garnered strong support from research and industry stakeholders.

If approved, the law, which envisages a contribution of 1.33% from government and a contribution of 2.77% from the private sector, will mean a €260 million (US$273 million) increase per year in the government’s budgets for research and development, and twice that amount from private companies.

The draft law on the public financing of research and development was presented at a stakeholders’ meeting on 16 June hosted by three Finnish ministries: finance; education and culture; and economic affairs and employment.

The draft was presented by Permanent Secretary Juha Majanen, who is the most senior public official in the Ministry of Finance and chairman of the Working Group for Research, Development and Innovation (RDI) that is preparing the new legislation for parliament.

The meeting was also attended by senior ministerial officers and representatives from the Finnish higher education associations, including Universities Finland (UNIFI) and the Rectors’ Conference of Finnish Universities of Applied Sciences (ARENE), as well as representatives of the Federation of Finnish Enterprises, the Confederation of Finnish Industries and several others.

The 16 June meeting came ahead of the budget negotiations due to take place in the fall (August-September), and endorsement of the proposed legislation in parliament before the general election in the spring of 2023.

The aim of the proposed legislation is to improve the consistency and sustainability of R&D funding in line with guidelines set out by the multi-party parliamentary RDI working group, which delivered its report in December 2021.

The report proposed new legislation to facilitate research funding and proposed permanent and more extensive tax incentives for private sector R&D.

Previous commitments to 4% target

The 4% target is not new to the Finnish government. In 2019, Prime Minister Sanna Marin’s government made a commitment to increase national research spending to 4% of GDP by 2030.

However, while Finnish R&D expenditure came close to that target in 2009 – at 3.73% of GDP – by 2019 it had fallen to 2.8%, since both investment from the private sector and the government had fallen in the period 2009-18.

In the spring of 2021 the government set up the parliamentary RDI working group to find a solution to the problem of declining R&D investments. It was expected that parliamentary consensus would be required to find ways to avoid future fluctuations in R&D spending and to reach long-term growth and stability in R&D funding that would persist despite changes in governments.

On 8 February 2022 Marin announced that in the wake of the working group’s recommendations, parliament had made a joint commitment to increasing Finland’s research and development expenditure to 4% of GDP by 2030.

“The stable, long-term implementation of the working group’s proposal will be at the heart of Finland’s economic policy in the years to come. It also requires us to prioritise these investments,” she said.

The fiscal plan

The General Government Fiscal Plan for 2023-26 (subtitled “Policies to safeguard Finland’s future, sustainable growth and security”) released in April 2022 lays the groundwork for the implementation of the work of the parliamentary committee and commits the Finnish government to R&D funding of €2.3 billion (US$2.4 billion) in 2023.

“In 2023, the central government’s contribution to research and development (R&D) activities (appropriations and authorisations) will be increased by altogether €350 million compared with the previous spending limits,” the document states.

The plan goes on to say that the RDI grant authorisations of Business Finland will be permanently increased by €63 million, together with a non-recurrent increase of €60 million made to the 2023 authorisations for financing of leading companies and the introduction of an authorisation of €10 million for a new regional RDI funding instrument.

“The research project authorisation of the Academy of Finland will be permanently increased by €147 million, and a non-recurrent authorisation of €10 million for 2023 will be allocated for national co-financing of Euro High Performance Computing operations.

“In addition, the government has decided that an R&D tax incentive based on an extra deduction will be introduced as part of the R&D funding package from 2023 onwards. The tax incentive will be formulated to ensure that its annual economic impact would be approximately €100 million on a static basis.”

The plan also sets aside R&D increases of the same size in future years.

Widespread support

Dr Tanja Risikko, executive director of Universities Finland, the umbrella association of 12 Finnish universities, told University World News that the association “strongly” supports the target of 4%.

“We are very glad that all parliamentary parties in Finland have committed to this target. The legislation will strengthen the continuity.

“The guidelines made by the parliamentary RDI working group are good and they shall be carried out concretely. When developing the RDI system, it is important to see far enough. We need mechanisms which ensure the growth of RDI investments, in spite of short-term economic fluctuations.

“It is important to develop our whole RDI system in balance in order to strengthen our science and generate new innovations and growth. It is especially important to create a positive funding environment for young researchers. They are the ones who make the bright future for us all,” she said.

Educational expert and managing partner of the Technopolis Group in Stockholm, Sweden, Göran Melin said: “The proposal sets a very ambitious target which, if realised by 2030, will place Finland in the absolute front seat in the world with respect to R&D investments, and leave many comparable countries behind.”

Melin, who has been involved in several expert reports on Finnish higher education and research, said the proposal shows that “the current government is determined to break with the previous years’ decline in investments. Most impressive.”

Heikki Kuutti Uusitalo, head of innovation policy at Technology Industries of Finland, said the organisation also “strongly” supports the 4% GDP RDI goal and the draft of the RDI spending law.

“The companies in our field are responsible for two thirds of private RDI spending in Finland, and several of our companies have already pledged to increase their private spending in synchronisation with increasing public spending.

“Technology Industries of Finland encourages the government to invest public funding in instruments that increase collaboration between companies and universities, including universities of applied sciences. We believe that realising RDI in ecosystems, clusters and PPPs [public-private partnerships] benefits the entire society.”