Finland’s tax authorities will release their information on last year’s tax revenues any day now. The state’s income has grown a bit on the previous year, but only by a minimal amount. The tax man is growing worried that the income generated by Finland’s value-added tax in particular may start to peter out as the economy continues to show sluggish growth.
Yle asked the party secretaries of Finland’s top four political parties to reveal how they would revamp Finland’s tax system to deal with this predicament. The parties secretaries seemed at a loss to respond to the query and none were able to produce a clear response to the challenge.
The middle-of-the-road rural stronghold Centre Party is leading the polls of late. Centre Party secretary Timo Laaninen says Finns should already begin their preparations for a future of reduced tax revenue.
“If we proceed at a rate of one percent growth, like the Bank of Finland has predicted, for the next ten years, it most definitely means that there won’t be enough tax revenue circulating to maintain to our welfare society in its current state,” says Laaninen.
Laaninen says Finns need to prepare for significant expenditure cuts.
The centre-right National Coalition Party (NCP), populist Finns Party and the leftist Social Democratic Party (SDP) all rule out the possibility that Finland could survive on a smaller tax income.
“The next government is going to have to make some radical tax changes. There’s no way we can live out the next four years with a lower level of tax collection,” says Finns Party secretary Riikka Slunga-Poutsalo.
“In practice, it would mean that businesses operate at a loss or declare bankruptcy, resulting in more unemployed. No, it is definitely not part of our party’s agenda for the future,” says SDP secretary Reijo Paananen.
Centre would cut tax deductions
All four parties reject increasing tax rates in the current economic climate.
“The volume of tax revenue can also be increased by adding jobs, not just by hiking up taxes,” says NCP secretary Minna Arve.
Centre Party’s Laaninen says Finland’s tax rates are already very high, so raising them even further may not even increase overall tax revenue. He says his party is in favour of cutting the system of tax deductions instead.
“There may be hidden opportunities in legislature concerning international tax planning and in other areas. It is probably a good idea to cut back on the system’s deductions anyway,” he says.
SDP’s election programme from last November lists one of its goals as further cuts to low and middle-income tax rates. No one at the party thinks that idea is feasible any longer.
“Income tax cuts in this economic situation are very unlikely,” SDP party secretary Paananen admits.
The National Coalition Party, however, still appeals for tax cuts across the board.
“NCP wants to moderately reduce earned income taxation in all income classes, to give Finns more purchasing power and encourage participation in working life,” says NCP secretary Arve.
According to the opposition Finns Party, the next government sessions must decide on significant tax system reform, where state income and expenditure are both re-evaluated entirely. In a situation like this, the Finns Party would rather impose selective tax cuts over increasing the tax load.
“At this juncture, we believe energy and fuel taxes should be cut to improve purchasing power,” says Finns Party secretary Slunga-Poutsalo.
All agree: VAT levels should stay the same
Tax authorities in Finland are concerned about a slowdown apparent in the value-added tax revenue collected in Finland. Recent figures indicate that state revenue from VAT was at a standstill this past autumn.
Value-added tax accounts for a quarter of all tax revenue in Finland and was a topic of intense political debate in the last coalition government talks.
Yle’s survey now indicates that the NCP, SDP and Centre Party would leave VAT levels at their current rate.
“The NCP would not be interested in raising the VAT percentage, because ultimately it is another tax on labour,” says Arve.
The SDP says VAT is difficult, because as a flat tax, it is felt the most by people with a low income. Reduced VAT rates would only apply to certain services and domestic production, but an increase is definitely out for his party, says Paananen.
“A VAT increase would kill any employment prospects, so that is not an option for the SDP,” he says.
Corporate tax revenue takes a hit
The current government apparently surprised itself and others when it lowered Finland’s corporate tax to 20 percent last year. The change had immediate repercussions on state coffers, as corporate tax revenue had fallen by close to 13 percent on the previous year by late November.
Still, none of the four parties in the informal Yle survey would change the corporate tax rate in the next four years either. Not even the Finns Party, which had earlier demanded the corporate tax rate be raised to 22 percent.
“I wouldn’t clamp down on corporations at this stage. There is a great risk that Finland’s larger companies would leave the country and this would be devastating in terms of the big picture,” says Slunga-Poutsalo.
NCP would bump up the property tax
Real estate tax revenue has grown by over ten percent since 2013, as more municipalities are in the top tax bracket.
The centre-right NCP would up the property tax even further.
“Property taxes don’t affect Finnish employment figures or economic growth as such. The rates are already pretty high, however, so there isn’t a very high degree of flexibility there,” says Arve.
Representatives of the other three parties are more reluctant to touch current levels. Centre Party’s Laaninen and SDP’s Paananen both agree that there might be some room for re-evaluation, but the Finns Party’s Slunga-Poutsalo says the average citizen’s capacity to pay is already maxed out.
“It would be a tricky tax to increase, as it could easily target older people who are still living in their own homes,” she says.
Inheritance tax income down by a quarter
Income from Finland’s inheritance tax went down by almost a quarter on last year, and news of the successful family firm Onninen’s principal owner’s move to Portugal to avoid Finland’s hefty inheritance tax made headlines over the Christmas break.
In the past, the NCP has campaigned that Finland do away with its inheritance tax entirely, but Arve says now is not the time.
“The payment period should nevertheless be extended and it should be possible for companies that are passing the business down to the next generation to be granted tax relief,” she says.
The Centre Party’s Laaninen points out that even though the return from the inheritance tax has dropped, it still provides Finland with almost half a billion euros in revenue each year.
SDP’s Paananen agrees there should be discussion about extending the payment time from five to seven years, but the Finns Party rep says she believes Finland has much bigger fish to fry first.
“We have many other pressing problems, like what to do about taxation on earned income. First we must address these issues, and then we can talk about what is to be done about the inheritance tax.”
