Prosperity-enhancing taxation and economic policies
The sustainability gap must be filled by tightening the tax base
Closing the sustainability gap caused by an ageing population is essential for safeguarding the welfare state. Instead of tax subsidies and tax deductions, we need a tightening of the tax base.
Objectives
- Employment measures alone will not suffice to close the sustainability gap, meaning that direct expenditure and tax measures will also be needed. Instead of spending cuts, the main emphasis must be on tax increases, especially on tightening of the tax bases for capital and wealth.
- Unjustified tax subsidies and deductions must be eliminated. The Government programme should include a binding commitment to reducing tax subsidies by a fixed percentage or a specified sum.
- Tax subsidies related to the taxation of dividends from unlisted companies must be corrected. Aside from abolishing the maximum limit for capital income dividends subject to business tax relief, the reform is based on the 2017 report of the Expert Working Group on Corporate Taxation (2017).
Grounds
Closing the sustainability gap caused by an ageing population is essential for safeguarding the welfare state that is important to employees. The welfare state will be subject to continual cost-cutting pressures if the sustainability gap is not closed. Expenditure cuts should focus on such targets as subsidies to business and agriculture in order to avoid cutting back on such areas as research, education, social security and health care.
Tax subsidies complicate the tax system, as they make taxation less intelligible and transparent to individuals and businesses alike. There are too many tax subsidies, with no sustainable criteria for all of them from the point of view of resource allocation.
The current system is not efficient in terms of investment, productivity or economic growth. Investments are not targeted where they would yield the highest pre-tax returns. This reduces the productivity of labour. A reform would even out disparities in the tax treatment of tangible and intangible assets and improve tax neutrality, meaning that taxation would not distort business decisions. The challenge is conversion of income from earned income into capital income. The current model incorporates an incentive to withdraw income earned from work in the form of dividends. The tax advantage creates a listing threshold, meaning that it reduces the incentive to become a listed company.
Note
The economic policy of the European Union and the rules of European Economic and Monetary Union will be reformed in coming years. By participating actively and constructively in these reforms, Finland can help to ensure that the solutions are conducive to strengthening the economy of Europe and, by extension, the economy of Finland as well. This would also be the best way to defend those aspects of the Finnish labour market and social security system that the European Union is not seeking to influence.
Other SAK objectives related to taxation and economic policies
- The spending limits procedure must also allow for taxation reforms.
- The social dimension of sustainable development must be strengthened.