Finnish government outlines major tax cutting proposals

By Jordan Shilton
28 August 2008

With the start of talks on Finland’s budget for 2009, the right-wing coalition government composed of the National Coalition Party (NCP), Centre Party, Swedish Peoples’ Party and the Greens have made clear one of their main priorities will be substantial income tax cuts.

The leader of the conservative NCP and finance minister Jyrki Katainen has outlined a plan to make 800 million euros worth of income tax reductions, which will see the highest earners receive the largest cut.

The proposal comes at a time when Finland is beginning to feel the effects of an economic slowdown. Claiming that the tax cuts would stimulate economic growth, Katainen said his proposal included plans to fund inflation level adjustments to the total of 500 million euro—making the cost of the total package some 1.3 billion euro.

State revenues are already under pressure. Figures released with the budget suggested that a current surplus will decline by over 80 percent this year from 2.2 billion euro to 332 million euro next year. Added to this, the growth in tax revenue for the government is projected to slow sharply to just one percent in 2009.

The threat of a budget deficit will undoubtedly be used to justify further cuts in state spending. Katainen made clear that no steps would be taken to genuinely help those on low incomes. Ruling out increasing income tax progression, he stated cynically, “The profitability of work is a very great value to me.”

Tax cuts are supported by all parties in the coalition, although the Greens expressed concerns that the measures would tie the government’s hands. Spokeswoman Anni Sinnemäki, commented, “I am worried that high nominal wage increases might be written off as inflation adjustments. We should not create such a mechanism.”

With the slowdown across the Euro zone affecting Finland, the clear concern from the Greens is that workers will become increasingly active in demanding relief for higher food and energy costs through wage increases.

Upon joining the right-wing government following the elections in 2007, the Greens were given responsibility for the ministry of Labour. As such, they are very aware of the opposition the government will face from the working class.

In common with protests all across Europe, Finnish lorry drivers launched a campaign in June to demonstrate their opposition to increased fuel prices. While a proposed go-slow on the eve of the midsummer holiday was called off, Simo Matikainen, one of the protest leaders, expressed the deep anger felt by truckers. Commenting on the widespread public support, which the protests had obtained, he warned, “If things do not move forward after Midsummer, we are ready for tougher actions. They would involve seeing to it that stores are empty. Heavy traffic will come to a standstill. That is much bigger than driving at 20 km/hour.”

A few days previously, an emergency meeting had been held to try to solve the problems facing the haulage industry in Finland. Iiro Lehtonen of Finnish Transport and logistics, a body representing haulage firms, illustrated the extent of the crisis. “The government can deduct EUR 1,900 from a truck-trailer’s annual fees, but the risen fuel prices have added EUR 30,000 to a vehicle’s annual costs.

“Already a third of the businesses are operating at a loss. Regardless of the size of the company, those that fail to renew their contracts will be the first ones to go down.”

During the negotiations, the government made it plain that any solution would be at the expense of workers in the transport industry. Secretary for employment and the Economy Mikko Alkio listed “Taxes, flexible contracts, and possible lowering of employers’ social security expenditure” as methods which could be employed to improve the situation.

Rising food costs have also begun to have their affect on the population. A recent report revealed that the consumption of beef had declined considerably and that consumers were turning to cheaper alternatives such as pork and chicken products. While this decline can be attributed in part to changes in EU legislation banning imports of beef from Brazil, the underlying cause is the worldwide increase in food prices.

Such difficulties are taking place against the backdrop of a slowdown across the economy. In June, GDP was down 0.2 percent year-on-year, with the service sector suffering a contraction of nearly two percent while the primary sector, which covers agriculture, fisheries and forestry, fell by nine percent. Inflation remained high with the consumer price index (CPI) at 4.4 percent in July.

Taken together, the figures represent a serious blow to those who had previously predicted sustained economic growth during 2008. As Eero Lehto, chief of think-tank PT put it, “The message is that the growth in GDP has almost stopped, and we have to reduce our estimates for this year’s growth.”

Consumer confidence has seen a sharp drop in recent months, falling to its lowest level in over six years in July. It declined from +10.2 points in June to +6.5 points in July. Illustrating the speed of the economic slowdown, consumer confidence has gone from a six-year high to a six-year low in the course of just 13 months. The same figures showed that around half of all consumers believe Finland’s economy will worsen over the next year, while only 12 percent see it improving.

As has been the case in numerous countries hit by the global economic slump, the housing sector in Finland has been adversely affected. Construction companies have reported a reduction in the number of new properties being built and a drop in the number of homes sold in the first half of 2008 has been observed. This has already led to YIT, a construction company, considering the possibility of laying off workers due to a lack of demand for new projects.

None of the established parties in Finland has any answers to these problems facing working people. They are all oriented to the same constituency, that of the Finnish business elite, with which they all have a close relations.

It was recently announced that former Centre Party Prime Minister Esko Aho will be named to the board of Nokia at the start of next year. The Finnish multinational has been forced to reduce prices for its mobile phones by 10 percent over the past few months, to counter falling demand in Western Europe and growing markets in emerging economies such as India and China.

Another case worth noting is that of Paavo Lipponen, former Prime Minister and speaker of parliament from the Social Democratic Party. He has taken up a position as a lobbyist for the Russian-German firm Nord Sream, which intends to build a gas pipeline under the Baltic Sea between Russia and Germany. Given that Lipponen had an office in parliament until recently and had free access to the Finnish parliament, questions have been raised as to the appropriateness of his new appointment.

But such relations are entirely in keeping with the outlook of the Social Democrats.

At its recent party conference in June, the party chose a new leader. Jutta Urpilainen was elected, the first woman to lead the SDP in its history. Relatively young at 32, she was selected to mark a change in the party’s orientation. Accordingly, Urpilainen stated that, “The impression has emerged that the SDP would promote the interests of some interest group, but for me the SDP has never been that.”

This was a veiled reference to the fact that the SDP is abandoning its claim to be acting on behalf of working people, and is to take a more direct and open role in promoting the interests of big business against those of workers and their families.

“Everyday life has changed, politics must change. The SDP has stepped into the front line of this change,” she said, spelling out that the Social Democrats are prepared to do whatever is necessary to rescue the fortunes of Finnish capital, should the current ruling coalition prove itself inadequate to the task.