New Government’s Tax Policy Brings No Major Changes for Entrepreneurship, Fiscal Policy More Concerning
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On Monday, the incumbent government coalition, led by SDP’s Antti Rinne, announced their policy program, in which they stated their aim of making Finland a “socially, economically and ecologically sustainable society by 2030.”
As analysts had expected, the predominantly left-leaning coalition will try to achieve this goal by ending the era of austerity measures and increasing government spending by an estimated 1.2 billion euro in order to reinvigorate the welfare state, particularly in the fields of education, elderly care and research.
While the program promises to foster a “business-friendly and competitive” economic environment for entrepreneurs, such robust public spending and slogans about the economy being managed for the people, not the other way around, tend to make the business world wary of higher taxes, demanding labor laws and plenty of red tape.
But perhaps surprisingly, Rinne’s coalition has proposed no increase in income tax; what is more, lower income groups are likely to see a decrease in their income tax rate. Instead, the new government intends to offset the cost of their ambitious budget by increasing so-called “sin taxes,” namely taxes on alcohol, tobacco and fuel, which are estimated to bring around 700 million euro into government coffers.
Mika Kuismanen, the chief economist at Suomen Yrittäjät (The Federation of Finnish Enterprises), spoke for Finland Today about how the new government program might affect small and medium-sized entrepreneurs in Finland. In his analysis, “it won’t have a large impact. For instance, there is no change in dividend taxation. There is a small increase in VAT threshold, which is actually a good thing, but otherwise almost everything stays as it was,” he said, adding that “we were positively surprised with the program; taking into account the parties [that make up the coalition], we were expecting a less advantageous policy, but this was a good outcome.”
Kuismanen also commended the program “for moving from direct to indirect taxation,” referring to the taxes on alcohol, tobacco and fuel as a means of generating revenue. At the same time, however, he expressed concern “about the new government’s fiscal policy.” “Given the fact that the population is aging, this new expenditure could cause problems for Finland in the medium run,” he said.
It isn’t clear yet if the new government also intends to raise capital gains tax, but Kuismanen believes that “the increase in capital gains tax will not happen because the Centre Party strongly opposes such taxation.”
As the second biggest party in the coalition, the right-of-center party that traditionally stands for small businesses seems to have enough clout to ensure certain provisions are met in the government’s fiscal policy, especially since they will be holding ministerial portfolios for Finance and Economic Affairs.
There has also been some speculation on whether the new government would move to sell certain state-owned assets in order to close the budgetary gap. But Kuismanen warns that the state should only sell its assets if “the money is well spent. If you sell and then spend money on wages and everyday expenditures, it’s not so good. There has to be a strategic target, for instance, investment in infrastructure.”
Commenting on whether the new program offers any lucrative incentives for foreign entrepreneurs or businesses to come to Finland, Kuismanen said, “not especially. There are small matters, like a start-up program with a 10-million-euro budget, and they are trying to make it easier for companies to hire foreign workers. But otherwise, there are no major changes, not in terms that would benefit foreign companies and investors.”