According to Suomen Ekonomit’s chief economist Elias Erämaja, the budget decisions to safeguard the public finances are appropriately calibrated, as well as the balance between tax increases and cuts in spendings. The overall tax burden will not increase under this new budget framework, and the taxation focus will shift towards consumption and harmful activities. However, reaching the needed three billion euros adjustment target could have been achieved by other means.

It is particularly hard to justify an increase in taxes on earned income, as Finland’s tax progression is already among the world’s highest. Instead, the aim should be to ensure that no taxpayer’s marginal tax rate exceeds 50 percent. This measure -that looks like a solidarity tax- could have been avoided by collecting the same amount -60 million euros- from increased taxes on, for instance, tobacco and alcohol. The rates on these products have been raised, but surprisingly moderately, Erämaja states.

According to Erämaja, business subsidies have been unjustifiably spared in this budget framework. If business subsidies had been cut by around 300 million euros, then the standard rate of the value-added tax could have been lifted by only one point of percent.

Many business subsidies are ineffective or even harmful to the long-term development of productivity and economic growth. Amidst such massive budget adjustment measures and tax increases, it would have been fit to prune business subsidies as well. This way, such a surge of the value-added tax could have been avoided, concludes Erämaja.

Students’ wallets getting concerningly lighter

The horizon has darkened for students as Orpo’s government has decided to shift the students’ housing support from the general housing support scheme to only the housing financial aid supplement for students. According to Lotta Leinonen, Suomen Ekonomit’s education policy specialist, this decision makes the already tight financial situation of students worse, pushing young people into more debt. In the worst cases, these cuts to student allowances can amount to thousands of euros per year for a student.

Concerns about the already weak financial situation of students had surely already reached the ears of the ministers. The decision to further weaken the situation is shaking young people’s belief in the future. Previous cuts to student allowances have resulted in decreased time spent on studying and increased mental health challenges, Leinonen reminds.

Good news on the other hand for investments in research and development activities, as Orpo’s government maintained their funding amid a tight economic situation. The government also stuck with its promise to invest into primary education.

However, strengthening the funding of higher education would have been a good add-on to the government’s growth-oriented measures. In that respect, solutions to the skills shortage were lacking.

The government decided on numerous growth-oriented measures, but higher education was not on the list. If more resources are not allocated to higher education, it won’t be possible to fix the skills shortage nor to raise the level of education -which are objectives of the current government- especially when at the same time students’ allowances are being cut, Leinonen argues.

More questions?

Erämaja Elias
Chief Economist
p. +358407471854
Leinonen Lotta
Special Adviser, Education Policy
p. +358440660384