Budget talks: VAT on food to be cut in 2009

Finance Ministry predicts growth, but warns of leaner times ahead

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The government has agreed in its budget talks on a notional schedule under which value-added tax on food is to be brought down from 17% to 12%, with the move planned from the beginning of October 2009.
      Energy taxes are to be increased in this year's budget, with the price of a litre of petrol rising nearly 4 cents, and that of diesel fuel by 4.46 cents. The tax on household electricity and fuel oil will also rise.
      As an incentive for greener consumption, the government is proposing that biofuel should not be taxed. Next year, the higher energy taxes are expected to bring in EUR 300 million in revenue.
     
The tax on alcoholic beverages is to go up by the previously announced 15% for strong spirits, and 10% for wine and beer. An additional tax hike on alcohol could be forthcoming in 2009.
      These tax increases reverse the substantial cuts made by the previous centre-left government of Prime Minister Matti Vanhanen, which saw an average drop of 33 per cent and which have been seen as contributing to increased consumption and knock-on adverse social effects.
      Income taxes will undergo only an inflation adjustment next year.
     
Inheritance taxes will be eased as previously agreed upon, with the minimum level of taxable inheritance rising from EUR 3,400 to EUR 20,000. The spouse deduction is going up to EUR 60,000, and the deduction for underage children to EUR 40,000.
      The estimated implication of the change will be that three out of four inheritances will be tax-free once the reform is implemented.
     
Some pensioners will also benefit from lower taxes - particularly those people who have so far been taxed more heavily than wage-earners earning the same amount.
     
The Ministry of Finance has slightly upgraded its growth forecast. The increase was one tenth of one per cent to 3.3%.
      In spite of this positive signal, which is accompanied by a slight downward revision of unemployment, experts at the Ministry of Finance and the Bank of Finland expressed serious causes for concern to the ministers gathered for the budget talks.
      The Finance Ministry is warning that the fat days may be coming to an end.
      Clouds on the domestic horizon include the high level of household indebtedness and soaring housing prices.
      The Finance Ministry predicts an inflation rate of 2.4 per cent next year, with fears that this could accelerate in the years following 2008.


Previously in HS International Edition:
  Budget proposal: alcohol tax to go up, taxation of pensioners and inheritance to ease (2.8.2007)

Links:
  Finnish Government website

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