Draft budget halves tax on peat fuel

Ministers reach agreement rapidly

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The government’s budget talks on Thursday did not bring any massive changes to the proposal put forward in July by Minister of Finance Jyrki Katainen (Nat. Coalition Party).
      One of the biggest changes that the government implemented involves increases in energy taxation. The tax on peat, which was fairly small to begin with, was cut in half in the final version.
     
Finance Minister Katainen’s original proposal called for taxing various fuels according to the emissions that they produce, instead of the present, somewhat ad-hoc system.
      However, an exception was made with peat energy, where Katainen proposed a tax of EUR 3.9 per megawatt hour, even though in terms of emissions, the tax should have been nearly five times as high.
      However, even this small tax was too much for Minister of Economic Affairs Mauri Pekkarinen (Centre Party), who was concerned that a high tax on peat would serve as an incentive to burn wood instead of peat. He feared that this would raise demand for wood, adding to the raw material acquisition costs of the forest industry.
     
In its budget talks, the government agreed on a tax of EUR 1.9 on peat, which is half of what had been intended. Later the tax is to be raised by increments, first to EUR 2.9 and later to EUR 3.9 per megawatt hour.
      However, the increases are not automatic. First there will be an assessment, after two years, on how the tax has affected the consumption and price of wood.
     
Halving the tax on peat amounts to a boost of EUR 20 million for industry that uses the fuel, and an equivalent gap in state tax revenues.
      “The whole is tolerable now”, Pekkarinen noted.
      In other respects the energy tax package was passed as proposed by the Ministry of Finance.
     
Pekkarinen made a new proposal of his own in the budget talks. He told Helsingin Sanomat that he had proposed a tax on uranium, the raw material for nuclear energy, with which he felt could bring in tens of millions of euros.
      In Pekkarinen’s view, the taxation of nuclear energy would replace the tax on windfall profits stemming from emissions trading.
      The uranium tax was not passed in the budget talks, but Pekkarinen plans to push forward with it anyway.
     
The improved economic prospects can be seen in next year’s budget as well. State tax revenue is growing significantly from this year’s level. According to an updated estimate, rise is expected to be nine per cent - EUR 2.8 billion.
      Just three weeks ago the forecast for growth in tax revenue was seven per cent, EUR 2.5 billion.
      The unexpectedly large income is not to lead to any new spending. The additional money means that the state will borrow slightly less money than it had originally intended.
     
Both Katainen and Prime Minister Mari Kiviniemi (Centre) enthusiastically praised the budget for its tight financial discipline, its incentives for growth, as well as the green future, which the various ministers were eager to take credit for.
      While Katainen spoke about a green tax reform, and Kiviniemi spoke of a green economy, Minister of Labour Anni Sinnemäki (Green) spoke of an ecological tax reform.
      Another indication of how few surprises emerged in the budget talks is that the discussions, which usually take two days, were completed in just nine hours.
      Next, the draft budget goes before Parliament, which will vote on it in December.


Previously in HS International Edition:
  NEWS ANALYSIS: Ugly stain on “green tax reform” (11.8.2010)
  No major tax reform this electoral term (21.6.2010)

Helsingin Sanomat