Finance Minister cautions against excessive enthusiasm for tax cuts

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Minister of Finance Eero Heinäluoma (SDP) wants to dampen the enthusiasm for tax cuts, which has emerged in speeches of politicians in recent weeks. Heinäluoma feels that promises of tax cuts in the next Parliamentary term are premature, because the capacity for tax cuts is not yet known.
      In January he is to make public an assessment by the Ministry of Finance on how much the state can afford to cut taxes in the coming four years.
      "The assessment creates a realistic foundation on the capacity for tax cuts. This foundation is needed in election debates, and in decisions to be made in government formation talks", Heinäluoma explains.
     
The ministry will also assess what kinds of tax cuts will reduce unemployment most efficiently.
      The assessment will take into account spending that has already been set for the coming Parliamentary term, the growth in the national economy, and employment prospects.
      Heinäluoma points out that in the next four-year Parliamentary term, state expenses will be increased by decisions made previously, such as the elimination of municipal cost classification from national pensions, the municipal reform, and the increase in development cooperation spending and funding for research and development.
     
Finnish parties have indicated a desire to continue the policy of reducing income tax, and to institute reforms in inheritance taxation. Centre Party chairman and Prime Minister Matti Vanhanen said during the weekend that revenue from inheritance taxes can be reduced by EUR 100 million. The Centre Party has also called for reductions in VAT on food.
      Heinäluoma is afraid that some of the promises might not materialise.
      In his view, tax cuts should be primarily aimed at reducing unemployment, and to serve as an incentive for work.
      He sees other needs for tax reform. Inheritance taxation needs to be revamped, and the taxation of cars should be altered in a way that favours the environment.
     
Recent calls for cuts in VAT on food are seen by Heinäluoma as partly unrealistic. It has been said that the VAT cut would have a greater benefit for those with lower incomes than a cut in income taxes.
      The minister says that it is difficult to compare the impacts of different types of tax cuts with each other.
      "If the cut in income taxes is targeted at those with low incomes, we will reach the same or better results than by cutting VAT on food", he says.
      Alongside the taxation debate, Heinäluoma would like to see more discussion on what society should emphasise in the next Parliamentary term. He would like to see more spending on fighting unemployment, as well as on health care, and especially care for the elderly.


Previously in HS International Edition:
  Study: Reduction in VAT would bring lower food prices (26.9.2006)

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