Finance Ministry: lower taxes, less inflation; recession can be avoided

State finances expected to show deficit next year

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The government’s ministerial committee on economic policy agreed on a number of changes to next year’s budget proposal on Tuesday.
      This time the changes are exceptionally large, owing to to the fast weakening of economic prospects.
      Nevertheless, the Ministry of Finance reports that the Finnish economy “is basically sound, so there is no immediate threat of recession”.
      The ministry predicts that the economy will show slight growth next year - one half of a per cent.
     
In the government’s stimulus package announced on Tuesday, the home market, and boosting consumer demand play the key role. To this end, the government will implement the income tax cuts that it had planned in the original budget draft for 2009.
      “Now is not the time for being passive”, said Prime Minister Matti Vanhanen (Centre).
      Minister of Finance Jyrki Katainen (Nat. Coalition Party) noted that the government did not cut taxes for this year, because it wanted to save the tax cuts for worse times. he feels that these times are now at hand.
      Katainen rejected recent calls for postponing tax cuts.
      “It would mean that we could cut into the buying power of pensioners and other Finns, especially the middle class”, Katainen said.
     
The good news for consumers was that inflation is slowing down, leading to a four per cent increase in consumer purchasing power in 2009.
      “This includes wage hikes, lower taxes, and the decline in inflation”, Katainen says.
      Those keeping their jobs will have better possibilities next year to benefit from the increased tax deduction for domestic help.
      All in all, the increase in spending and reduced tax revenue will put state finances into deficit for the first time in this decade. The state will have to borrow about EUR two billion.
     
The government briefly mentioned in its press conference on Tuesday that it would cancel plans to ease the taxation linked with the passing on of family businesses and farms from one generation to the next.
      On the other hand, the government is easing inheritance and gift taxation by three percentage points at the beginning of next year.
      The lower tax applies to next of kin.
      Gifts to a close relative are tax free up to EUR 4,000. Next year, the portion of gifts that exceed that limit will be taxed at seven per cent, instead of the current ten per cent all the way to EUR 17,000.
      More stimulus measures are coming in January and February, when the government puts forward its first supplementary budget. Normally supplementary budgets do not come until later in the spring.


Previously in HS International Edition:
  Research institutes predict stagnation of economic growth next year (30.10.2008)
  Economists: Finland better prepared for economic problems than in early 1990s (8.10.2008)
  Government to decide on support for flagging construction sector (18.11.2008)
  Labour Ministry predicts 13,000 new jobless next year (12.11.2008)
  IMF recommends smaller tax cuts for Finland (4.11.2008)

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