Finance minister warns of tax hikes, spending cuts

Alcohol, tobacco, and petrol taxes higher next year

Jutta Urpilainen

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Taxation of earned income could effectively increase next year. says Minister of Finance Jutta Urpilainen (SDP), who briefed reporters on the general outlines of a planned budget proposal on Thursday evening, indicated that income tax scales will not be revised in 2012 to better correspond to rising prices – only higher income would be taken into consideration.
      As higher earnings are calculated at 2.1 per cent, and inflation is expected to reach four per cent, this would amount to a weakening of wage earner buying power next year.
     
The chairman of the Parliament’s Finance Committee, Kimmo Sasi (Nat. Coalition Party) is not satisfied with the proposal in this respect.
      “I feel that this is not in keeping with the government programme”, Sasi says. The government programme states that rising prices also need to be taken into consideration so that rising taxes, which the National Coalition Party want to avoid, might be prevented.
     
Urpilainen passed the ball to labour market organisations, saying that moderate pay contracts would keep the rise in prices under control.
      “Making an inflation forecast is very challenging, as a key factor there is what kind of an incomes agreement we get.”
      Urpilainen and Prime Minister Jyrki Katainen (Nat. Coalition Party) are scheduled to meet with labour market leaders on Friday.
     
Under the budget proposal about half of the savings that were agreed upon in the government programme would be implemented immediately at the beginning of the government term.
      Details of the proposal will be made public on Monday. On Thursday Urpilainen said that the most important target of cutting costs will be state subsidies to local authorities. The government has agreed to cut EUR 630 million from payments to municipalities by the end of its four-year term.
      The Minister of Finance confirmed that taxes on fuel, alcoholic beverages, and tobacco would be raised next year. Taxes on capital gains would also go up.
     
More funding would be aimed at basic security benefits. The EUR 100 increase was called an “act of justice” by Urpilainen.
      There would also be more spending on fighting youth unemployment and long-term joblessness from the beginning of next year.
      On the taxation side, corporate taxes will be reduced by 25 per cent from the beginning of next year.
     
The deficit in state finances next year would be EUR 6.8 billion under Urpilainen’s proposal. This is 1.5 billion less than this year.
      Kimmo Sasi says that the deficit would be too large. The aim of the government is to reduce the state debt in proportion to overall output by 2015.
      Urpilainen emphasised that the budget is being drafted at a time of great economic uncertainty. The Ministry of Finance will not say what kind of a growth forecast the budget proposal is based on.
     
There have been recent calls within the National Coalition Party for the rapid implementation of more spending cuts if the economic situation starts to appear significantly weaker in the autumn. Urpilainen is holding on to the policy line agreed upon in the government formation talks, under which revenues and expenses will be re-examined next spring.
      The government will hold its budget talks on the basis of a proposal by the Ministry of Finance in mid-September. After that, the government’s budget proposal will be passed on to Parliament for debate.


Previously in HS International Edition:
  New government programme taxes high incomes more heavily than before (20.6.2011)
  Employers’ group wants higher buying power through tax cuts (17.8.2011)
  Finance Ministry expects debt trend to continue (21.6.2011)

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