Finnish income taxes no longer at top of Europe

Taxation of low incomes lighter than in many European countries

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The enduring perception that Finns pay the highest income taxes in Europe is no longer true. A working Finn pays about the same rate of income taxes from his or her pay as Europeans do on average.
      The lower a person’s income, the gentler Finns are taxed in comparison with other European countries.
      Earners of medium incomes - of less than EUR 40,000 a year - are taxed at a level that is close to the European average, but those earning more than that get taxed progressively at a much higher than average level on the European scale.
     
According to Minna Punakallio, head economist at the Taxpayers’ Association of Finland, many countries have reacted to the recession by cutting taxes to stimulate the economy. Finland is one of the countries that has sharply cut its taxation.
      Punakallio compared 18 countries in her study. Included were West European countries, and Estonia, as well as the United States, Australia, Japan, and Canada.
      Denmark, Germany, Belgium, and Italy taxed incomes more heavily than Finland in nearly all income brackets. Of the Nordic countries, Norway taxes its income-earners significantly less than Finland, while Sweden and Finland are very close to each other in the taxation of various income brackets.
     
The taxation of earned income is nearly five percentage points higher in high income brackets in Finland than it is in Europe on average.
      However, in a comparison of marginal tax rates, Finnish taxation is higher than the European average. Marginal taxes are the increase in taxation that takes place when income grows by a certain sum of money.
      The marginal tax for those earning less than EUR 24,000 a year is nearly seven percentage points higher in Finland than for those earning the same amount on average. For medium income-earners, the difference in the marginal tax with the European average is somewhat narrower, but with earners of high incomes, those earning more than EUR 119,000 a year, the difference grows again to more than seven percentage points.
     
“One could conclude from this that people in Finland are not encouraged to advance, get promoted, or to earn more money”, says Teemu Lehtinen, managing director of the Taxpayers’ Association.
      In the taxation of families, Finland is more severe than in taxing individual income-earners. Especially in families with two parents but only one income-earner, taxation in Finland is more severe than for those with medium incomes.
      The reason for this is that Finland does not have family taxation; each individual is taxed separately.
      Germany, where the taxation of earned income is generally more severe than in Finland, has a family taxation system, in which families comprising a couple - but only one income earner - are taxed at a much lower rate than someone living alone.
      “The impact of family taxation on the other parent’s going to work is not much of an incentive. The Finnish starting point, where both parents are encouraged to work, is good”, Lehtinen says.
      This year the state is borrowing EUR 13 billion to deal with the recession. The increasing average age of the population will reduce tax revenues in the coming years, and will lead to more public spending.


Previously in HS International Edition:
  Present government’s tax reductions focusing on people with low incomes (7.9.2009)
  Katainen defends government’s tax cut stimulus policy (16.11.2009)
  Tax results: more rich people, lower earnings (3.11.2009)
  Taxation task force wants to cut back on tax deductions (8.9.2009)

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