OECD criticises Finnish taxation and pension policy

EU finance ministers meet in Luxembourg

Jyrki Katainen

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A fresh report from the OECD warns Finland of serious difficulties ahead if the country’s government does not enact quick reforms.
      In the scenario mapped out in the OECD's economic survey of Finland, larger numbers of well-trained Finns are expected to flee Finland’s high taxes abroad, while the country’s most important industries face a gradual decline.
      The forest industry is already suffering from significant problems, and competitiveness in the IT sector is no longer what it used to be.
     
The report, which was published on Tuesday, criticises the Finnish government’s decisions on taxation and pension policy.
      According to the report, Finland needs to encourage older workers to postpone retirement. Finnish income taxes should be cut, especially in the high income range.
      To compensate for the decreased income tax revenue, the OECD urges increases in the taxation of land and property. Lowering VAT on food was seen as a mistake.
     
Minister of Finance Jyrki Katainen (Nat. Coalition Party) does not accept the OECD’s criticism.
      At a meeting of European Union ministers of finance in Luxembourg on Tuesday, Katainen said that he feels that the report was “positive and encouraging”.
      He also said that the Finnish government and the OECD are in agreement on most matters. In his view, the greatest disagreement is over VAT on food, which the government is determined to reduce.
     
Katainen feels that Finland will have more room to manoeuver than many other EU countries, because Finland has paid off many of debts during good times.
      In reference to discussions that were held among the EU finance ministers, Katainen said that the greatest amount of concern is felt in countries where the economy is in worse shape than that of Finland.
     
The EU ministers noted on Tuesday that high prices of food and oil had come to stay.
      In July last year, the inflation rate for processed food was 1.2%. In March this year it had shot up to 8.2%.
      Prices of unprocessed foodstuffs are also rising, but more slowly, spurred by higher fuel and labour costs.
      Luxembourg’s Prime Minister and Finance Minister Jean-Claude Juncker said that the EU is looking for ways to rein in speculation with food and fuel prices.
     
The OECD feels that Finland is spending too much money on subsidising its agriculture.
      The EU and Finnish taxpayers subsidised Finnish agriculture by EUR 1.9 million last year, the second highest amount of subsidies in proportion with GDP in the whole EU.
      Katainen said that agricultural policy would not change. “It is good that there is production at a time when prices are on the rise.”
     
The EU finance ministers pondered possibilities of easing the burden of higher food and fuel prices on poor households.
      Katainen says that Finland has no plans for more assistance. He notes that the government has already decided to raise student grants, maternity and paternity compensations, and other similar aid, and that no further handouts are in store even if food prices were to continue to rise.
      “Cutting VAT on food helps in this to some extent”, Katainen noted.


Links:
  OECD: Economic Survey of Finland 2008

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