OECD warns Finland of consequences of lower taxes

Organisation notes expenses of caring for ageing population

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The Organisation of Economic Cooperation and Development (OECD) has warned Finland of problems related to lower taxation.
      According to the latest OECD Economic Outlook, released on Tuesday, "The room for new tax cuts is narrow, and will require significant spending restraint by central government and municipalities."
      According to the assessment, further tax cuts "will ultimately make it more difficult to cope with the future fiscal implications of ageing".
      The OECD feels that the Finnish state has no need to accelerate economic growth by taking money from state coffers. According to the outlook, "A pick-up in world trade is likely to boost growth over the coming years, with output rising above potential in 2005 and unemployment edging down".
      "It is unlikely that cuts in labour taxes will be sufficient to achieve the government’s goal of a substantial increase in employment, unless accompanied by other reforms."
     
Sharply disagreeing with the OECD assessment was Timo Lindholm, head economist of OKO Bank.
      "The growth in state tax revenue has continued in spite of the tax cuts", he points out.
      According to Lindholm, the government should actually accelerate its tax cuts.
      "We can afford that. When taxation is high, domestic demand cannot be increased."
      Lindholm suggests different means to deal with the economic burdens of an ageing population.
      "It is most important to create as many jobs as possible in order to generate tax revenue."
     
The government has brought down income taxes this year by approximately the amount it had promised: EUR 1.12 billion.
      In March Prime Minister Matti Vanhanen (Centre) said that there will be more tax cuts during the present Parliamentary term. The government has not revealed when this will happen, or how much money would be involved, but it is likely that the new reductions will be enacted already next year.


Links:
  OECD Econonmic Outlook - Finland (PDF)

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