Study: Finnish families taxed above European average

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By Eeva Eronen
     
      Finnish families with children pay relatively more taxes than those in most other European countries. The gap between the Finnish taxation level and international averages is greatest in families with only one income-earner.
      Finnish taxation also hits families harder than single wage earners.
     
The differences stem from the fact that Finnish income tax rates are the same for wage earners regardless of their family situations. According to an international tax comparison by the Taxpayers’ Association of Finland, many European countries have deductions for children or spouses, which ease the tax burden of families.
      Tax-free child allowances, which are independent of the family’s income, are not exclusive to Finland, so their existence does not tip the scales in Finland’s favour.
      In addition, economist Jaana Kurjenoja, who produced the study, described the Finnish child allowance to be at a "miserly average level".
     
Tax rates in Finland are higher than in most other European countries in other ways as well. The study shows that only in the taxation of low incomes does Finland attain the European average level.
      Middle-income earners pay two percentage points more in taxes than those in the other countries in the comparison. The gap increases further with higher incomes, and at the highest level, Finnish income taxes are seven points higher than the others. Only Denmark and Belgium tax their citizens more than Finland at all income levels.
     
Differences with other European countries have increased somewhat from last year, as Finland has not reduced its taxation of earned income as some other countries have.
      The gap is even greater when the comparison is made with countries outside Europe.
      The Finnish Taxpayers’ Association says that Finland's high marginal tax rates are a particularly difficult issue.
      "The taxation of career advancement is especially tough already at low income levels", notes the association’s President Teemu Lehtinen.
      Once a Finn reaches the middle-income level, he or she spends nearly ten percentage points more in taxes on extra income than the European average.
      In Lehtinen’s view, Finland should reduce its taxation of earned income - especially marginal tax - at all income levels. International competitiveness is a frequent argument that is put forward in calls for lower taxation. Lehtinen also sees improving purchasing power as an important consideration.
      He feels that the best way to increase tax revenue is to expand the tax base, while moderately easing the taxation of income.
      "Tax revenues have grown in the past ten years, although taxes have been cut since 1995", Lehtinen says. "Last year more taxes were collected than ever before."
     
However, the income tax rate is not the only consideration when assessing the extra costs related to work.
      Social insurance contributions paid by employers are another consideration. In Finland they are at about the international average - approximately 24% of gross income. In Estonia, for instance, the income tax level is very low, but mandatory social insurance payments are considerably higher.
      "The balance between income taxes and employer payments is achieved in different ways in different countries", Lehtinen says.
      The Taxpayers’ Association of Finland has kept track of the tax levels in Finland and 16 other developed countries since 1995. Finland’s ranking in the comparison has remained largely the same during this time, because taxes have been cut in the other countries as well.
     
Helsingin Sanomat / First published in print 7.6.2005


Previously in HS International Edition:
  Taxpayers Association laments tax burden of families with children (30.9.2003)

Links:
  Taxpayers´ Association of Finland
  Kurjenoja: Finland and wage taxes (.pdf file)

EEVA ERONEN / Helsingin Sanomat
eeva.eronen@hs.fi