Tax changes to bring local authorities hundreds of millions in revenue
Finance Minister to propose increase in upper limit of property tax and new division of corporate tax
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Minister of Finance Jyrki Katainen (Nat. Coalition Party) plans to bring forward proposals to the government next week for an increase in the upper limits of property taxes and for a new allocation of revenue from corporate taxation.
The measures are set to boost the finances of Finnish municipalities by hundreds of millions of euros.
The most interesting topic of the government’s framework talks next week will be how the billion-euro gap caused by the elimination of the employers’ Social Insurance Institution (KELA) contribution will be filled.
The government has decided to reduce the KELA contribution of all employers by 0.8 percentage points from the beginning of April. Later the fee is to be lifted completely.
The aim is to eventually make up for the gap by raising environmental and energy taxation.
Katainen does not want to reveal any details, however, because the government has not discussed the matter yet.
No tax hikes are planned this year or next year to make up the shortfall, which will now be absorbed by the state.
Katainen notes that the lifting of the KELA contribution will save municipal labour costs to the tune of about EUR 250 million.
“This is the same amount of money that is spent on paying about 6,000 municipal employees” he notes.
Other ways are also being considered in the framework to ease the crisis in municipal finances.
The first way to augment the municipal coffers is to raise the upper limit of the property tax. Last year property taxes brought local authorities a combined EUR 930 million.
This year the Association of Finnish Local and Regional Authorities forecasts a yield of EUR 970 million. However, not nearly all local authorities collect property tax up to the maximum legal limit.
“If all local authorities were to raise the property tax to the upper limit [to one per cent], it would add just under EUR 195 million to municipal coffers.”
“If all local authorities were to raise the tax rate of the main residence to the current maximum of 0.5 per cent, it would bring in EUR 186 million”, Katainen calculates.
He notes that there is no need to raise the tax, and that local authorities can “use the property tax more broadly than before” if they wish.
“Some local authorities have hoped that instead of raising the municipal income tax rate, they might be allowed to raise more revenue by increasing the property tax”, Katainen explains.
The government has not yet agreed on the details of this change.
Another decision aimed at shoring up municipal finances is the distribution of the yield of corporate taxation in a new way.
Minister of Administrative and Municipal Affairs Mari Kiviniemi (Centre Party) proposed earlier this month that the municipal share of tax revenue could be 32 per cent. Katainen says that details of the proposal have not been decided.
“The percentage remains open, but it will probably not be very far from that figure”, Katainen said, with reference to Kiviniemi’s proposal.
Katainen said that the change in the share that is distributed to municipalities would be set for a fixed term. He notes that the change would have a “significant positive impact” on municipal finances.
“Taxes paid by companies have fallen sharply, and now we want to help local authorities, which have been most affected by this”, he says.
Katainen promised that local authorities would not be saddled with new obligations before the economic situation is clarified. The aim is to keep present services in as good shape as possible.
“All of the money will be used for the maintenance of existing services.”
Helsingin Sanomat
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| 19.3.2009 - TODAY |
 Tax changes to bring local authorities hundreds of millions in revenue |
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