Tax hike proposed by Vanhanen would affect hundreds of thousands

Finance Minister opposes Prime Minister’s idea

Matti Vanhanen

Jyrki Katainen

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Income tax increases proposed by Prime Minister Matti Vanhanen (Centre) would apply to all those who earn more than EUR 47,000 a year.
      In a speech at a meeting of the delegate council of the Centre Party, Vanhanen, who is also the chairman of the Party, called for a tax increase on those with high incomes that would remain in effect for five years.
     
On Monday Vanhanen gave more details of his proposal. He said that the increases, which would take effect once economic recovery has taken hold, would apply to the top tenth of Finnish income earners. The taxation department at the Ministry of Finance calculated for Helsingin Sanomat that the tax would apply to those who earn EUR 47,000 a year or more.
      The increase would therefore not apply to a small group of the very wealthy: 260,000 income earners would fit into this group.
     
Coming out sharply against the Prime Minister’s proposal was Minister of Finance Jyrki Katainen (Nat. Coalition Party).
      “If we did that, taxation of earned income and capital gains would diverge even more”, Katainen said.
      As Vanhanen sees it, the tax rate of the top ten income earners could be increased so that they would pay a total of about EUR 200 million in tax revenues into state coffers. Split evenly, this would mean EUR 770 for each high income earner a year.
     
Vanhanen also wants to collect EUR 2 billion in indirect taxes. If this were implemented through VAT alone, it would mean an increase of four percentage points. However, the actual increase would be smaller, as Vanhanen’s plans would be to raise other indirect taxes, such as taxes on energy and taxes aimed at protecting the environment.
      As such taxes apply to all, regardless of income, Vanhanen says that it would be fair to increase the taxation of higher incomes.
     
The Prime Minister proposed the extension of tax progression to the taxation of capital income - dividends and sales profits, for instance. At present all capital gains are taxed at a flat rate of 28 per cent. Vanhanen proposes that those with a large earnings from capital income could be taxed more heavily.
      A progressive capital gains tax is a long-standing demand by the opposition Social Democratic Party and Left Alliance. On Monday, Vanhanen would not say how the progression would be implemented.
      Finance Minister Katainen would not take a stand on the issue of progressive capital gains taxation, but he said that he would be open to an across-the-board increase in the tax.
      “The greatest feeling of unfairness is on the capital gains tax rate, which is why it would be fair to increase the percentage.”
     
Vanhanen says that the increases would be implemented after the recession - that is, when the next government is in office. Parliamentary elections are scheduled for 2011.

More on this subject:
 Finance Minister offers extensive agreement on employment

Previously in HS International Edition:
  Vanhanen calls for higher taxation of earners of high incomes (30.11.2009)

Helsingin Sanomat