The Finnish government does not have a monopoly on foolishness, as we have seen recently from the behaviour of the Italian Government led by Ms. Meloni.
The two governments share one thing in common apart from some right-wing extremism – they both want to give support for bigger tax reductions to the better off and claim that this will stimulate the economy to eventually reduce the governments’ never-ending deficits.
Both governments are facing budget deficits and high levels of public debt.
The right-wing Finnish government has already announced a large reduction in income tax, the effect of which is stronger for those earning more than €10,000 a month. It is estimated that such people will have a tax saving of some €2000 more each year, while ordinary Mr. Average will see a €200 reduction in his annual tax bill.
At the same time, they are cutting support for the less well-off and increasing public pay-outs to private healthcare centers to attract doctors to these companies! The government claims that this is the fastest way to reduce patient queues at the public healthcare centres which are already suffering from a lack of doctors and healthcare professionals. This latter situation is now being made worse as more doctors leave the public sector for higher paid positions in the private sector. A brilliant policy for the government to prove that they are right in the short-term, which and that has terrible longer term consequences as it only increases the costs born by the taxpayers for public healthcare. Public healthcare is a public good that should never be organized by the vagaries of incompetent politicians.
The Italian government has slashed taxes for lower- and middle-income taxpayers, increased salaries of some public sector workers, as well as offering a tax holiday of income from abroad for wealthy foreigners who decide to reside in Italy in exchange for an annual payment of €100 000!
The above increase the fiscal deficit target for 2024 to 4.3% of GDP, meaning that Italy will not reach the EU-mandated fiscal deficit limit of below 3% of GDP until 2026. Italian government 10-year bond yields went above 5% and the margin over Germans bonds increased to almost 2%!
In the past, the European Central Bank has been the biggest buyer of Italian government bonds, which effectively meant that they were financing Italy’s ballooning budget deficits, a claim that they ECB strenuously denies because such activities are not permitted under their constitution! Now these purchases have slowed as the ECB is reducing its massive loss-making bond portfolio.
Italian governments have not been disciplined in their spending habits for the last few decades, and previous right-wing governments in Finland have also been careless with public spending. There’s no reason to believe that things will improve under the current two governments given their present behaviour.