Finnish Taxation is Relatively Reasonable

We have an election coming so right-wing politicians, with a little help from their media friends at the main newspapers, are trying hard to tell Finns that taxation here is too high. They do that by comparing income taxes from the chosen “peer” countries – Sweden, Norway, Denmark, and Germany.

Your correspondent has lived and worked in 6 countries, in addition to travelling for work and pleasure extensively in all the Nordic countries, Germany, France. Italy and Spain.

The truth is that Finland has a transparent and competitive tax system that is nowhere near being too high in comparison with the other countries given our small and aging population, huge geographic area, and cold climate.

The average tax percentage on monthly income from holding a job in all the above “peer” countries is between 42% and 45%, except for Denmark, which is a little higher at around 47%.

Comparing these countries is fraught with problems for many good reasons:

  1. Norway cannot be compared to Finland as a peer country because of their tremendous wealth from fossil fuels. Geographically and in terms of population size it would have been a great peer country were it not for oil and gas!
  2. Finns pay their taxes honestly and openly. Taxation is transparent and relatively simple to understand. There are very few loopholes when compared to the other “peer” countries, where the super rich have been buzz off to Luxembourg, Switzerland and Portugal to avoid paying normal taxes. The tax authorities even have a good reputation for being helpful here too according to recent studies! One of the richest men here, a former banker, moved to Sweden to avoid inheritance tax on his Finnish property – but he is seen by most of us as a noisy upstart who knows how to feather his own bed at our expense – not nice!
  3. Local governments in all the peer countries collect taxes in addition to central government. Unlike central government taxation, each local government has different tax rates! Helsinki, for instance, has had one of the lowest tax rates with one of the largest populations! The difference between the highest and lowest can be four to five percentage points.
  4. Finland offers great free education from primary schools to tertiary education, excellent healthcare, good roads, and public transport. Most people benefit from these free or low-cost services. In the other countries, education and healthcare are provided at higher costs through insurance schemes and the costly privatization of these services. Denmark and Germany benefit from population densities that we can only dream about when considering public transport networks and costs.
  5. Finland has a well-maintained labor market and reasonable pension system. The other countries are plagued with gray labor markets and less reliable pension systems.
  6. Sweden, Germany, and Denmark have large immigrant populations – Finland is an outlier with a fast-ageing population. This means that we must face the reality that there is a lower share of people working compared to share of pensioners who have left the labor market. These folks need care that is much more expensive that the care needed for the average worker. Tax revenues are needed to pay these heavier costs and the health- and social care system needs to be more cost efficient. Without immigrants the labor market is faced with the need to pay taxes to cover these costs and care for an increasing number of retirees.

Cutting taxes is always a nice promise before the election, but politicians need to be honest about the facts – you cannot cut taxes that are needed to run the economy well. Manipulation of the facts by them and their media is fake news!

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