Taxes can be Great Value for Money

Two young Finnish female politicians and their economist friends have been arguing about why we need to think about not cutting taxes, or cutting taxes, to stimulate economic growth.

But before getting stuck into this argument, it is worth explaining what we mean when we talk about the Finnish versions of the political Right and Left.

Today, unlike 50  to 70 years ago, both sides of this spectrum are so close to one another and so pragmatic that both could be described as Social Democrats in the German sense. Their differences are minimal because they have formed coalitions to govern together many times, they are friendly towards big and small companies, and they believe in equality, equality of opportunity, freedom of expression, democracy and ensuring that as many as possible receive a good education. The only differences are about privatising parts of healthcare and parts of energy production – both groups like to find nice jobs for their mates!

The big argument this last month has been about the matter of taxation and economic growth. The Left say that cutting taxes does not produce growth and the Right says that growth will fly if taxation is cut.

The two opponents are then backed up by their respective economists who talk double-talk to avoid being caught up in this endless squabble!

A couple of American researchers called Gale and Samwick have described how taxation can  boost long-term growth:

1. Tax reductions can encourage work, saving, and investment, but not if they create a big government deficit or cause public services to be significantly reduced;

2. Careful targeting of tax cuts can support new economic activity but they should not be used to provide windfall gains for previous activities;

3. Tax cuts can also level out income across different economic sectors and across different types of income and types of consumption.

At the moment, Finland is growing rather well and that weakens the case for tax cuts. Taxes should remain at this level or be increased when economies are bouyant – according to generally accepted economic principles.

However, the Right are saying that tax cuts are good because budget deficits will lead to spending cuts that will eventually shrink role of government. For a politician to say that seems dubiously strange. Why would they ever sit in Parliament in the first place if they see that government is not doing its job?

Secondly why do they really think that the private sector has a monopoly on economic efficiency – why do they keep saying that governments are inefficient?

Many big banks in Finland, USA, UK Germany, Japan, France, Italy have gone under and had to be saved by “generous” government payments or nationalisation all at the taxpayers’ expense… Covid has just amplified the generosity of us taxpayers through massive state support to stave off many private companies.

Thirdly, and most important, we should ask ourselves are our taxes really that high compared to say the USA and the UK? Having lived in both countries for long periods I can say that Finland does not have relatively high taxation costs when comparing what you get by paying these taxes. We get free education of the highest quality, we get low cost public healthcare, we get very good public transport and a well-developed basic infrastructure, we get a safe and clean environment with well manage publicly-owned power and heat companies. In the US and in the UK you pay “through the nose” for such services provided by private sector companies! 

This last point was conveniently ignored by the two young politicians on the Right and the Left when they engaged in the arguments. Their economists also failed to mention this very important matter that largely explains why Finland manages so well as a great place to live. 

Another question that many politicians fail to address is why do we need to place so much emphasis on economic growth. Would it not be better to think more about being more productive and more sustainable as the two most important goals?

“Money can’t buy you love…” as the Beatles said, but taxes can buy you a much better life…

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