The government decided to exclude certain objects from the austerity measures. The salary of the high earners got the tax cuts, but the capital income didn’t, write Elli Harju and Juha Ristamäki of Iltaleh.
Petteri Orpo’s (kok) government held long, two-month negotiations on new savings measures. Rupeama culminated in a two-day frame riot this week.
The public finance savings package came out, which the government describes as “fair” in its statements.
For the first time, Orpo’s government will also raise the taxation of high-income earners and some pensioners. Cuts and tax measures will hit a wide range of areas of society – but not everywhere.
Large savings were at least avoided by business subsidies, agriculture, defense and generally the recipients of capital income. After all the public fussing, the increase in pension taxation remained small.
According to the original goal, the government had to divide the adjustments of around three billion euros so that around two billion would be cuts and one billion would be tax increases.
However, the situation changed during the parties’ negotiations. All parties had their own pain points that can be cut from. In practice, the wall went up for cuts of around 1.4 billion euros. Since the cuts fell short, taxes had to be increased further.
According to government sources, the Coalition and Fundamental Finns would have been prepared to make more cuts than KD and RKP, but they also had their own reservations regarding cuts.
The Minister of Finance before the scuttlebutt Riikka Purra (ps) prepared Finns for unpopular savings targets. He said in several interviews, among other things, that cutting pensions is possible.
Right under the framework tussle, the statement to Helsingin Sanomat already changed into the form that “it is impossible to reach the desired three billion euro public finance adjustment pot without interfering with pensions”.
The Ministry of Finance gave savings to the preparer Matias Marttinen (kok) options for the group about pension cuts. One was the freezing of the occupational pension index, and the means by which it could be channeled to strengthen the state coffers.
In the end, the pension savings turned out to be small: the taxation of pension income will be slightly tightened for those who receive a pension of 23,000–57,000 euros per year. The impact on public finances will be 150 million euros next year.
Many of the negotiators assure that the decision was joint. According to information from Iltalehti, in the end, the coalition stopped cutting the occupational pension index. Officially, the party says it is due to the complexity of cutting the occupational pension index. In the background, of course, was the fear of angering pensioner voters.
Large pension cuts would not have been easy for the PS parliamentary group either, but there are estimates from government sources that Purra would have been more prepared than Orpo for larger pension cuts.
Orpo showed publicly that he was against interfering with the occupational pension index: last week, in an interview with Ilta-Sanomi, he insisted that the pension system will not be tampered with. It was interpreted to mean the occupational pension index. If the index were to be cut, it would affect the increase in pensions in the coming years as well, because with index increases, pensions will rise from the previous year’s level.
The action would have jeopardized labor peace in the group that is working on the pension reform of the ministries and labor market organizations, whose purpose is to agree on measures to strengthen the public finances with a billion.
In Marttinen’s group, more generally, there was the idea that the cut of the index that increases pensions could have caused unrest in the labor market organizations – especially in the SAK – in an already inflamed situation.
In Kehysriihi and after, business subsidies also cause confusion.
The various business subsidies paid by the state amount to billions a year. In the package the government has now agreed, there are business support cuts of around 70 million euros, but of course it is a small amount compared to the whole.
The coalition promotes the interests of the business world, and large companies are the biggest recipients of business subsidies. For example, a representative of another government party describes after the negotiations that “the coalition idolizes them, even though they say otherwise in public”.
The coalition was supported in maintaining business subsidies by RKP, the “Swedish party of the government”. The largest single recipient of business subsidies is Viking Line – last year the subsidy was more than 20 million euros. For RKP, the shipping company is important because the ships pass through Åland.
Categorically, even basic Finns would not have wanted to cut business subsidies. It wasn’t easy for them to cut the tolls. Government sources also say that the coalition would have cut regional business subsidies more, but Perussuomalaiset did not agree to this.
– Every cut in business support has its opponents, when we go into the details, one government source describes.
According to information from Iltalehti, the treatment of business subsidies is divided within the coalition. The most ardent market supporters do not approve of direct business subsidies because they distort competition. They would have rather accepted the cuts in business subsidies than, for example, the increase in the general value added tax rate by 1.5 percentage points and the tightening of wage taxation for high earners.
The ruling parties argue that it is difficult to cut business subsidies also because a large part of them belongs to the R&D (research, development, innovation) sector, whose funding is on the contrary being tried to increase in the hope of economic growth.
In the government’s decisions, economic adjustment measures are still rarely targeted at one group: people receiving capital and interest income. Here you can see the handprint of the right-wing government.
The government decided to raise the salary tax of those with a good income, earning more than 88,200 euros. However, for example, capital tax and withholding tax on interest income were left alone.
On the corporate side, the tightening of taxation of dividends from companies not listed on the stock exchange, which had been pending for a long time, remained unimplemented.
The matter was not even seriously brought up, because the chairmen of the governing parties and the economic policy ministerial committee ruled that the taxation of work and entrepreneurship should not be tightened.
Basic Finns are told that the dividend extortion of unlisted companies would have happened only to PS, not to others.
More generally, Marttinen’s working group had the idea that capital should be increased in Finland in order to create more investments, which in time would produce and bring about economic growth.
However, the coalition gave up on raising the wage tax for high-income earners. Tax extortions for high-income earners also had to be removed from the framework, so that the package can be traded as a fair whole.
Iltalehti reported at the beginning of April, based on information received from government sources, that the government is considering taxing the capital income of large foundations as one of the taxation targets.
So there were investment returns from non-profit organizations, including trade unions, on the table. However, this idea was abandoned.
According to information from Iltalehti, the reason for the foundations was the opposition of the RKP and the coalition.
The coalition did not want to start taxing foundations, because the organizations they support are already being cut briskly. Wealthy Swedish-speaking foundations, which would have been hit by taxation, weigh heavily in RKP’s balance sheet.
The taxation of the dividends of the Ay company would have been suitable for all government parties. However, the parties’ joint assessment of the situation was that the labor market reforms now have enough to chew on and the ay movement did not want to be provoked further at this stage.
The government is still trying to work with the labor market organizations to create an export-led wage model, and in the background there is also concern about the fate of the tripartite pension reform.
Agriculture was also practically avoided in Saxony, except for a small cut in operating expenses. According to Iltalehti’s information, the Christian Democrats, who hold the portfolio of Minister of Agriculture and Forestry, wanted the government’s policy to be followed in agriculture, according to which “internal and external security” is secured when austerity measures are taken.
The Basic Finns also liked aspects of agriculture – partly due to the fear of the center party’s outcry if agriculture were to be cut. The coalition, on the other hand, would have been prepared not to leave agriculture out of the cuts – according to the estimates presented, “it would have been possible to take twenty million from agriculture without it having had an impact on anything”.
The success and fairness of the austerity package will ultimately be judged by the voters. The effects on the popularity of the parties have already been seen in the polls in the near future.
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