Finnish economists have reservations about tax cuts to curb inflation

The Coalition Party, for its part, has called for billions of euros in cuts.

However, economists interviewed by the public broadcaster warn that cutting income taxes in an attempt to help consumers cope with an inflationary environment could be intuitively counterproductive.

“When is high, tax cuts can accelerate it even further,” he sums up KurronenChief Economist of the Business Forum (Eva).

Another factor to consider is the economic uncertainty created by the Russian invasion of Ukraine. Olli-Pekka RuuskanenThe research director of Pellervo’s economic research saw that reducing income taxes would hardly succeed in boosting private consumption amid the prevailing uncertainty.

“Even if the income tax were reduced, there would be no need to divert it to consumption, as households are worried about the future and would certainly save most of their income,” he explained to YLE.

It is also difficult to plan cuts to benefit those on low incomes who have suffered most from rising food and energy prices.

“Reducing income tax is not the best way to improve purchasing power, as it would also affect middle-income and rich people, including the super-rich. This would be detrimental to public finances and is not desirable, he said Anni MarttinenChief Economist of the Confederation of Social and Health Services (SOSTE).

According to Kurronen, the income tax reduction could be reconsidered when the economic outlook has changed. “When it looks like inflation is slowing and economic growth is starting to slow, it’s time to cut income taxes as a stimulus.”

Both and Saarikko referred to the labor market situation and, in particular, the need not to agree on excessive wage increases in justifying the tax cuts.

“It is feared that accelerating inflation could spread through wage increases across the . Reducing income tax is not the simplest way to address this, as there are no guarantees that wage increases will still be high, Ruuskanen comments to YLE.

Economists stressed that in order to curb the rise in the , there must be instruments that do not accelerate inflation, such as index-based increases in social benefits. The Finnish has already announced that it will carry out early index-based social security revisions, which effectively promise increases in benefits for people over 18 living independently, such as , guarantee pensions and study grants.

“One of the best ways is to make these index-based increases in basic security for the most affected people and then, if that’s not enough, consider some additional support,” Marttinen said.

Ultimately, the government has limited scope to curb rising consumer prices as a result of a number of factors. The Russian war will inevitably affect prices, Ruuskanen reminded.

“There is one solution to rising energy prices and an indirect solution to rising : ending the war in Ukraine,” he said.

Aleksi Teivainen – HT

Source: The Nordic Page

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