Finnish economists say they reserve tax cuts as a tool to curb inflation

economist Finland has repeatedly reserved tax cuts by policy makers as a cure for rising consumer prices. write in YLE.

Minister of Finance Annika Saarikko The Center has repeatedly suggested that lowering income taxes will be a way to ease consumer minister Sanna Marin The (SDP) announced last week that the government would consider tax cuts for low- and middle-income earners, especially in the fall.

Meanwhile, the coalition is demanding tax cuts worth billions of euros.

However, economists interviewed by public broadcasters warn that lowering income taxes to help consumers cope with the inflationary environment can be counterintuitive.

“If inflation is high, tax cuts can accelerate it further,” he summarized. Sanna KronenChief Economist of the Finnish Business and Policy Forum (Eva).

Another factor to consider is the economic uncertainty caused by Russia’s invasion of Ukraine. Orri Pekka RuscanenPellervo Economic Research’s research director, who believes that income tax cuts are unlikely to succeed in boosting consumer spending amid widespread uncertainty.

“Even if we reduce our income tax, we don’t have to spend it on consumption because households are worried about the future and can definitely save most of their income,” he explained to YLE.

It is also difficult to design reductions in a way that benefits low-income earners who have been hit hardest by rising food and energy prices.

“Reducing income taxes is not the best way to improve purchasing power, as it also affects middle-income and high net worth individuals, including the ultra-rich. This will put the public economy at a disadvantage, which is not desirable.” Stated. Anni MaruttinenChief Economist of the Finnish Social Health Federation (SOSTE).

Income tax cuts can be reconsidered if the economic outlook changes, Kronen said. “When inflation slows and economic growth appears to be starting to lose momentum, it’s a good time to lower income taxes as a stimulus.”

Both Marin and Sarricco need to refer to the labor market situation and, more specifically, refrain from agreeing to excessive salary increases to justify tax cuts.

“There is concern that accelerated inflation could spread throughout the economy through rising wages. Income tax cuts are not the easiest tool to tackle this, because large tax increases have not yet taken place. There is no guarantee, “Ruskanen told YLE.

Economists emphasized that tools to tackle rising living costs should not accelerate inflation, such as increasing the index base of social security benefits. The Finnish government has already announced that it will make index-based adjustments to social security earlier than planned, effectively increasing benefits such as unemployment security, pension guarantees and student financial assistance for independent living over the age of 18. I promise to.

“One of the best ways is to improve the basic security of the most afflicted people on these index bases. If that’s not enough, we’ll consider some additional support,” Martinen said. I am.

Ultimately, governments have limited options for curbing consumer price inflation because of the consequences of a variety of factors. Russia’s war in Ukraine inevitably affects prices, Ruscanen reminded.

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

Aleksi Teivainen – HT Finnish economists say they reserve tax cuts as a tool to curb inflation

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