Next govt needs to save €2b or hike tax: Ministry

The next government will need to achieve a surplus of about 0.5 per cent direct fiscal adjustment measures to strengthen public finances by a total of EUR 2 billion by 2023, according to a report released by the Ministry of Finance on Monday.

The Ministry released the report on the principles of economic policy and public governance for the forthcoming electoral period, entitled “A Self-Renewing, Resilient and Sustainable Society”, said an offician press release.

The publication casts light on the outlook for progress during the upcoming parliamentary term, and discussed the key challenges and associated policy choices.

Although Finland has been a success story over the past century, it faces many difficult problems in the coming years and decades, such as climate change, an ageing population, technological revolution and high level of structural unemployment, said the report, adding that the fiscal buffers for the next economic downturn are slim and the sustainability problem remains unsolved.

The funding of new expenditure needs arising during the next parliamentary term should be covered by re-allocating appropriations. Expenditure cuts should, where possible, be targeted in ways that do not undermine conditions for economic growth.

When looking for ways to strengthen public finances, taxes can only be raised to a very limited extent so that economic growth and employment are not adversely affected.

When considering potential tax hikes, international tax competition and the impact that taxation has on the incentives of work and business activities should be taken into account. The least harmful approach would be to target tax hikes on consumption and real estate.

Tax revenues can also be increased by eliminating ineffective forms of tax expenditure. A net decrease in taxes is not possible due to the sustainability gap.