Prime Minister Petteri Orpo (NCP) has defended the government’s tax cut decisions announced on Wednesday, which have drawn criticism from many economists as well as opposition politicians.
In a live roundtable interview with journalists on Yle’s Radio Suomi on Sunday afternoon, the premier admitted that the government was taking a risk with the tax cuts. However, he said, it would be riskier to do nothing.
The government's tax cuts will result in a loss of approximately two billion euros in revenue to state coffers. Taxes will be lowered for companies and for individual taxpayers – with the latter cuts mostly benefitting higher earners.
However Orpo asserted that the state debt will not increase, arguing that economic growth will offset the tax cuts. According to him, the government's mid-term budget framework decisions will create the basis for new growth and more tax revenue.
"Corporate tax cut will create jobs"
Orpo says he is convinced that the corporate tax cut will create investments and thereby jobs in Finland.
On Friday, former Prime Minister Matti Vanhanen (Cen) predicted to Yle that the corporate tax cut will simply lead to money flowing abroad in the form of dividends.
Orpo also argued that the government's actions are putting Finland's debt ratio onto the right track.
Opposition leader and SDP chair Antti Lindtman has warned that as a result of the government's decisions, Finland is at risk of facing disciplinary action under the EU's excessive deficit procedure, which aims to ensure that all member states maintain low government debt or reduce high debt to sustainable levels.
PM: Tapping pension funds is "a responsible move"
The prime minister also defended the government’s decision to use cash from state pension funds. He said this was a responsible move since the money is to be used for measures to stimulate growth.
The government said on Wednesday that it would take "bridge financing" from the state pension fund to achieve debt stabilisation.
However, Orpo said that money from pension funds cannot be used for the planned increase in defence funding.
He also explained that the government intends to fully compensate municipalities for the decrease in corporate income tax. The government decided to lower corporate income tax to 18 percent, which will affect the finances of municipalities.
Government falls short on its pledges
Sunday marks two years since Orpo formed his four-party government coalition, although it would be nearly two months before his cabinet was sworn in.
According to an Yle analysis published on Saturday, the cabinet has so far failed to achieve two of the three main priorities included in its June 2023 programme.
The government promised to create 100,000 more jobs, but instead employment has declined by almost 50,000 since it took office. There are now around 300,000 unemployed people in Finland.
That includes more than 115,000 long-term unemployed people – more than during the worst periods of the pandemic years.
And despite cuts in funding for social services, healthcare, education, culture and many other sectors, it has also failed to rein in the growth of state debt – which many economists say will be exacerbated by the tax cuts.
"Purchasing power is literally collapsing"
On the other hand, the purchasing power of those with jobs has improved slightly since the Orpo administration took office in June 2023. However, it has not recovered to the peak of late 2021 and early 2022.
In this sense, the situation is good for those who have work – but not for those who have lost their jobs. The government has slashed unemployment benefits and other social benefits.
"Their purchasing power is literally collapsing," Mikael Kirkko-Jaakkola, chief economist at the Taxpayers' Union, told Yle.
The right-wing government’s legislative term is set to end in the spring of 2027.
