The Finnish economy is undergoing an unprecedented slump, with our gross domestic product set to decline for the third year running. Even the recession of the 1990s did not hit Finland as hard. Economic performance figures have remained at the level of 2008, the year of the global financial crisis, and if our economy does not turn the corner soon, we can talk about a lost decade.
The steps taken by the government to curb the crisis have been ineffective. The government is planning to raise various taxes, while cutting state funding for municipalities, child benefits, farming subsidies, support for companies and employment services. But I cannot see how tax hikes could get the Finnish economy back on track. In contrast, the best alternative would be to cut taxes.
High tax rates only serve to weaken Finns' purchasing power, which will in turn hinder the creation of new jobs. The unemployment rate would be close to the figures we saw during recession, if the baby-boomers were not reaching the retirement age. I believe that the punitive additional costs falling on employers to pay on top of the wages make companies think twice before hiring new staff. With measures to cut unemployment rates failing to deliver results, successful tax policy holds a key role also in this policy field.
First, I will propose two tax policy reforms, which will help improve the employment situation.
The first one of these is to make it possible for employees, pensioners and full-time carers to earn a thousand euros a month tax free. This would increase the purchasing power of people on low income and allow the unemployed to accept work without a fear of their income dropping as a result of losing benefits. The reform would also cut public spending on income support and social benefits. Adjustments should be made to the tax system so that the reform would not change the tax rate of people earning 4,000 euros a month.
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