The Finnish government should concentrate on re-building its fiscal buffers and refrain from introducing tax cuts, views Vesa Vihriälä, the research director at the Research Institute of the Finnish Economy (ETLA).
“I’d personally show restraint in this respect,” he commented on YLE Radio 1 on Monday. “I recognise that there’s some sort of an effort to prevent taxes from rising, but I personally believe it’d be a bad decision to cut taxes notably – or at all – at this point in time.”
“We should be creating buffers. That also means that taxes should at least not be relaxed.”
The Blue Reform is expected to call for income tax cuts worth 200–300 million euros at the budget session of the government of Prime Minister Juha Sipilä (Centre) on 28–29 August.
“It’s our belief that you must take care of the purchasing power of consumers. Relaxing income taxes by 200–300 million euros would be justifiable in that light,” Simon Elo, the chairperson of the Blue Reform Parliamentary Group, commented to STT on Saturday.
Vihriälä viewed that the current economic situation is “unusually good” and that the economic growth that has continued for almost two years has been “rather brisk”. The growth, however, will inevitably slow down, he reminded.
“The public economy isn’t on a particularly strong footing when you take into account the kind of pressures we’ll face in the future. You have to keep in mind that when we had the big depression in the early 1990s, we were able to create buffers against it by raising public debt from 60 per cent of GDP to almost 70 per cent of GDP,” he said to YLE.
“It took us over 15 years to bring [the debt ratio] down to roughly 30 per cent.”
The low debt ratio effectively served as a buffer during the more recent recession by allowing the public economy to show a deficit and support growth for a number of years, explained Vihriälä.
“Now that the growth is solid and the situation has improved, it’s important to make sure that we bring down the public debt ratio to create buffers in time for the next recession – which we’ll inevitably face some day,” he said.
Aleksi Teivainen – HT
Photo: Roni Rekomaa – Lehtikuva
Source: Uusi Suomi