Keskuskauppakamari, one of Finland's leading business organizations, has updated its verokiilalaskuri or tax wedge calculator to highlight the high cost of employing workers in Finland. The tax wedge is the difference between the total cost of labor to the employer and the net income received by the employee after taxes and other mandatory contributions have been deducted.
According to the verokiilalaskuri, an employee in the private sector with a median monthly salary of €3,520 in 2021 would receive less than half of a €100 pay raise after taxes and contributions. The employee would get only €44 to €56 extra, while the employer would pay over €120 for the same raise. These numbers illustrate the high tax burden on labor and how it affects both employees and employers.
The high tax wedge in Finland is a significant structural problem that discourages employers from hiring more workers and incentivizes employees to work less. This problem is especially relevant in a highly competitive global economy, where businesses need to keep their costs low to remain competitive. The verokiilalaskuri helps individuals and companies understand the real cost of employment in Finland and the impact of taxes and contributions on wages and labor costs.
Tomi Viitala, the leading tax expert at Keskuskauppakamari, emphasized that the high tax wedge affects not only employees but also employers. The calculator shows that the real cost of employing a median-income worker in the private sector is almost €4,500 per month, and the employer's cost per working month exceeds €5,300, including holiday pay, sick leave, and public holidays.
The tax wedge consists of several factors, including income tax, social security contributions, and other mandatory contributions. For example, the employer's contribution to the pension system is much higher than the employee's contribution. This cost is often hidden and not visible in paychecks, which makes it difficult for employees and employers to understand the real cost of labor and the impact of taxes and contributions on wages and employment.
The verokiilalaskuri is an essential tool for policymakers, employers, and employees to understand the impact of taxes and contributions on wages and labor costs. The high tax wedge in Finland is a significant structural problem that needs to be addressed to make employment more attractive and to promote economic growth and competitiveness. Reducing the tax burden on labor should be a priority for the next government to improve Finland's economic prospects and to create more jobs and opportunities for all.
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High tax wedge in Finland: Less than half of pay increase goes to employees' pockets
The Finnish tax office in Helsinki. LEHTIKUVA
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