Prime Minister Sanna Marin (SDP) talked to members of the media about her government’s budget draft for next year in the House of the Estates in Helsinki on Thursday, 1 September 2022. Marin argued that financial support for households is necessary to ensure continuing support for Ukraine. (Vesa Moilanen – Lehtikuva)


THE FINNISH GOVERNMENT on Thursday decided on a number of measures to alleviate the effects of surging electricity prices and curb the erosion of purchasing power in the inflationary environment as part of its budget proposal for next year.

The proposals offers relief to many households in the form of lower value-added tax on electricity and financial support for both families with children and low-income households.

The budget is to increase central government debt by 8.1 billion to 146 billion euros by the end of next year, almost two billion euros more than the proposal presented earlier by the Ministry of Finance.

Prime Minister Sanna Marin (SDP) argued that the budgetary decisions are necessary to ensure continuing public support for Ukraine. She pointed out that, as virtually all households are affected financially by the situation, statements calling for peace at any cost have been amplified across Europe.

“We’re living in a war economy. Every European citizen is being hit by the energy war that’s underway as a consequence of [Russian President Vladimir] Putin’s actions. And by supporting households, supporting people, we can guarantee support for Ukraine also moving forward,” she stated.

The government is to help households to cope with surging energy prices by slashing the value-added tax on electricity from 24 to 10 per cent for the period between 1 December and 30 April.

The tax cut alone was ruled insufficient especially for residents of detached and terraced houses, though. YLE on Thursday reported that the government is to set aside about 300 million euros for an income tax deduction for electricity bills of 500–1,500 euros and another 300 million euros for a direct financial support for low-income earners without the ability to take advantage of the tax deduction.

The deduction would likely be worth up to 600 euros and available for four months, according to the public broadcasting company.

The government has also pleaded with power suppliers to transfer the value-added tax cut on electricity to the bills they send to their customers and, if necessary, offer longer payment terms to customers.

All families with children are to receive an additional instalment of the child benefit before Christmas, as proposed by Minister of Finance Annika Saarikko (Centre). Saarikko on Thursday reiterated in the press conference that the additional instalment would have no impact on the income assistance received by such families.

The measure is estimated to cost around 112 million euros.

The government agreed to permanently reduce early-childhood education fees by roughly 70 million euros and increase the care supplement for children in private care by 100 euros a month. It also decided to raise a number of child-related supplements in social security benefits, including the child supplement of unemployment security by 24–45 euros depending on the number of children and the single-parent supplement of the child benefit by five euros a month.

The government confirmed that it will extend the 1,400-euro increase in the tax deduction for work-related travel expenses for 2023.

The value-added tax on passenger transport services, including taxis and flights, will be eliminated for the period between January and April. The Taxpayers’ Association of Finland has calculated that the decision would lower the price of a 2.8-euro single-journey ticket by 0.25 euros, according to YLE.

Public transport operators, however, are under considerable pressure to raise fares.

Criticism from opposition

The budget draft was promptly labelled as an election budget by the opposition parties.

Riikka Purra, the chairperson of the Finns Party, viewed that the government is clearly looking not to anger anyone with the next parliamentary elections looming only seven months away.

“The deficit is growing significantly. Of course it isn’t surprising that the government, which hasn’t saved on anything in its other budgets, isn’t doing so also in its final budget,” she commented to YLE.

The Finns Party has expressed its support for scaling back the emissions trading scheme and introducing a cap on electricity prices. Purra said it is peculiar that the government chose not to tackle structural problems in the electricity market.

“In Finland, 80 per cent of energy is already emission free, and its price hasn’t increased. Finns aren’t benefiting from that at the moment. Demands that gas prices be detached from the market have been heard in some European countries,” she noted.

Petteri Orpo, the chairperson of the National Coalition, commended the budget draft for supporting citizens in difficult times, drawing particular attention to the decision to lower early-childhood education fees, but expressed his concern about accelerating borrowing.

“I’m especially pleased that support measures are being targeted also at middle-income working Finns – in addition to helping low-income people. In the same breath you must say that eight billion euros in new debt is a chilling proposition,” he said. “The government has pursued debt-based policies throughout its four-year term, run up debt on top of old debt without placing priority on anything.”

The merits of some of the announced measures had been questioned by experts in the build-up to the budget session.

Heikki Hiilamo, a research professor at the Finnish Institute for Health and Welfare (THL), on Thursday told YLE that he is opposed to the additional child benefit payment as it would be paid to all families with children, including to high-income ones. The measure as a result would be expensive but would not be targeted specifically at families most in need of support.

“If you look at low-income people and poverty in general, it isn’t focused on families with children as such. It’s focused on single-parent families and single-person households,” he told.

The measures, he viewed, should instead be targeted based on the form of heating and place of residence as they are among the best indicators of whether or not a household is in need for assistance amid the energy crisis.

Aleksi Teivainen – HT