Prime Minister Petteri Orpo (NCP) talked to reporters before the second and final day of the government’s framework session in Helsinki on Tuesday, 16 April 2024. The session produced a three-billion-euro fiscal adjustment package that is founded on a 1.5-percentage-point increase in the general value-added tax rate, an increase that is projected to generate a billion euros in tax revenue. (Heikki Saukkomaa – Lehtikuva)

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PRIME MINISTER Petteri Orpo (NCP) has defended the fiscal adjustment package ironed out at the newly concluded framework session.

Orpo on Tuesday stated on YLE A-studio that the government decided to build its effort on a 1.5-percentage-point increase in the general value-added tax rate, from 24.0 to 25.5 per cent, because it causes the least possible damage to economic and employment growth.

“Its effects will spread evenly across society, most evenly,” he argued to the public broadcasting company.

The general value-added tax rate is applied to commodities such as clothes and petrol. While food products will continue to be taxed at the lowered rate of 14.0 per cent, the government decided to move chocolate and sweets under the general scheme in accordance with expert calls for a tax system based on health effects.

Raising the general rate is estimated to generate a billion euros in tax revenue.

With the government choosing not to make changes to the capital gains tax and to only raise the tax burden of high-income individuals moderately, the premier faced viewer questions about how the adjustment measures are distributed.

“Finland is a capital-poor country,” he responded to a question about the capital gains tax. “We need capital. We want that capital is invested, that it doesn’t flee abroad.”

“High-income earners are currently contributing the largest share of the tax revenue that accumulates in our common coffers. We have to find this balance,” he added. “The hike [on high-income earners] is modest, but it’ll still raise about 60 million euros.”

Li Andersson, the chairperson of the Left Alliance, on Tuesday pointed out that the 60 million euros generated by the income tax hike is more than offset by the solidarity tax cut that entered into force at the beginning of the year, reducing tax revenue by about 70 million euros.

YLE on Tuesday also asked Orpo about the decision to disqualify students from the general housing allowance and reinstate the housing supplement of student financial aid, a move the government expects to reduce spending by 57 million euros. The National Union of University Students in Finland (SYL) has expressed its concern that the decision will have a significant impact on student livelihood.

“This is how it goes,” the premier said. “We’ve had to pore through all expenditures on a broad basis.”

He also urged students not to rush to conclusions because the government has yet to finalise the details of the housing supplement. “It’s been improved from what it used to be,” he promised.

Helsingin Sanomat on Wednesday highlighted that Orpo promised that students would not lose their eligibility for the housing allowance in a blog post co-authored with the student and youth wing of the National Coalition in March 2023.

“The National Coalition is not about to abolish housing support for students or to move students outside the scope of the housing allowance. On the contrary, student livelihood must be taken into consideration when developing housing support,” the post read.

Aleksi Teivainen – HT

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