Finland’s Social Democrats have unveiled a new proposal to alleviate the tax burden on society’s low income workers.
It’s just one part of a slate of new tax ideas the party will announce on Wednesday, as unofficial campaigning swings into high gear almost a year before the next scheduled parliamentary elections in 2019.
“People who are on benefits, and there are loads of them, if they perceive a trade-off between losing those benefits and earning a small wage, well to be on the safe side they usually want to keep the benefits and not take the low paid work” explains SDP MP Timo Harakka, the party’s finance spokesperson.
Currently people with the lowest income do not pay tax on their salaries but only on social security contributions which have risen in the last few years, close to 10% of their pay cheque.
The ‘negative income tax’ plan means low paid workers could get tax back, instead of paying taxes. Anyone earning up to the tax payment threshold of €15,000 per year would effectively have a negative tax bill, and get a refund.
Harakka tells News Now Finland the Social Democrats’ plan will encourage more people to get back into the work place, and stands in stark contrast with how the government is trying to get people back to work.
“There are two incentives to give people, the government’s way of slashing benefits, or a way to make it more attractive to get work. What we think we’ll see is an increase in employment in areas where it is difficult, like part time work, seasonal work, all those jobs that don’t really get you enough to get by particularly in Helsinki, it would be more feasible and attractive to do these jobs [if the SDP negative income tax plan was implemented]” he says.
Paying For The New System
Harakka says that since Finland’s current tax system takes money from salaries, the Social Democrats don’t see why it can’t pay people money each month, if they qualify for ‘negative income tax’ payments.
But how would the new scheme be financed?
The Social Democrats plan a ‘Robin Hood’ system of increasing taxes on the rich to pay the poor.
“Wealth taxes in Finland are generally generated less income than the EU average” explains Harakka.
“We would eliminate the loophole that there is zero dividend tax on all foreign investment funds […] we think instead of zero percent, we suggest a very modest 5% source tax”.
The Social Democrats estimate this would generate up to €500 million per year, and the majority of people impacted would be foreign owners of Finnish companies on the Helsinki Stock Exchange.
“People seem to have this inbuilt prejudice that all tax relief for low earners would have to come from the pockets of the middle class, but that’s not so at all. We have consistently proposed smaller taxes for low and middle income earners up to €40,000 per year, and we intend to keep it that way” says Harakka.