Helsinki (02.02.2002 - Juhani Artto) Finland’s tax rate is among the highest in the world. It reached a peak of 47.1 per cent in 1996, and is estimated to have been 45.0 per cent last year. According to Ministry of Finance projections, the rate should fall to 43.6 per cent this year.

Jorma Ollila, CEO of Finland’s best-known multinational corporation – the mobile phone giant Nokia – recently offered some critical comments on Finnish taxation, causing nervousness among both policymakers and the general public. Some commentators interpreted Ollila’s words as direct threats that Nokia may leave Finland unless the tax burden is eased.

At the end of January Ollila specified his previous more general remarks by recommending a cut in marginal taxation of wages and salaries. Indeed, the Finnish 60 per cent marginal tax rate is high by international standards. Ollila believes that a lower rate of marginal tax would make the economy more dynamic. This, in turn, would accelerate economic growth, thus safeguarding the overall tax base.

Where Ollila adopted a conciliatory tone, Nordea Chairman Vesa Vainio – another big name in the Nordic business community – issued a direct threat of job removals from Finland unless the government rapidly reduces taxation.

Commenting on the debate, SAK president Lauri Ihalainen wondered at how little attention had been paid to the connection between taxation and the welfare state, noting that "I have not seen many proposals on what public services would be cut to balance the tax cuts." He also expressed concern that participants in the debate seemed largely to have lost sight of more than 200,000 unemployed in Finland.

While admitting that modest cuts in income tax might be possible, Lauri Ihalainen stressed that the greatest rewards would be found in raising the rate of employment above 70 per cent.

The SAK president urged the Finnish government to be more active in promoting an EU-wide harmonisation of the tax base. This should curb unhealthy international tax competition and put a stop to the use of tax havens.

A Gallup poll published in January provided fresh evidence of Finnish attitudes towards taxation. No fewer than 72 per cent would rather increase taxes than cut municipal services. Even among the self-employed a majority chose this option.

Two other factors weigh against a cut in marginal taxes:

Firstly, cuts in marginal taxation are not a popular idea. Over the last few years income divisions have widened exceptionally rapidly in favour of the wealthiest ten per cent of the population. In 2000 their share of total disposal income was 23.3 per cent, while the share of all other such groups except the second richest ten per cent fell during the latter half of the 1990s. Cutting the marginal tax rate would strengthen this trend towards wider income disparities.