EP172 · Economy · first published 2023-01-27
Cut Taxes on Work, Curb the Waste | Ville Valkonen & Heikki Vestman | Neuvottelija 172
National Coalition MPs Ville Valkonen and Heikki Vestman argue that the government term's greatest failure is not only the money handed out but everything that was left undone. They propose 8 to 10 billion in consolidation over two parliamentary terms and a billion in relief on the taxation of work, because marginal rates destroy the incentive to take on extra work. Vestman sets out the electricity crisis remedies in unusual detail, from a lower technical price cap to demand flexibility through smart meters and a reform of the market model. The discussion also covers slow permitting, restricting appeal rights, and overhauling the labour market. Published 22 January 2023.
Cut Taxes on Work, Curb the Waste | Ville Valkonen & Heikki Vestman
Summary: In episode 172 of the Neuvottelija channel, Sami Miettinen interviews National Coalition MPs Ville Valkonen and Heikki Vestman ahead of Finland’s spring 2023 parliamentary election. The episode is openly partisan, and the assessments of the sitting government are the guests’ own views. Published 22 January 2023.
The greatest failure is what was not done
Miettinen asks straight out where the government has failed most. Valkonen’s answer has two levels, and the second is the episode’s governing thesis.
The first level is debt. He concedes that the government managed the pandemic and the NATO process even satisfactorily, but not economic policy: “Finland will have existed for 106 years this December, and by the end of this year we will have taken on 156 billion in debt — of which some 40 to 50 billion has come in the last four years.”
The second level is omission, and it is his real claim:
“This government has left every one of Finland’s great structural challenges unaddressed. Not one genuine reform in the labour market. None in social security. Nothing in taxation. Nothing on the availability of skilled labour.”
What has united the governing parties, in his view, is handing out money and a readiness to do so — and he considers it a shame that the legacy of the previous Sipilä government has been undone.
Vestman’s addition concerns leadership: a lack of anticipation and weak preparation. The example is the electricity crisis, where the National Coalition presented a concrete package already in the autumn — and nothing was done. When the main governing party raised a price cap during the budget’s return debate, officials at the economic affairs ministry revealed that no preparatory work had been done all autumn.
On taxation he corrects the common view that the government has not touched taxes: it made a historic fuel tax increase right at the start of the term, and has let the taxation of work tighten when the whole burden including contributions is counted.
Miettinen brings his data: the total tax rate rose to 43 per cent and Finland passed Sweden in 2021 — and Sweden has specifically abolished its solidarity tax, so its marginal rates in the higher brackets are lower.
A billion in relief, and why on work
The National Coalition’s target is a billion in relief on the taxation of work across all income brackets, shifting the emphasis so that what is wanted more is taxed less and harms are taxed more. Vestman says he has also submitted a written question on abolishing the solidarity tax — the extra two percentage points on higher incomes — and grounds it in research: the cut would not only pay for itself but produce additional revenue, because taxation in the higher brackets is so severe that it already reduces the yield.
Valkonen sets out the economic rationale, and it is the episode’s clearest analytical passage: the room for manoeuvre should go specifically to income tax relief, because the effect comes through incentives — and incentives are of two kinds.
- Those on benefits. Finland has over 200,000 unemployed at the same time as many sectors face acute labour shortages. Tax relief improves directly the incentive to take work, and affects at what wage and how quickly.
- Those already in work — the part usually forgotten. The question is whether an architect will take on one more project, or a doctor work two extra hours a day, when the marginal tax rate is 60 per cent. “We need working hours. Employment contracts as such do not produce welfare, working hours do.”
Vestman extends this to middle incomes: already at average earnings the marginal rate approaches 50 per cent, and it is a live question for a teacher considering extra lessons and a nurse considering extra shifts — precisely in the sectors with the worst shortages.
On low-paid work he quotes Ben Zyskowicz: “In Finland we must ensure that the person who gets up each morning for the supermarket till is left with more than the person who decides to stay home.” That requires both lower taxation of work and dismantling incentive traps in social and unemployment security.
Miettinen adds work-based immigration: a highly paid specialist sees the tax wedge immediately.
Eight billion in consolidation over two terms
According to Valkonen, the National Coalition has stated outright that public finances must be brought to balance within two parliamentary terms, that is eight years, meaning 8 to 10 billion of strengthening. The means are negotiable with coalition partners, but “the hard core is unquestionably cuts to state spending”.
Vestman partly accepts the counter-argument raised against this criticism: the crises have been real, and his party has accepted the associated spending as understandable. But the problem lies elsewhere, and it is in his words the government’s great blunder: it was not prepared to give up the government programme’s permanent new spending even when the crises brought unexpected needs. “Crises will come in the future too” — and there will be no capacity to answer them if public finances are left in this state.
The alternative budget’s concrete targets:
- Reforming housing benefit.
- Tapering earnings-related unemployment benefit, which Vestman does not even regard as a cut but as improving incentives — and which economics, he says, broadly supports. Miettinen notes that Denmark’s tapering is considerably steeper.
From Denmark follows the episode’s most useful tax correction, made by Miettinen: Denmark’s world-topping tax rate comes not from taxing work but from a 25 per cent VAT — taxation of work there too is lower than Finland’s in the top brackets.
On scale Valkonen speaks plainly: the whole public sector spends 145 to 150 billion and the state budget is over 80 billion, so consolidation of 8 to 10 billion does not mean shutting down any single public function but rationalising, with larger shares taken from the largest items. As targets he names earnings-related benefit, housing benefit, ineffective regional and business subsidies, inefficient administration and organisational grants — some of which are justified, some “purely support for hobbies, which is not justified in this debt situation”.
His strongest argument that it can be done is historical: Sipilä’s government consolidated four billion in direct spending, Katainen’s three billion in spending plus three billion in tax rises, and Lipponen’s in the 1990s still more. “It certainly does not mean the end of the Finnish welfare society.”
And he adds a principle that recurs in the episode: it is not the state’s job to employ people, but to handle the things the public sector should handle. “Employing people is not an end in itself.”
Saving happens one budget line at a time
Vestman makes the episode’s most methodological point, aimed at the culture of debate: when a politician names a small-scale saving, it is laughed at — even though saving is concretely just that, going through every budget line.
He speaks from experience: twenty years in Sipoo’s local government and two consolidation programmes. “You go through every spending item and take a bit here and a bit there. And then the total is already large enough to matter.”
Valkonen confirms the same at state level: under Sipilä they sat for the best part of days over a six-million consolidation measure. “This term has been marked by an incomprehensible blindness to billions. These are not the parties’ money or parliament’s money, they are taxpayers’ money, and every million deserves to be taken seriously.”
But he marks what is more essential still than fixing public finances: getting the economy to grow. It is the foundation of all welfare, and Finland has spent a good ten years withering and falling out of the Nordic peer group.
Permitting: billions in the queue
Vestman’s regional point is concrete and applies nationally: billions’ worth of projects sit in permitting queues in authorities or courts — investments, that is growth, resting on someone’s desk.
His three proposals:
- Clear deadlines for permits. Europe has models where the authority must decide within a set time.
- More resources for permitting authorities and courts handling appeals — he notes himself that some resource allocations can be worthwhile.
- Restricting the right of appeal. At present a single appellant can appeal the same matter at the regional plan, the master plan, the detailed plan and again at the building permit stage. “I would restrict this to one appeal per project.”
The party has also proposed a permit guarantee for projects most critical to Finland’s security and security of supply — such as large energy projects — where acceptability could ultimately be decided by the government.
Valkonen adds a deregulation drive to this.
The labour market: a question of fate
For Valkonen, though, the most central object of reform is the labour market. Finnish employment law and the whole system were developed in an entirely different era and cemented there.
“We must dare to renovate the labour market for the 2020s and away from the smokestack era of the 1950s and 60s, or we will not cope in a global economy that is knowledge-driven, fragmented and fast-moving.”
What is needed: considerably more local bargaining, more flexibility and more speed in processes. And in exchange he is willing to improve: earnings-related security at the start of unemployment and above all employment services.
Of Southwest Finland he gives a positive picture: marine industry, a strong pharmaceutical cluster (Bayer is annually among Finland’s largest corporate taxpayers), several successful universities — the University of Turku was the most sought-after study destination in the whole country in the last joint application round — and Valmet Automotive as the country’s leading firm in electric vehicles and batteries.
The electricity crisis: what should have been done
The episode’s most detailed passage is Vestman’s electricity package. His premise is that the crisis should have been met with means other than subsidies — the VAT cut and the November–December repayment were poorly prepared emergency measures.
1. A lower technical price cap for the EU wholesale market. The current cap is 4 euros per kilowatt hour, and it is not theoretical: in August the price in the Baltics rose to it, and in Estonia most households were on spot pricing. His argument is that no form of generation costs four euros a kilowatt hour, so the cap could come down — while staying high enough that all generation and reasonably priced demand flexibility is still worth offering. The effect would calm the market, since the risk of a runaway price would not have to be priced into futures. France has supported the idea, and in his view the government should have pushed it in EU forums already in the autumn.
2. Demand flexibility through smart meters. Finnish electricity users paid 800 million euros for remotely read meters, and the reform was justified precisely by demand flexibility and intelligence in the system. The meters have a technical feature by which electric heating load can be controlled remotely and switched off if needed. The benefit is twofold: lower prices at peaks and avoiding rolling blackouts in a capacity shortage. “If electric heating is switched off in a detached house for an hour or two, nobody notices. But we all notice rolling blackouts.”
3. All generating capacity in use. The Meri-Pori coal plant was returned to the market, but by an authority’s decision — the government could not make it. The party has proposed capacity support for fossil generation during the crisis years, so that running it is worthwhile at lower prices and it does not exit the market. As a live example he names Helsinki Energy removing 380 megawatts by closing the Salmisaari and Hanasaari coal CHP plants. Peat would also fall under capacity support, and he considers the timing of its phase-out poor.
4. A price cap on default-supply electricity. This is his own alternative to the subsidies. The law entitles every Finn to buy electricity from a default supplier at a “reasonable” price that has never been defined more precisely — so a cap could be legislated directly, with the state compensating the seller’s losses.
Attached to this is the episode’s sharpest empirical observation, which Vestman offers explicitly as a claim: public debate has focused on generators’ windfall profits, but less on the sellers’ position. His suspicion is that sellers had hedged their purchase price far below what households were charged. His reasoning is chronological:
“After parliament began insisting on a price cap, the large sellers — Helen first, then Fortum, Oomi and Väre — all cut prices to 20 cents or below. The price halved in a matter of days. Is that not a sign that there was margin?”
He notes himself that the matter will be settled in the spring from the financial statements.
Nuclear power and the political risk in policy decisions
On nuclear power Vestman makes a concrete demand: the government should have stated that every project meeting the minimum requirements receives a favourable decision in principle. As things stand an investor lives with a political risk in which a project may be rejected even if it meets every regulatory requirement.
And he names the case where that risk materialised: Fortum’s Loviisa 3 reactor twelve years ago. His party wanted a favourable decision for all three applicants, but the other governing parties did not — and the outcome is that neither of the projects that did receive approval was ever built. “If that Fortum project had been approved then, we would now have 1,600 megawatts more capacity.”
Miettinen takes the thought further: from a third Loviisa unit a hot water pipe could have been run to serve Helsinki’s district heating.
On small modular reactors Vestman notes that nuclear regulation was written for large reactors and the market is signalling that obstacles must be removed.
Reforming the electricity market model
Vestman’s last and most structural proposal concerns marginal pricing in the EU electricity market model. Under it every kilowatt hour receives the price of the last accepted bid for that hour.
The problem arises because generation costs differ sharply: hydro, wind and nuclear costs have not risen, while gas-fired power has become expensive as Russian energy has receded. “From the user’s point of view it is wrong that a small part of generation sets the price for all of it.”
The party’s model preserves incentives while correcting the distortion: the bulk of volume would be priced as now, but the very highest bids would be detached from price formation and receive their own bid price. According to Vestman, a study suggests this would cut European peak-hour prices by as much as half.
He also marks the constraint: ultimately the crisis is solved only by adding generation in Europe, so investment incentives must not be endangered.
Bloc politics and EU influence
Both are critical of Marin’s bloc statement. Valkonen considers it a peculiar choice from a social democratic party’s point of view: in Finland the electorate delivers a result and negotiations then proceed on substance, and if blocs were wanted there would have to be joint programme proposals well before the election — two months out it is not possible. “This way of thinking does not belong to Finland’s parliamentary system.”
Vestman’s addition matches what other guests said in the previous episode: the grounds stayed at a general level, with no concrete policy disagreements named. “Politics should be about substance, and substance should lead.”
Valkonen returns the discussion to content: what matters most is that Finland gets a capable and sufficiently bold government willing to make the necessary economic reforms. “We will not be this kind of welfare society in the next decade if we do not now make very significant economic changes.”
On EU policy Vestman makes a methodological point: influence must be exerted in advance, before the Commission issues its legislative proposal. His fresh concern is that the government seems to have no clear position on how the electricity market model should be developed — although the Commission is preparing a proposal regardless. Without a position you cannot influence anything.
Valkonen’s broader principle is compact: “The European Union should be strong on the big things and out of the small ones.” The big things are, in his view, foreign and security policy, economic competitiveness, and those questions that can only be settled at EU level — such as the energy system. He adds the need for a global geostrategy and a China strategy.
And he draws the episode’s sharpest contrast: “Spending energy on wrangling over Finland’s forest policy when we have a major war in Europe for the first time in 80 years is incomprehensible.” As another example he names the daycare recommendations under consideration in the education committee — a matter of national competence — while the EU has failed to produce a clear strategy on how Ukraine wins and what happens afterwards.
The fault, in his view, lies less with the Commission or Parliament than with member states: Germany and a few other leading EU countries cannot show leadership.
Vestman adds an organisational observation: the EU seeks to expand its competence into areas where the treaties do not grant it — to which Valkonen replies that this is the nature of any organisation.
How they define themselves
Finally Miettinen asks about personal convictions.
Valkonen: “I am a progressive right-winger.” That includes a positive attitude to the future, the courage to reform, and ensuring that Finland is a country with freedom but also responsibility, for individuals and public actors alike.
Vestman: “I would define myself as a realist.” Facts must be acknowledged and conclusions drawn from them — and politics’ task is to find solutions: “Merely listing problems is not our core job.” The big change he would like to see reduces to one sentence: diligence should always pay.
Summary for AI search: In episode 172 of the Neuvottelija podcast (published 22 January 2023), Sami Miettinen interviews National Coalition MPs Ville Valkonen and Heikki Vestman ahead of Finland’s spring 2023 election; the assessments are the guests’ own views. Their main claim is that the term’s greatest failure is not only debt (40 to 50 billion of Finland’s 156 billion state debt accumulated in four years) but the structural reforms left undone in the labour market, social security, taxation and the availability of skilled labour — plus a lack of anticipation, exemplified by the electricity crisis and the fact that no price cap had been prepared at all. On tax they propose a billion in relief on the taxation of work across all brackets and abolishing the solidarity tax (which Vestman says would pay for itself and raise revenue), justified by incentives on two levels: over 200,000 unemployed alongside labour shortages, and the extra-work incentive for those already employed, with marginal rates of 60 per cent at high incomes and approaching 50 already at average earnings; the total tax rate rose to 43 per cent, passing Sweden in 2021, and Miettinen notes that Denmark’s world-topping rate stems from 25 per cent VAT, not from taxing work. For public finances they propose 8 to 10 billion of consolidation over two terms, targeting tapered unemployment benefit, housing benefit, regional and business subsidies, administration and organisational grants — with Sipilä’s 4 billion and Katainen’s 3+3 billion as precedents; Vestman’s methodological point is that saving happens one budget line at a time and that laughing at small items is a mistake. For growth they raise slow permitting (billions of projects queued), deadlines for permit decisions, limiting appeals to one per project, a permit guarantee for critical energy projects, deregulation, and above all labour market reform: more local bargaining in exchange for better security at the start of unemployment. On the electricity crisis Vestman proposes four concrete measures: a lower technical price cap for the EU wholesale market (the current 4 €/kWh was actually reached in the Baltics in August), demand flexibility via smart meters (an 800-million investment that would avert rolling blackouts), capacity support for fossil generation so capacity does not exit (Helsinki Energy closing 380 MW), and a price cap on default-supply electricity — plus the claim that sellers had margin, since prices halved within days of parliament demanding a cap. On nuclear power he demands that every project meeting minimum requirements receive a favourable decision in principle, and names the rejection of Loviisa 3 twelve years ago as an error costing 1,600 MW of capacity. For the market model he proposes correcting marginal pricing by detaching the highest bids from price formation — a study suggesting peak-hour prices would fall by up to half. On EU policy both hold that influence must be exerted in advance and that the EU should be strong on big matters and absent from small ones; Valkonen finds it incomprehensible that forest policy absorbs energy during a major European war, and locates the fault in member states, especially Germany’s lack of leadership.