Episode 195 · 2023-06-09 · 36:13 · Original in Finnish
Cut the Taxes: Finland the Hardest Taxer | Elias Erämaja | Neuvottelija 195
Originally published as “Verot alas Suomi kovin verottaja | Elias Erämaja | Neuvottelija 195”
Elias Erämaja, chief economist of Suomen Ekonomit, works through Finland's marginal tax rates with Sami Miettinen in the final week of the 2023 government formation talks. The figure that carries the episode is not the near-60 per cent top rate but the income at which it bites: roughly 1.8 times the average wage, against countries where the equivalent level only arrives at 30 times. Members' median pay is 5,400 euros a month and lower in real terms than ten years ago. Erämaja's strongest argument answers the standard objection that labour supply is rigid: the damage does not appear in the employment rate, because nobody emigrates over a tax rate, but in a specialist declining line management when 60 per cent of the raise is taken — a misallocation of talent that microsimulations do not capture. The solidarity tax gets an exact timeline: temporary in 2013, meant to expire in 2015, threshold 100,000 euros then, as low as about 72,800 under Sipilä, 85,800 this year, and around 120,000 if the original intent were preserved against inflation. Sweden's social-democrat-led abolition of its own solidarity tax was estimated to finance between 58 and over 180 per cent of itself. On the government programme he asks for lighter progression on the Swedish model, work-based immigration of about 45,000 net against a long-run 15,000, and productivity. The closing section is the quietest and sharpest: purchasing power fell last year as much as in the 1977 oil crisis and stood at its 2008 level by the first quarter, while index adjustments to the tax schedules of 3.0 and 3.5 per cent against inflation of 7.1 and about 5 per cent tightened taxation without anyone deciding to. The episode was made in commercial collaboration with Suomen Ekonomit ry.
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Key moments
- 00:00 — Elias Erämaja, chief economist of Suomen Ekonomit ry
- 00:40 — Moving between employee and employer unions is common — Elias's career
- 01:10 — Suomen Ekonomit close to economists' thinking, serving graduates of Aalto, Hanken and the social sciences
- 03:10 — Members' median pay has fallen in real terms back to a decade ago
- 03:57 — Finland's very high marginal rates near 60% are among the world's heaviest
- 05:40 — Even middle earners are over-taxed in Finland, above 50% marginal. Sweden has cut taxes a great deal
- 06:40 — Are Finnish wages low both net and gross because of taxes on work?
- 08:54 — Nalle Wahlroos's thought experiment — tax leisure instead
- 09:57 — The 2013 “temporary” solidarity tax should end in 2023
- 11:47 — Finland's high taxation against Sweden and the EU's key competitor countries
- 14:20 — The Laffer curve in Finland — an underrated piece of economic theory?
- 16:30 — The irrationality of the tax debate
- 18:50 — Flat-taxed Estonians on high incomes are repelled by Finland's taxation
- 21:40 — The effect of the wellbeing services counties on taxation
- 24:00 — Three wishes for the government programme — moderate taxes, work-based immigration and productivity
- 28:00 — Fix productivity
- 29:50 — The loss of purchasing power, for worse and for better — fifteen years
- 33:34 — Index adjustments below inflation as a tightening of taxation
- 34:15 — Problems with the finance ministry's forecast
- 35:05 — Summary and outro
Summary
Elias Erämaja, chief economist of Suomen Ekonomit, came on to discuss Finland’s marginal tax rates, recorded in the final week of the 2023 government formation talks. The episode was made in commercial collaboration with Suomen Ekonomit ry, which is stated in the episode itself.
The figure that carries the episode is not the top rate but where it starts. Erämaja puts Finland’s highest marginal rate at close to 60 per cent and calls it internationally top-tier; Miettinen’s point is that “this almost two-thirds robbery happens at really low levels”, at roughly 1.8 times the average wage, where there are countries in which the equivalent level bites only at 30 times. Fifty per cent is already reached in the middle bracket. Against Sweden, Finnish marginal rates are higher in practically every bracket save a narrow window around €75,000 — and Finland is actually cheaper than Sweden at low incomes, which is precisely the shape that tax cuts aimed at the bottom produce.
His strongest argument answers the standard objection. Microsimulations treat labour supply as rigid, and Erämaja agrees it largely is: nobody packs up overnight for Estonia over a tax rate. But the mechanism that bites is different — a specialist offered line management, seeing 60 per cent of the raise taken, declines it, and somebody else takes the job. The damage shows not in the employment rate but in the allocation of talent and in hours worked.
The solidarity tax gets an exact timeline, which is the most quotable stretch: temporary in 2013, meant to expire with the 2015 term, threshold €100,000 then, as low as about €72,800 under Sipilä, €85,800 this year — and around €120,000 if the original intent were preserved against inflation. Technically it is two percentage points stapled onto the top state brackets. The Swedish comparison is what makes it interesting: a social-democrat-led government abolished Sweden’s equivalent and cut top rates by five points, and the preparatory analysis put self-financing at between 58 per cent at the pessimistic end and over 180 per cent at the other.
On Laffer, Miettinen is careful about his own case — he describes getting “entirely deserved pushback” for calculating a curve on aggregate tax rates — and Erämaja offers the example that needs no such argument: cutting the corporate rate brought more money into the Finnish treasury.
On Estonia, the flat rate inverts the picture: purchasing-power adjusted, a Finn on a low income can net less than an Estonian, while at specialist level the gap against Finland is very large. Erämaja’s summary is uncomfortable: Finland is relatively competitive at attracting lower-income people and not competitive for high-skill people.
Three wishes for the government programme: lighter progression on the Swedish model; work-based immigration of about 45,000 net a year against a long-run 15,000 and last year’s 30,000-plus, without which people aged 85 and over become the largest five-year cohort as early as the 2050s; and productivity, measured as euros per hour worked, where a just-published ETLA and Labore study finds industry fine and services stalled.
The closing section is the quietest and the sharpest. Purchasing power fell last year by as much as in the 1977 oil crisis, and by the first quarter households’ real purchasing power stood at its 2008 level — nearly fifteen years wiped out. Income tax schedules are adjusted by the earnings index, a sensible choice when earnings outran inflation and a damaging one now that they do not: adjustments of 3.0 per cent for 2022 against 7.1 per cent inflation, and 3.5 per cent for 2023 against about 5 per cent. Taxation tightened, in Erämaja’s phrase, “almost unnoticed” — not by a decision to raise taxes but by leaving the schedules uncorrected.
A note on the source
The transcription contains one gap of about 28.4 seconds at 00:09:49, between the Wahlroos thought experiment and the solidarity tax section; speech resumes in short fragments whose opening was not recorded. This summary is written only from what the transcript contains. The transcript carries no speaker labels, but with a single guest the speakers are reliably distinguishable.
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The recording lives on the Neuvottelija channel: Verot alas Suomi kovin verottaja | Elias Erämaja | Neuvottelija 195. A Finnish edition of this episode is published at www.neuvottelija.fi.
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