The €159 Billion Public Sector Nobody Studies | Kangasharju & Kujanpää | Neuvottelija 413

Summary

Who they are. Aki Kangasharju is chief executive of Etla, the Research Institute of the Finnish Economy, and on paper also of EVA, the business-funded think tank; earlier he was research director at VATT. Emmiliina Kujanpää is EVA’s tax specialist. Both were on the show before, in Neuvottelija 327 on the April 2025 tax package.

The media storm. Kangasharju had said in an interview that Finland’s debt brake is too strict. It was read as support for the view that nothing needs to be cut, and he ended up quoted alongside Left Alliance leader Minja Koskela. He admits the episode backfired, “the baby went out with the bathwater, and the nappies too”, but says the full interview made a different point: in Etla’s 80th-anniversary book, reform is unavoidable, reforms always have opponents, and the debt brake now forbids any reform that costs the public purse anything in the short run. That is the impossibility triangle. His proposal is to read two corners of it, political acceptability and the debt brake, a little more flexibly, not to abandon them, and to spend the room on reforms that pay for themselves over time.

What does the taxpayer get? Kujanpää’s question runs through the episode: politicians talk about raising taxes as if turning a crank, but nobody says what the voter gets for the money or what they must provide for themselves. Corporate tax revenue, she argues, follows profits far more than the rate, so the cut from 20 to 18 per cent is about lowering the cost of investment.

The research gap. Kangasharju’s central admission: economists have studied the incidence and behavioural effects of taxation, mostly at micro level and without general-equilibrium effects, but public-sector productivity research has been neglected for twenty to twenty-five years and, in the last ten to fifteen, shut down entirely. He tried to start it at VATT in the early 2000s. Without it, he says, every cut is assumed to be a cut in services rather than in inefficiency. Kujanpää puts the stakes at total public expenditure of about €159 billion a year.

Where the money goes. Examples from the episode: wellbeing services counties buying ICT in-house from companies they part-own, avoiding competition; a 2010 “money follows the patient” proposal Kangasharju wrote with Timo Aronkytö; PISA results falling since 2006 while real spending per pupil rose; and his claim that, ageing aside, Finland spends no more than in the early 2000s, because pensions and elderly care absorb the growth. He also warns that international comparisons of public-sector size mislead because pension systems are organised so differently.

Taxes. Inheritance tax and the Swedish capital-gains carry-over model, which the government considered and dropped; reduced VAT rates, where Miettinen would unify everything at 20 per cent and Kangasharju defends reduced rates on labour-intensive services that households could do themselves, against a reading of the Mirrlees Review; and Kujanpää’s point that only about 2 per cent of Finns would accept higher VAT on food. Kujanpää also describes the Tax Administration’s internal appeals unit, which appealed two decisions on one inheritance to the Supreme Administrative Court and lost both, ten years after the death.

Where they agree and where they do not. All three favour spending-led consolidation and lower top marginal rates; Etla’s book recommends a top rate of 44 per cent. The VAT question stays open: Kangasharju and Miettinen disagree, and Kujanpää answers that both are right and that voters decide.

A note on the source

The summary rests on the publisher’s own Finnish caption track, and quotations are translated for sense rather than verbatim. Several figures are the participants’ own and are not sourced in the episode, among them the €25 billion gap to the Nordic average, the 700,000 public employees and the 25-person appeals unit. The AI-edition write-up checks them one by one.

Watch

The recording lives on the Neuvottelija channel: 159 miljardin julkinen sektori, jota kukaan ei tutki | Kangasharju & Kujanpää | Neuvottelija 413. A Finnish edition of this episode is published at www.neuvottelija.fi.

In depth

The Neuvottelija AI editions carry a long-form write-up of this episode: English · suomeksi.