The financing of the welfare state requires sufficient tax revenues

In broader international comparison, all Nordic countries appear as high-taxation countries. In relation to the other Nordic countries, Finland’s overall tax rate is not high. In Denmark, the overall tax rate is as much as 4.6 percentage points higher than in Finland. With the Danish tax rate, then, there would be no sustainability gap in Finland at all. Even the tax rate in Sweden is 0.7 percentage points higher than in Finland.

To cover the sustainability gap, SDP sees that the tax base needs to be strengthened in the coming government term. Additional tax revenues must be collected in a just way, from items where it causes minimal disruption so that economic inequality decreases.

Taxation must be reformed, on the whole, to be more progressive. The income taxation of low and middle-income people must not be raised. High-income and the wealthiest people, on the other hand, could pay higher taxes particularly in situations where their taxation currently remains lower than that of others with similar income due to, for example, the differences between capital income and earned income taxation.

The tax bases must be extended and strengthened

Strengthening the tax bases increases tax progression and tax revenues. At the moment, the increase in value of investments received as inheritance or a gift remains outside of the scope of capital income taxation. SDP proposes broadening the tax base to include this currently untaxed income, i.e. increase in value, gained by the wealthiest, in taxation. It must also be made sure that corresponding investment losses are tax deductible.

The tax base would also be broadened by imposing a tax on banks and other financial institutions exempt from the value added tax and the tax on insurance premiums, for example in the form of a financial activities tax. Also other tax subsidies that discriminate between companies and citizens and narrow the capital tax base should be abolished or reformed. For example, the deduction for entrepreneurs currently mainly targets high-income entrepreneurs, whereas small-income entrepreneurs would benefit more from lower earned income tax rates.

SDP would collect more tax revenues mainly through ownership taxation. The focus of taxation must be shifted toward taxation of ownership, above all, by sealing gaps in and broadening the tax base. It is important to address defects that enable tax evasion and tax avoidance, as the consequence of which some pay less taxes than others who earn and own the same amount. The tax base is also safeguarded by maintaining the level of environmental taxes in relation to the development of the general price level similarly to earned income taxation. Also, temporary taxes can be used to finance, for example, major defence procurements, when financing them directly from the budget could threaten the funding of other important services and benefits of the welfare state.

Collecting more tax revenues from the holdings of the wealthiest and targeting tax deductions on low-income people improves equality. Taxation is a key part of the social transfer system and it is a vital tool in reducing economic inequality. It is essential that taxation is fair in such a way that the progression of taxation takes people’s ability to pay into account. This means that the taxation of large income and holdings is higher whereas smaller income may be exempt. Strong tax bases to reduce tax evasion are a prerequisite for fair taxation. The reduction of freeloading also strengthens the legitimacy and credibility of the democratic system.