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Finland Agrees Tax Hikes For 2015 Budget

by Ulrika Lomas,, Brussels

04 September 2014

On August 28, 2014, the Finnish Government agreed its 2015 budgetary proposals, which will focus on not prejudicing economic growth and job creation prospects, and will instead attempt to improve the country's fiscal deficit situation.

It was stressed that, due to the lack of economic growth again this year and with little expected for next year, Finland may have to depart from its medium-term objective of a structural fiscal balance. The Government has resigned itself to an increase in the public debt-to-gross domestic product (GDP) ratio to above the 60 percent 'Maastricht' limit in 2015.

Measures to reduce central government expenditure and increase revenue are planned, which it is hoped will improve government finances by 2.5 percent of GDP. Finland's fiscal deficit is projected to decline by nearly EUR3bn (USD3.9bn) to EUR4.5bn.

Most of this will be achieved on the expenditure side. The impact of tax changes is to be only EUR300m. Slow economic growth will limit tax revenue growth to about two percent in 2015.

The most significant tax changes will be to excise duties and other indirect taxes. Increases to the tobacco tax, to the excise duty on sweets, and to energy taxes are expected to increase central government tax revenue by about EUR370m, while revenue from the motor vehicle tax will be increased by EUR180m.

Income tax changes are aimed at maintaining consumers' purchasing power, particularly for those on low or medium incomes. The basic and earned income deduction will be raised, and the Government is planning a deduction for parents with children.

Central government income tax thresholds for the three lowest marginal tax rates in 2015 will be adjusted in line with inflation. Mortgage payment tax deductions will be restricted further, the deduction for interest paid on study loans will be abolished, and the top capital gains and inheritance and gift tax rates will be raised by one percent.

The tax base will be expanded, mainly by cutting or limiting tax subsidies to companies, but the controversial power plant tax – a windfall tax introduced this year on hydro, wind, and nuclear power plants built prior to 2004 – will be cancelled.

TAGS: capital gains tax (CGT) | tax | economics | fiscal policy | energy | vehicle tax | gross domestic product (GDP) | budget | corporation tax | tax thresholds | excise duty | tax rates | gift tax | Finland | tax breaks | individual income tax | Tax

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