Economists criticize Finland’s VAT changes as unfair to consumers

Economists interviewed by Yle have criticized the upcoming changes to Finland’s value-added tax (VAT) system, describing it as unfair to consumers. The government announced in the spring that the general VAT rate would increase from 24% to 25.5% at the end of September. Meanwhile, the reduced VAT rate of 14% for food, feed, and restaurant services will remain unchanged.

Janne Tukiainen, a professor of economics at the University of Turku, argues that it would be more advantageous to raise the reduced rates rather than the general VAT. He notes that varying VAT rates create unequal conditions across industries and misdirect economic resources. He suggests aligning food taxes closer to the general VAT rate, a proposal that may seem unexpected given the high inflation rates for food over the past few years and the tight financial conditions many households face.

Tukiainen asserts that much of the benefit from reduced VAT rates ends up with businesses rather than consumers. He believes that direct financial assistance to low-income individuals would be a more effective way to address income inequality.

There is a consensus among economists that the current VAT system disproportionately benefits higher-income individuals, who tend to buy more expensive products. Jukka Pirttilä, a professor at the University of Helsinki, points out that raising food VAT could have provided fiscal flexibility, making the general VAT rise less drastic.

However, economists also highlight the political sensitivities surrounding food taxation, suggesting that lobbying from various sectors complicates reform efforts. As part of broader fiscal measures, the government has acknowledged the need for tax increases, which could mitigate the necessity for spending cuts.