Finland Times

 

Jaakko Kiander. File Photo – Lehtikuva.

The government may look into reducing payroll tax and some form of tax changes as means to improve competitiveness following the failure of social contract, said economic experts interviewed by news agency STT.

 

Government options to improve competitiveness singlehandedly without the involvement of labour market organisations are all limited. This is due to the fact that reducing the cost of labour would mean encroaching on salaries or other conditions of employment. There is a possibility that there will soon be a return to the negotiating table, the economists pointed out.

 

Jaakko Kiander, the president of Mutual Pension Insurance Company-Ilmarinen revealed that the government does not have many opportunities to directly influence competitiveness.

 

For instance, the government may change the employers' social insurance contributions through legislative changes. The measure would be novel since in principle, the social insurance contributions are agreed in a tripartite basis.

 

Vesa Vihriälä, the Managing director at the Research Institute of the Finnish Economy, ETLA. File Photo Lehtikuva.

The government position is strengthened since it could offer labour market organisations to agree on achieving the implementation of similar objective through other means, explained Vesa Vihriälä, the Managing Director of Research Institute of the Finnish Economy-ETLA.

 

According to Vihriälä, the government has the right to do things as it sees fit in the circumstances of the negotiation breakdown.

 

Kiander revealed some form of impetus to boost competitiveness through certain tax measures and through reduction of income tax could be sought.

 

The heavy industrial competitiveness could be eased by reduction of electricity tax or diesel tax. However, the effects are limited.

 

In any case, each reduction is funded from somewhere.

 

For an ordinary employee, reduction in payroll taxes could reflect on the VAT or increase in pension contributions for employees.

 

Due to poor economic condition, substituting the failed social contract with the originally planned additional cuts is not easy.

 

Much will depend on the economic development and also the surrounding world environment which the government cannot overcome. The country's deficit cannot afford to keep rising.

 

“If this economy does not improve, then it can in the end lead to the European Commission imposing these cuts on us,” Kiander said.