An Economist’s Fact-Based Response to Polarizing Tax Claims

A social democratic think tank recently sought to fuel polarization between low- and high-income earners by claiming that the government’s decision to slightly ease tax progression would only benefit the very highest earners. To support this argument, the think tank used euro-denominated comparisons, which naturally make the differences appear large—especially between the very top earners and the rest of the population.

This narrative was swallowed whole by Finland’s two biggest media outlets—namely the publicly owned Yleisradio and the privately owned Helsingin Sanomat. Both repeated the claims without any critical scrutiny, effectively acting as a loudspeaker for a politically aligned left-wing think tank. Their coverage was soon challenged by Sami Pakarinen, Chief Economist of the Confederation of Finnish Industries, who presented a series of facts on social media.

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According to Pakarinen, “Finland will lower its top marginal tax rate at the beginning of next year from 58% to 52%. This has been recommended for years, as Finland’s top rates are among the very highest in the world.”

He elaborated by noting: “In 2017, the IMF recommended that the top marginal rate should be capped at 44%. The OECD average is around 35%. Even after the reform, Finland remains well above this ceiling.”

Pakarinen also reminded readers that “the top 14% of earners pay 49% of all income taxes. When it comes to net public transfers, the top decile shoulders the lion’s share.” In fact, he emphasized that “Finland redistributes income through taxation more than any other OECD country.”

Furthermore, contrary to the social democratic think tank’s claims, he argued that “the self-financing ratio of the tax cut is very likely above 100%. In other words, by lowering taxes, the state will actually collect more revenue. Recent research points in this direction, and there is finally a growing consensus among economists.”

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For international readers, it is worth noting that research shows the majority of journalism students in Finland lean toward the green-left. Perhaps this helps to explain why Finland’s otherwise exceptionally free press—at least in international comparison—can nevertheless appear remarkably one-sided. In practice, it often leans toward planned-economy thinking and value liberalism, as this very case illustrates.

As a result of all this, one is entitled to ask: what exactly are Yleisradio and Helsingin Sanomat aiming at by repeating the left’s polarizing and misleading claims as if they were facts? A society divided along American lines—or even outright revolution?

Previous thoughts on the same topic:
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Finnish, Japanese, and Dutch Adults Lead in Literacy, Numeracy, and Problem-Solving Skills

The OECD has published a new Survey of Adult Skills, examining proficiency in literacy, numeracy, and adaptive problem-solving across different countries. According to the report, Finnish, Japanese, and Dutch adults outperformed their peers in other nations.

At the top of the rankings were Finns, who excelled in all three categories. However, in adaptive problem-solving, they shared the leading position with the Japanese.

On average, across OECD countries, 18% of adults lack even the most basic level of proficiency in any of the measured domains. In contrast, only 7% of Japanese adults fell into this category.

Interestingly, first-generation immigrants in Finland performed significantly worse than ethnic Finns, with the largest gap in reading proficiency among all the countries surveyed.

This finding may have implications for immigration policy, particularly in decisions regarding work-based immigrants or quota refugees. Unfortunately, the OECD report did not provide details about the immigrants’ countries of origin.

Nevertheless, this data should be obtained to inform policymakers, as questions surrounding immigration policy are highly relevant at present. Some green-left opposition politicians advocate for accepting immigrants from all countries without consideration of ethnic or religious backgrounds. Recently, they urged the government to reject measures that assess immigrants' potential performance in Finnish working life and society.

Previous thoughts on the same topic:
Immigration Policy Should Be Based on Evidence
10% of Foreign Students in Finland Failed to Meet Residence Requirements
Humanitarian immigration does not provide a solution to Finland's demographic dependency ratio

Humanitarian immigration does not provide a solution to Finland's demographic dependency ratio

Finnish people are no longer having enough children for the population to renew itself. Therefore, humanitarian immigration has been justified by the demographic dependency ratio.

This idea works if the incoming population, along with their descendants, performs equally well in the labor market as the native population. However,  individuals coming from developing countries—often illiterate and at least less educated than Finns—are unable to do so.

However, the situation could—at least in principle—be saved by their descendants, who attend the same schools as the native children. Additionally, they are fluent in Finnish, unlike their parents.

Unfortunately, recent data indicates that a large portion of immigrant-background students in Finland are considered weak performers according to the PISA definition. In mathematics, as many as 58 percent of first-generation immigrant-background students and 43 percent of second-generation students are weak performers. Among native students, the percentage of weak mathematics performers was 22 percent.

The literacy rates do not look any better either. A staggering 61 percent of first-generation immigrant-background students and 39 percent of second-generation students have poor literacy skills. This means that, according to OECD definitions, they do not possess sufficient knowledge and skills to participate fully in societal functions, such as further education and the labor market.

Finland's Minister of Education Anders Adlercreutz (Swedish People´s Party) considers these results concerning. There is reason for concern, as a varying number of people from developing countries have been accepted annually since 1990.

From the perspective of the dependency ratio, as mentioned above, it is also problematic that the employment rate of individuals with foreign backgrounds is about 10–15 percentage points lower, and the unemployment rate is approximately 5–10 percentage points higher than that of native Finns. And these figures include not only humanitarian immigrants but also foreign workers, among whom a significantly larger proportion is likely engaged in the labor market than among humanitarian immigrants.

Based on the above, it appears that humanitarian immigration is not a solution to the demographic dependency ratio in Finnish society. Nor can it be assumed that they will be able to maintain Finland's standard of living at the same level as it has been in recent decades.

Previous thoughts on the same topic:
Sweden is Soon Set to Surpass the One Million Mark for Illiterate People
The Stabber Killed Three People in an Extremely Multicultural City
Sweden already in trouble - Finland following