U.K.’s Brexit Vote Means Tax Cuts for Austerity-Whipped Finnsby
Finns are about to get a tax cut and they have British euro-skeptics to thank for it.
Weak global growth and uncertainty fueled by the U.K. vote to leave the European Union have persuaded Finnish Prime Minister Juha Sipila to bring forward income tax cuts that weren’t originally due until at least after March 2017.
The government, which was one of the most vocal advocates of austerity during the European sovereign debts crisis, is now looking to fiscal stimulus as a means of reinvigorating its economy, which has been languishing ever since the demise of Nokia’s mobile phone business.
"In a situation where we’re impacted by challenges, from the global economy to Brexit, our growth is now dependent on domestic demand," Sipila told Bloomberg at an ambassadors’ conference in Helsinki on Monday. That’s why tax cuts and other cyclical policy measures need to be taken "earlier than planned. We need to boost domestic demand," he said.
Sipila, a self-made millionaire, is seeking to secure an expansion for an economy that only left a three-year recession behind in 2015, after also being battered by a slump in its paper industry and slowing export demand. The government has persuaded trade unions and employers to agree on a pact that includes wage cuts, longer working hours and lower holiday bonuses in the public sector.
The tax cuts now being implemented were originally tied to a review of the pact’s effectiveness, due in March 2017.
But Sipila now says there’s no time to waste. Earlier this month, the Finance Ministry presented a 2017 budget draft that envisages income tax relief of 415 million euros ($469 million) a year. Tax payers should expect average reductions of 0.5 percent.
The budget, which envisages a rise in state debt, must now be discussed by Sipila’s coalition allies and the parliament.
Although public finances in the euro area’s northernmost state are in relatively good shape, Sipila hasn’t got much margin to play with.
"It will depend on growth," he said.