Sunday, March 16, 2014

Are the high taxes in Finland worth it?



A short film from Finland was recently nominated for an Academy award.  Just the other day I heard on the Finnish news that the Finnish candidates who were nominated and attending the Oscar Gala for best short film would be taxed on their gift (swag) bag that was valued at 60k euros and which all of the candidates received for attending the event. The Finnish tax authorities were quoted in a news article opining that the Finnish candidates would need to pay approximately 20k euros in taxes to the Finnish government!  Hmm.  In case you didn't already know, Finland is not Hollywood.  :)  I highly doubt these short film producers earn much more cash than a typical private sector employee in Finland. However, it is interesting to note how quickly the tax authorities are to jump in and take their "share".  

The real question is whether Finns and foreigners living in Finland get a value for their tax dollars.  I am sure we could debate this back and forth for days.  Finland isn't the highest taxed country in Europe, but it is apparently near the top 5.  It also ranks up with the highest tax rates anywhere in the world.  Finland currently has a corporate tax rate of 20%, a maximum individual marginal tax rate of 53% and VAT (Value added Tax) of 24%.  It is a progressive taxation system, so as your salary increases the tax rate increases as well.  There also seems to be less of a range of incomes, with a larger median as opposed to folks all over the place like in the United States.

The question is a bit more complicated than meets the eye.  There are social services like efficient bus services, free education, including university tuition, disability benefits, health care for everyone, long maternity and paternity leaves and other benefits, etc.  Many people do benefit from the system.

Lets take e.g. health care.  In Finland there is universal health care which means that everyone is covered. There are some fees, e.g. if you need surgery you pay a fee of approximately 30 Euros per each day at the hospital.  The surgery itself was free. Dental care is free for kids and adults up to 23 years of age, including braces and everything else.  After age 23 you pay some fees however they are not very much.  For example, a dental cleaning cost me around 30 Euros, so there is still some subsidies by the government.  In the United States at least until recently most people get their health care from their employer sponsored plans.  Someone out of work with a pre-existing condition may pay an arm and a leg for health care or might be outright rejected from the plan.  There also have been horror stories of those folks falling through the cracks between jobs.  I even had a friend who was between jobs and diagnosed with cancer so he paid for everything from his pocket (i.e. large loans).  This kind of scenario would never happen in Finland because everyone is paying into the system and everyone has coverage.

However, is the public health care system in Finland good considering the high taxes in the country? Some people living in Finland have had negative experiences with the public sector.  They have experienced long waits, talking only to nurses, and some rudeness. On the private side, it seemed that most of the people I spoke to were very happy with the health care they are receiving.  I am also fortunate to receive private health care from my employer.  I do like them (Diacor), but I have to admit it seems a bit odd to me that there are several private health care corporations in a social democracy like Finland.  My thoughts before moving here was that health care was optimal in this system and there really wasn't a need for private sector health care providers.  Interestingly enough, the private and public sectors work together.  If you go to a private doctor and it turns out you need surgery, they will refer you to the public sector.  All babies are delivered in the public sector and so on.  I think the system works perfectly for those diagnosed with serious illness or with pre-existing conditions, however for those looking for care for minor issues the system is not functioning so well.

Another example is the high cost of fuel, food and drinks in Finland.  These are partially related to the 24% (13% on foods) VAT (Value added Tax)    I was a bit shocked after arriving in Finland and noticing the high costs of food, drinks and everything related to automobiles (gas, parts, repair).  It's not like prices are dirt cheap in  US, but in Finland the prices seem just insane.  Do you want to drink a fancy beer with your dinner?  You are going to pay for it.  For example, in the States one Sierra Nevada beer purchased at the grocery store is around $1 per bottle, here in Finland it is around $5 per bottle, so 5 x the cost.  Want to fill up your gas tank on your car, it is about $8.50 per gallon here in Finland.  The proponents of the system will say that the taxes are high on alcohol in order to pay for the social programs cost by alcohol and we shouldn't tax everyone else, just those who drink.  I understand this way of thinking, but why does it have to be so high then?  It is currently the highest alcohol tax in Europe according to a recent study.  Let's take a close look at the fuel taxes.  The fuel argument made by some Europeans is that we are getting much cleaner fuel and trying to get people to take public transportation to help "save" the environment   Is the double price really justified in Finland (and most of Europe) in order to help the environment.  I don't actually think gasoline prices being double in Finland is actually such a bad thing. I think one actual consequence of the high fuel cost is that generally speaking Europeans drive smaller more fuel-efficient cars. The Europeans place a much higher burden on gasoline taxes and "use" that extra cash to clean up the environment and place the extra money into other social services.  For example, Norway is an oil rich country, but they still choose to heavily tax gasoline and use the extra funds for education and other services.   To me it actually makes sense to get more people out of their cars to use the public transportation system and use the extra funds to help with other social services.  I think if some Americans looked at the bigger picture then they might understand the reason for the high taxes, but I seriously doubt the US lobbyists would accept such a large increase in fuel costs.

Other things that taxes in Finland provide for, include education from toddlers to University students.  For example, pre-school cost around few hundred euros per month per child.  Elementary, middle, and high schools are free an provide free hot lunches.  University students also provide free education, aside from approximately 100 Euro annual student union fee.  Moreover, students at higher education schools are also provided with some free allowance each month since their focus is supposed to be  on studying.  Education is free, but is it good? It is quite good indeed according to recent statistics.  Finland has consistently ranked at the top of the world in PISA scores for primary education.  The one negative about higher education is the difficulty in getting admitted the acceptance percentages to many universities are quite low, e.g. someone wanting to become a teacher will need to be in the top 100% of applicants for the 5-year Master's program.

Another field that in most countries is paid for and managed by governments is infrastructure, that is roads, public transportation, etc.  There seems to be quite wide network of trains, buses. etc. and they are typically clean and on time.  It seems like there is always some construction going on in the roads, but generally they are in good shape, snow is plowed timely during the winter, etc. There are also many public sports fields, and areas from ice rinks at most school yards or soccer fields during the winter to many trails, swimming halls, etc. that are also used by Finns often.

Many more topics and comparisons could be covered, but the ultimate question is, does the taxation system really benefit those people who live here in Finland?   The topic could be answered each way.  For me being an American who has moved over here to Finland 2.5 years ago, I have struggled a bit accepting the high taxes.  I wonder if my tax money is really being wisely spent?  Is the health care system optimal enough to justify costs?  Are the social benefits offered here worth it for most folks?  Coming from States I can appreciate the social benefits as I think it overall makes a more trusting and egalitarian system.  It is definitely not a "dog eat dog" world out there and everyone is given a fair chance. However, I also feel like sometimes the taxes are a bit excessive for what I am really getting out of the system.  I think the answer lies in what you value as a person and society.  Are you someone who would rather go about things alone without much government assistance or someone who appreciates social services and is OK paying for them in order to benefit the entire society? I think people in Finland are definitely paying a high premium to live in this society, but then they can sleep at night knowing that they will never have to worry about losing health care coverage and can send their young children to school by themselves because of the overall security and safety of the society here. At the same time we can't build roads and train tracks with private money.  So some things have to be paid by taxes. Is the USA still a good place to live and raise a family?  I am personally fairly neutral on this.  I actually like a little of both systems.  We might not often realize what services and programs we use. It is really a tough issue with no real right or wrong answer and it really comes down to which society you prefer living in.  However, I suggest that one looks more deeply into the question of how taxes affect society as a whole and not just their own personal income.  There are repercussions in a society that has wealth spread too wide and one that has all the wealth in the middle.  Bottom line is that there is no perfect utopia tax heaven.  I think Finland's system works for some and America's system works for some.  What is your opinion?


10 comments:

  1. My opinion - ur interpretation is quite gud (Y)

    ReplyDelete
  2. Practically universal access to high quality education, no no-go areas, that is no real slums, great trust in public services, well functioning infrastructure - all this resulting in significantly higher social mobility than in the US or even the UK. Sure, a large part of this is due to culture, but it's quite a likeable culture.

    ReplyDelete
  3. The "private" health care is subsidised and incurs more costs to the society because it refers more patients to public services (surgeries, etc.). The public side unfortunately lacks resources and that makes it a worse workplace for doctors and nurses and makes the service worse for patients. The two-tiered system is not good and is probably unsustainable in the long run because AFAIK the society bears the brunt of the costs of private healthcare. So, effectively we just offer better healthcare with larger subsidies (at least quantitavely per capita) to upper levels of society than the lower levels and that is simply wrong.

    The efficiency of healthcare is top-notch, though. Finland pays less than European average for a lot better results. I just think we should spend more money there.

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