Why Finland pays higher TAX in Europe?
In Finland, the highest marginal tax rate is nearly 60%, although individuals don’t pay this rate on their entire income. The marginal tax rate applies only to the last euro earned, and those in this tax bracket have an average tax rate of around 42%.This taxation approach is known as progressive taxation, where individuals pay a higher percentage of tax as their income increases.
Just like the other nordic countries at the top of those lists, Finland offers residents and citizens many benefits and services.
Free healthcare and education
“In Finland, there’s always been significant discussion about how to enhance our healthcare and education systems – we prioritize these key initiatives to ensure they’re not neglected,” explains Professor Viherkenttä.
The benefits of a higher tax rate include access to an affordable healthcare system that aims to provide quality healthcare to everyone, even without insurance. Aalto University offers an example of what this means in practice: “For instance, a 45-minute appointment with a specialist in cardiology costs about €30. Additionally, with a yearly payment ceiling, individuals won’t pay more than €683 per year for specialized treatments, hospital visits, or surgeries.” Finland also boasts a world-class education system that aims to offer equal opportunities to every child, regardless of their background, along with all the necessary infrastructure and administration to keep things operational.
The Finnish system is based on the principle that everyone should have access to opportunities, and investing in areas like healthcare and education benefits society as a whole. Therefore, even university studies in Finland are free, provided individuals pass an entrance examination or have high enough grades to be selected.
A predictable pension
A pension fund serves as a form of financial security, akin to a tax in some regards, that aids in easing the transition from working life to retirement. This transition period often prompts concerns about what comes after the regular income that has sustained individuals throughout a significant portion of their adult years.
Help during difficult times
Tax revenue is allocated to various social security measures to ensure that individuals are not left behind in society. These measures include unemployment benefits, housing assistance, student loans, and pensions. Finland’s social security system is designed to provide everyone with housing and access to healthcare services, while also offering support to families, the elderly, and vulnerable groups, such as those unable to work full-time.
If we come to the point!
Timo Viherkenttä, a professor of practice in law and taxation at Aalto University, clarifies the distinction between the marginal tax rate and the average tax rate, noting that they are often misunderstood concepts.In Finland, while the average tax rate for high earners may not differ significantly from other countries, what distinguishes Finland is the income threshold at which the highest marginal tax rate applies.Unlike some countries where the 60% marginal tax rate applies only to very high incomes, in Finland, an annual income of €100,000 is sufficient to reach this rate, according to Viherkenttä.While Finnish taxpayers may pay slightly higher taxes compared to global averages, these taxes contribute to the country’s vision of equality.When appropriately and proportionately distributed, high taxes can finance public institutions that foster societal well-being and prosperity.In Finland, there is a consensus that although the population pays higher taxes, they benefit from numerous publicly-funded social programs that promote health, happiness, and an enhanced quality of life. These programs are accessible to all, regardless of income level, thereby promoting equal opportunity and fostering a sense of community.
The higher tax rate in Finland guarantees services and benefits that are usually not available for free.
Timo Viherkenttä concludes that taxation in Finland has two sides. It’s not about Finns being masochists and willingly paying more taxes. Instead, Finns receive more social structure and safety nets in return for the higher taxes they pay. However, it’s essential to remain vigilant to ensure that tax euros are spent efficiently and effectively.
