The conflicts and harmony between taxation and family policy in Finland

Abstract

To encourage higher fertility in Finland the government should give more attention to the equalization of family costs and just taxation policies. Particularly needed are changes in the definition of a child in tax legislation. Tax statistics indicate that child supporters pay about 45% of the taxes paid by those without children to support; however this figure is a major understatement since it does not include supporters who have children over 16 years of age. Although the costs of supporting children 16-20 years of age are greater than those required for minors given the increased educational costs tax deductions granted for children who are studying are insignificant. Since families with children have to pay a larger proportion of indirect taxes of their consumption expenditures than the average it is probable that family supporters pay over half the indirect taxes of all households. Moreover young families that have a higher education compared to previous generations and thus a higher nominal income are severely taxed in the phase of life where they are starting to build a family purchase a home and possibly pay off educational loans. The cost of day care for 2 children in Helsinki is as high as the net minimum wage further exacerbating the economic burden of fertility. Taxation reform in Finland must give serious attention to this dilemma and seek measures that will favor rather than penalize families with children. If tax authorities cannot plan an environment favorable to families as part of social policy fertility will continue to decline.