There are plenty of difficult decisions to be made in the government's budget frenzy. When the government is looking with cats and dogs for ways to improve employment, there is one easy way. The transfer tax levied on real estate and condominiums should be abandoned, even though it generates around 500 million euros for the state treasury.
Lowering the costs of moving would contribute to the mobility of the labor force and thus the improvement of employment. There is not as much unequivocal research evidence about the harmful effects of any other tax on the national economy as there is for the transfer tax, which is also called a migration tax (Kauppalehti 28.7.2016).
What instead of the transfer tax? When the parliamentary group of the coalition brought up the tax guidelines for discussion in mid-July, they proposed instead to limit the tax exemption of the profit from the sale of apartments. In the state economy, this support is estimated to be EUR 1 million. Replacing the entire transfer tax would therefore require a cut of about 300 percent to the tax exemption for the capital gain on the sale of apartments. Even if limiting the tax exemption of the profit from the sale of one's own apartment would be justified in order to secure equal tax treatment of the property, quick financing sought through it is a bad option.
I find three justifications for my view. First of all, taxing the capital gain would have lock-in effects, similar to the transfer tax. The issue has also recently been brought up, among others, by STTK's Jukka Ihanus in his article published on August 2.8.2016, 2015. There is also no clear research evidence in favor of removing the tax exemption in question, although not against it either (Eerola XNUMX).
Second, a quick removal of the tax exemption would bring a disruption to the housing market that no one wants. The limitation should be carried out like cutting the right to tax deduction for mortgage interest: moderately over several years. Since the tax exemption of the profit from the sale of an apartment can involve considerable sums, the transition period should be very long, so that there is no sudden unsustainable spike in the sale of apartments.
Thirdly, owner-occupied housing has offered Finns a way to accumulate a financial security buffer for old age. Although the importance and value of housing assets now and in the future depends even more on the place of residence, there is currently no corresponding effective incentive for households to save for the long term.
The removal of the transfer tax could well be compensated by raising the real estate tax. As ETLA's CEO Vesa Vihriälä wrote a year ago in the spring when evaluating the current government program, property taxation in Finland could be increased by 500 million euros in order to be at an average level with other OECD countries. Fiscally, the biggest problem with tightening real estate taxation is that the tax recipient is not the state but the municipal sector. If the increase is to be collected in the state coffers, the mechanism could be implemented through the state share system. The real estate tax itself could be raised by the state by raising the lower limits of the tax or by revising the valuation of real estate to better reflect today's price level.
The property tax has little effect on people's behavior, and is therefore one of the least harmful taxes. The tax in question is paid the least where housing is affordable anyway. Although the real estate tax increase is aimed at the property owner and thereby directly or indirectly at households, the dynamic effects realized through the removal of the transfer tax, such as for example a positive employment effect, could compensate for the loss caused. This would not necessarily be the case for individual people, but from the point of view of the whole, the end result would be the most painless.
The tax changes I proposed distort behavior the least and on the other hand encourage the movement of the workforce. There is no need to reinvent the wheel. If you want information on the priorities and effects of taxation, you should first re-read the Hetemäki tax working group's report on taxation as a whole, published in 2010. In terms of taxation, there is enough food for the government's budget tussle.
Sami Pakarinen
Chief Economist
Confederation of Finnish Construction Industries (CFCI)
Sources:
- Eerola, E. (2015) Capital gains taxation - economic considerations and cross-country comparison. VATT Notebooks 44.
- Ihanus, J. (2016) Removal of property transfer tax a placebo for mobility.
- Kauppalehti 28.7.2016 July XNUMX.
- Final report of the tax development working group, Ministry of Finance publications 51/2010.
- Vihriälä, V. (2015) Government program a good starting point, but a problem in promoting productivity.
Now, here in Espoo, I pay about 1300 euros per year in real estate tax as a joint father for the plot of the rintamaiestalo, approx. 2 m900. It's nice that we're still raising the property tax of those living in the small and medium-sized region with a rope around their necks, at the same time as fractional parts are being paid in the provinces. tax. I can't divide my own plot, because the house is built in the middle of this piece of land.
Apparently, Grinder's idea is to make small house living in an expensive area so expensive that the construction industry can make as. Oy's?