In the last few days, it has seemed that at the same time that the European Commission and the rest of Europe are trying to double the repair construction, we are putting the wheels in the cart.
The household deduction is one form of support that encourages you to renovate your own home and use professionals for it. For renovation services, the reduction applies to the labor part, not the materials. Now the grounds for the household deduction have been severely questioned.
A study published in January by the State Economic Research Center and the Institute for Wage Research shows that the household deduction does not increase the use of services or employment and does not reduce the gray economy. The research and its conclusions have been met with great surprise when they have collided with both the views of other experts and people's common sense.
The study has been criticized, for example, because the effect of raising the maximum amount of the deduction has been studied by investigating the increase in turnover of renovation companies in the short term and even during the financial crisis, the birth of new companies has not been taken into account, and the development of renovation services has been compared to the car repair industry (e.g. a professor of economics Roope Uusitalo's blog post and former editor-in-chief of Taloustaito magazine Antti Marttinen's blog post).
In the public debate, it has also been proposed to allocate the reduction only to care and cleaning services. The basis has been that the renovations would be done in any case when there is a need for them.
The alternatives are to do it yourself or to pay silently
Although, as I understand it, the research has been carried out scientifically with piety, its research layout raises questions and the rabble-rousing result seems illogical.
The household deduction would have no effect on the demand for household services, even though it almost halves their price and it would be possible to replace most of the purchased services by doing it yourself.
The possibility of a deduction would also not bring to light small renovations, the doing of which has been a direct folklore. After all, the household deduction requires the company to be included in the advance collection register and to work against a receipt.
It would be interesting to know what kind of results would be obtained if consumers were asked about the meaning of the reduction or market research was conducted for the companies whose services citizens use.
Although the study in question did not find direct evidence of the benefits of the household deduction, there is still a long way to go before the effect of the deduction on the demand for cleaning and renovation services or on the tax revenues they collect would be zero.
Maximum reduction up and also for use by residents of housing associations
The use of the household deduction for renovation services can be justified in many ways. The household deduction is important, for example, for changing homes to meet the needs of the elderly. In connection with this, there is also recent research information on how an old home can serve its aging occupant for longer (link to YLE's news).
The household reduction also supports increasing energy efficiency, for example by improving thermal insulation and changing heating methods, in connection with which various modernization works can be carried out on technical systems. Thanks to maintenance and repair measures, the service life of the building stock is also extended and its value is preserved.
The corona restrictions have especially reduced renovation construction, and construction will continue to shrink this year. Now would be the right time for the household deduction to be increased and its use to be expanded. The deduction should be raised to at least its previous level, i.e. to 3 euros per person.
The household deduction should also be extended to renovations commissioned by the housing association. In condominiums, the partners pay the condominium's repair costs as partnership contributions, and their tax status differs from that of single-family residents, who are already entitled to a deduction for similar repairs.
Currently, as an apartment owner, you can get a household deduction for such maintenance and basic improvement works that are not the responsibility of the company. These include, for example, the renovation of the interior of the apartment, such as painting or wallpapering the walls.
The reform would speed up building societies' energy renovations and other large-scale repairs. The housing company could annually provide the partner with a calculation of the costs of the renovation work carried out in the tax year, which would show the information needed by the taxman about the work costs of the renovation carried out, the information of the renovation company and the partner's consideration-based share of the costs.
The reduction puts the good in circulation
With the household deduction, the state sends a clear message that the gray economy will not be supported. It also ensures that the company from which the service is purchased takes care of the value added tax and the employees' incidental expenses and corporation tax or the income tax of those operating under a business name.
At the same time, citizens can in this way feed the domestic market and employ other citizens. Although the reduction in itself benefits more high-income earners, it brings bread to the table for small entrepreneurs and their employees.
The household deduction is also safe from the point of view of consumers, when there is a clear trace of the service used. When the consumer informs the tax authorities of the company they use, errors and contract violations that may appear in the work track can also be more easily invoked.
In my opinion, the only indisputable conclusion of VATT's and PT's research is that the reduction is not sufficiently known among consumers. Intermittent changes in the amount or scope of the deduction, which change from government to government, do not encourage consumers to use the deduction and cause uncertainty among citizens. I suggest that we return the deduction to its correct level, stick to it and guide people on how to use it.
Anu Kärkkäinen
Director, Economic Policy Affairs
Confederation of Finnish Construction Industries (CFCI) ry
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