In the budget session, the tax burden on labour must be reduced and the competitiveness of the commerce sector strengthened

The COVID-19 period has shown that domestic demand plays a key role in employment and the economy as a whole. The forthcoming budget session must strengthen the purchasing power of consumers as well as ensure the recovery of the service sector and the competitiveness of commerce sector companies.

As it employs 270,000 people in Finland, success in the commerce sector is of great importance to society. Retail and wholesale trade (excluding car sales) account for 8 per cent of Finland’s GDP and, taking into account the indirect effects, the sector’s overall impact on GDP is almost doubled.

The products and services in the retail sector include a lot of domestic labour and multiple tax wedges from various service, supply and procurement chains. Multiple tax wedges increase salary costs and prices and weaken purchasing power. At the same time, there is an incentive for consumers to bypass at least part of the tax wedge by purchasing products from foreign online stores.

“In the budget session, the tax burden on labour must be reduced. This will reduce the tax wedge as well as support the purchasing power of Finnish companies and the international competitiveness of commerce sector companies. In addition, it is important that the tax increases decided in the budget sessions are not directed at purchasing power,” emphasises Mari Kiviniemi, Managing Director of the Finnish Commerce Federation.

Specialty goods trade needs COVID-19 exit support measures

Specialty goods trade has been severely affected by the COVID-19 pandemic and government restrictions. Targeted policy measures are needed to accelerate recovery in the sector.

The global growth of digital trade opens up significant opportunities for Finnish companies in the commerce sector. The lack of support for digitalisation and internationalisation is perceived as a significant problem in specialty goods trade companies. Digitalisation and internationalisation must be supported more strongly; for example, by resourcing and targeting Business Finland’s services to companies in the specialty goods trade.

The COVID-19 pandemic has shown that there is an increasing need for companies to find company-specific solutions also when it comes to questions related to employees. The impact of the COVID-19 pandemic, economic outlook, customer needs and competitive situation differs greatly between various commerce sector companies. Added bargaining opportunities improve the companies’ competitive strength by increasing flexibility and productivity and thus employment.

Promoting local bargaining would require the Government to make decisions for amending labour legislation to allow company-specific local agreements.

“The Government should have the courage to be more flexible in labour law in practice. Corporate bargaining should be tested in the specialty goods trade as a means of supporting the COVID-19 exit by locally agreeing on the increase in Sunday work. Such a pilot project would allow assessing how local bargaining impacts competitive strength and employment,” Kiviniemi suggests.

Basic salary and reform of unemployment security to solve incentive traps  

Finnish social security continues to create incentive traps. For example, the criteria for determining housing allowance and unemployment allowance can make it economically unviable to take a job. This is a major obstacle to raising the employment rate. From the point of view of the commerce sector, incentive traps affect the availability of labour.

In the short term, in order to make it profitable to accept and work every working hour and to make it risk-free in terms of one’s own livelihood, the reform of the social security system should be accelerated and the incentive traps should be dismantled. Unemployment security must also be reformed by staggering income security in order to overcome labour shortages and increase employment. At the same time, public economy could be strengthened.

In the longer term, in order to dismantle incentive traps in Finland, a basic salary should be introduced, which has been proposed by several specialists. In the budget session, the Government must decide on the further preparation of the basic salary model. Similarly, general income security must be investigated as quickly and comprehensively as possible.

Increasing employment-based immigration would improve the dependency ratio of the national economy and alleviate labour shortages in various sectors.

“The commerce sector and the services that support its operations need skilled labour, the availability of which must be ensured by speeding up the permit processes for foreign labour and ensuring sufficient resources for the authorities,” Kiviniemi points out.

Reducing electricity tax in the service sector to boost low-carbon efforts

Achieving the carbon neutrality target set by the Government for 2035 requires decisions that support the low-carbon nature of service sector companies. The reduction of electricity tax in the service sector is a key instrument to achieve the sectoral objectives. A lower electricity tax will make it possible to achieve the carbon neutrality targets of the commerce sector, safeguard jobs in the commerce sector and promote competitiveness in relation to international online stores seeking to gain market share in Finland.

“In the taxation of electricity use, the aim should be equal treatment of companies. In the forthcoming budget session, a separate electricity tax category should be created for electricity tax for service companies and the level of electricity tax should be reduced by EUR 100 million. In the long term, the goal should be to have one common electricity tax category for the entire business sector,” Kiviniemi says.

For further information, please contact:

Mari Kiviniemi, Managing Director, Finnish Commerce Federation, tel. +358 (0)50 511 3189, mari.kiviniemi@kauppa.fi