FINNISH CENTRE FOR PENSIONS 1 Finnish NTA and Consumption Taxes by Age Risto Vaittinen, Finnish Centre for Pensions Sixth Annual National Transfer Accounts

FINNISH CENTRE FOR PENSIONS

1

Finnish NTA and Consumption Taxes by Age

Risto Vaittinen, Finnish Centre for Pensions

Sixth Annual National Transfer Accounts Workshop, January 9-10. 2009, Berkeley, California


2

Consumption and labour income per capita in Finland 2004

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

0 10 20 30 40 50 60 70 80 90 100+Age

Eu

ros

Labor income Total consumptionPrivate consumption Gross Pensions

26 v61 v


3

Financing per capita life-cycle deficit in Finland 2004

-20000

-15000

-10000

-5000

0

5000

10000

15000

20000

25000

On Average 0-19 20-29 30-49 50-64 65+

Public Reallocation Private Reallocation Public TransfersPrivate Transfers Total


4

Public sector revenues and expenditures in Finland as a share of GDP in 2004

0

10

20

30

40

50

60

1985 1990 1995 2000 2004 2005 2006

Year

Pe

r c

en

t o

f G

DP

Public consumption, collective Public consumption, individual

Public transfers Tax revenues

FINNISH CENTRE FOR PENSIONS Lähde: Tilastokeskus, Kansantalouden tilinpito

Sources of Public Sector Income in Finland 2004

39 %

32 %

27 % 1 %

20 %

13 %

Earnings and property income tax Social Security taxesOther taxes Excise and other commodity taxesVat


6

Commodity taxes by Age

• VAT– Tax on final consumption

• Excise taxes– Sinn taxes to regulate addictive behavior: alcohol, tobacco– Enviromental taxes: Fuels, electricity– Others: Vehicle tax among several other less significant tax items

• Taxes have direct and indirect component • Direct impact of commodity taxation

– Have immediate impact to the difference between user and producer prices in consumption commodities

• Indirect impact of commodity taxation – Taxes that has impact on the production costs of consumer

commodities– Incidence to households estimated using input-output methods– About 80 % of the tax burden to households in commodity taxes


7Taxes burden per capita by age in Finland 2004

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

-24 25 -29

30 -34

35 -39

40 -44

45 -49

50 -54

55 -59

60 -64

65 -69

70 -74

75 -79

80 -

Age

Eu

ro p

er

ca

pit

a

Taxes on capital income

Taxes on other earned income and transfers

consumption taxes taxes


8

Commodity Taxes Rates by Age in 2004

14

16

18

20

22

24

26

28

30

32

-24

25-29

30-34

35-39

40-44

45-49

50-54

55-59

60-64

65-69

70-74

75-79

80-

Age group

Tax

rat

e %

co

nsu

mp

ion

exp

end

itu

re

Tax rate on consumption by ageAverage tax rate on consumptioin

Sources: Household Expenditure Survey 2001-2002, Statistics Finland. Own Calculations

Average tax-rate


9

Commodity Taxes and Elderly (65+) Relative Consumption

0 50 100 150 200 250

Alcohol and tobacco

Transport and communication

Recreation and culture

Miscellaneous consumption

Food and beverages

Health

Housing and household appliances

Per cent

Tax Share of Purc. Price (%)

65+ Consumption relative to average (%)


10

Structure of consumption by Age

29,6 27,8 28,6

38,9

3,82,2

3,6

8,820,6

5,3 6,6

3,815,4 16,2 16,58,9

11,1 11,3 11,3 10

11,1 12,8 15,712,6

14

26,121,6

5,8

0

10

20

30

40

50

60

70

80

90

100

Population onaverage

< 40 40-65 > 65Age

Co

ns

um

pti

on

sh

are

(%

)

Food and beverages Housing and household appliances

Health Miscellaneous consumption

Alcohol and tobacco Transport and communication

Recreation and culture

Sources: Household Expenditure Survey 2001-2002, Statistics Finland. Own Calculations


11

Relationship between the different types of prices in SNA

• Purchasers’ prices (excluding any deductible VAT)

- Non-deductible VAT

- Trade and transport margins

- Taxes on products (excl. VAT)

+ Subsidies on products

= Basic prices


12

Supply and Use Data at Basic Prices

Absorption Matrix

Producers

Household

Government

Investors

Export

Total Sales

Size I 1 1 1 1

Domestic Flows

C

USE(commodity,"dom",user)

Imported Flows

C

USE(commodity,"imp",user)

Taxes and subsidies on

products

Labour

1

C = Number of Commodities

I = Number of Industries T = Number of taxes on subsidies on products

Capital

1

TX = Number of taxes on subsidies on production

Production taxes and subsidies

TX


13

Classification Issue

• CPC (central product classification)– The CPC (central product classification) is a classification

based on the physical characteristics of goods or on the nature of the services rendered

– defined in such a way that it is normally produced by only one activity as defined in ISIC (=United Nations International Standard Industrial Classification)

– The CPA is the legally binding European version of the CPC

• COICOP (classification of individual consumption by purpose) – is a classification used to identify the objectives of both

individual consumption expenditure and actual individual consumption.


14

CPA – COICOP Transformation

CPA

COICOP

Documents

FINNISH CENTRE FOR PENSIONS 1 Finnish NTA and Consumption Taxes by Age Risto Vaittinen, Finnish Centre for Pensions Sixth Annual National Transfer Accounts