5 major reasons why austerity policy does not work

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Austerity policy is quite ineffective.

In Finland, the trend has been, for the last few decades before the Marin government, more or less adaptation and austerity policies. However, despite these adjustments, Finland’s economy has heavily indebted, and it seems that there is no visible growth, with doomsday bells ringing constantly. Why hasn’t austerity policy brought about any changes? The reason is that austerity policy does not work.

The reason is simply that austerity policy is not sensible or effective as a driver of economic growth in reality. Austerity policy is doomed to fail for several reasons, mainly because, due to austerity policies, economic growth does not succeed, and austerity policies do not actually create jobs. Austerity policy looks good on paper, but in reality, neoliberal austerity policy works the same everywhere, like in the USA. In practice, through cuts, the state’s revenue side weakens, and the freedom of businesses and individuals to do things increases. At the same time, however, the opportunities for those individuals who need society’s help to get back on their feet do not improve. Insufficient support during temporary weak moments can easily escalate into long-term and costly support. Solely because of the cuts.

These 5 reasons are, therefore, the major reasons why austerity policy does not work.


1. Austerity policy accumulates wealth and weakens the operating conditions for SMEs

The right-wing phrase “the cake must be grown before it can be shared” seems to have been in use for ages, and the cake has not swollen for everyone – income and wealth gaps have grown tremendously since the 90s, and the richest tenth owns over 50% of all wealth. This wealth is also not within the scope of taxation (anymore), so accumulating wealth and cutting from low-income people does not help the national economy.

At the same time as the purchasing power of low-income people has deteriorated, the operating conditions for SMEs have also deteriorated because citizens cannot afford services due to reduced income levels. Therefore, for example, Vappusatanen and other benefit increases during the Marin government have improved tax revenue.

2. Purchasing power weakens with austerity policy

While increasing the incomes of the wealthiest does not benefit the economy as much as the increase in incomes for low-income people does. The wealthier put money into savings or stocks, and taxes are only paid when redeeming them, if even then.

When cutting expenses, austerity policy often targets low-income individuals, mainly led by the National Coalition Party. Extra money for low-income individuals means more money for consumption, i.e., for products and services. By increasing the amount of money for low-income individuals, the tax revenue of businesses has exceeded the results of all previous years. SMEs are the biggest beneficiaries of government policy, as, for example, hairdressing and massage services are used more when there is money available after food and mandatory expenses.

3. Austerity policies increase insecurity

Austerity policies can, at worst, cause insecurity.
At worst, austerity policies can cause restlessness and unease. Illustration: Pixabay on Pexels.com

When a person is already in a difficult position, their daily life becomes a struggle, counting pennies to survive until the next payday. For those without jobs, the situation is unsustainable in the long run and can lead to social exclusion, which, in turn, can manifest as anger towards society and other people. At its worst, this situation can be a small step towards various actions, and, for example, theft may be the only way to survive long-term distress. By cutting people, they are more easily pushed into distress, which increases expenses, for example, for the police.

Read also: Cuts to social security lead to slowed economic growth and reduced safety

4. Cutting increases benefit expenses

During the Sipilä government, active models and other gimmicks adorned employment statistics and reduced unemployment benefit expenses. On the other hand, people have to eat to survive, so the expenses for other benefits, such as basic livelihood support, increased. The longer a person is without earned income and relies on benefits, the longer it takes, according to statistics, to move a person from being a recipient of taxes to a payer of taxes.

At the same time, austerity policies also increased the need for livelihood support for those living on other benefits when, for example, sickness allowance or pensions did not cover all expenses after the cuts.

5. Austerity policies increase healthcare costs

Austerity policies cause longer waiting times for healthcare services on the municipal side when scarce resources do not allow for fast treatment. The mental health crisis is purely caused by the right-wing and costs Finland 11 billion euros annually, even though the treatment would be much cheaper. Scarce resources also cause longer queues for specialized healthcare and longer-lasting treatment in both specialized healthcare and mental health, which, in turn, increases healthcare costs and benefit expenses. Weak resources in social services lead to prolonged client relationships, which is also an important factor in the growth of expenses.

For this reason, Finland should continue on the path of the Marin government: cuts kill the economy, so it’s better to provide people with the means for a better life. Expenses decrease, and revenues increase – that is truly economically wise. And that policy is reflected positively on your bank statement as well.

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