Income and wealth inequality in Finland has increased significantly since the 1990s due to right-wing policies

You are currently viewing Income and wealth inequality in Finland has increased significantly since the 1990s due to right-wing policies
Photo by Tapio Haaja on Pexels.com

Income and wealth inequality in Finland has increased significantly since the 1990s due to right-wing policies.

Income inequalities in Finland are relatively small when viewed globally. Often, especially those on the right, dismiss discussions about income and wealth disparities in Finland, citing measures like Gini coefficients that seemingly show no cause for concern. However, a simple comparison on the Statistics Finland website reveals a troubling trend in Finland’s income and wealth disparities. Growing income and wealth disparities may also be a contributing factor to the state’s indebtedness.

I previously wrote a blog that sparked a lot of discussion on the global growth of wealth disparities and how, alongside austerity policies, the growth of wealth disparities is one of the major culprits in states’ indebtedness. Globally, the trend in wealth disparities has been that the gap between countries is narrowing, while internal wealth disparities within countries have increased significantly, especially in relation to the richest 10% and the richest 1% compared to the poorest 50%. The richest percent already owns 38% of all wealth, which cannot fail to impact how states generate tax revenues.

Regarding Finland, this issue has been previously studied, for example, in the article by Riihelä, Sullström, and Tuomaala (2017) titled Varallisuuserot Suomessa (Wealth Disparities in Finland). In this article, observations were made about the increase in income disparities since the 1990s and the growth of the wealthiest’s wealth even after the financial crisis. This blog aims to examine the development of both income and wealth disparities and simultaneously consider whether the growth of income and wealth disparities has anything to do with the state’s indebtedness.

This text is not a scientific article and will not undergo peer review. In this article, the starting assumption is that income and wealth disparities have significantly increased with the advent of neoliberalism in Finland during Harri Holkeri’s administration in 1987. The assumption is also that the state’s indebtedness started when the National Coalition Party was allowed into government.

Background Information and Methods

Since this is not a scientific research, and unfortunately, I don’t have the time to conduct one, certain compromises and limitations have been made in examining the topic, such as regarding the years and income deciles. The statistics are mainly obtained from the Statistics Finland website, but one chart is taken from the World Inequality Database, which maintains statistics related to income and wealth disparities in different countries.

In the comparison of income and wealth disparities, the focus has been on examining the gap between the poorest and the richest. Tables mostly compare either the poorest 10%, 40%, or 50%, and at the other end, the richest 10% in wealth and income, and in some cases, the richest 1% is also included. Including this income bracket brings interesting perspectives on how the policies pursued in Finland have affected income disparities, even among the wealthiest.

Due to time constraints and resource limitations, compromises have been made in the examination of yearly data. Income and wealth disparities have been partially examined mainly from 1980 onwards, ending either in 2022 or 2016. However, the analyzed time frame adequately reflects the trend in the development of disparities.

When recording wealth, it is essential to remember that some types of wealth have only been included for part of the time, such as association and farmland wealth, which were included in statistics in 2009 and 2013. Additionally, the removal of wealth tax in 2005 affected wealth recording, and in reality, the net wealth is likely higher for the wealthy than the wealth reported for taxation purposes. However, the clearances excellently illustrate the trend in wealth in Finland.

Wealth Disparities in Finland Have Significantly Increased Since the Late 1980s

In the examination of wealth disparities in Finland, material on households’ net wealth from Statistics Finland has been used. Net wealth has been considered as an average, as it better represents the situation of the upper and lower ends of the spectrum than the commonly used median, which is the most common number. Net wealth is calculated by adding a household’s real and financial assets and subtracting debts from them.

The examination is best started from the year 1987, observing the development of wealth across different income percentiles until 2019. The choice of years is partly based on the inauguration of governments and partly on significant world events, such as economic downturns. During the selected period, with the exception of Paavo Lipponen’s government, Finland has predominantly had right-leaning governments, and the National Coalition Party (Kokoomus) has consistently been involved, promoting its austerity policies. Therefore, the increase in wealth disparities can largely be attributed to the National Coalition Party, as its policies have played a significant role in Finland since 1987.

Table 1. Development of household net wealth from 1987 onwards. Image: Statistics Finland
Table 1. Development of household net wealth avereage from 1987 onwards. I is the lowest wealth group, X is the richest top 10 %. Image: Statistics Finland

From the table, it can be observed that the poorest 10% have been the only percentile in negative wealth since 1987, meaning the poorest are in debt, and their wealth is in the negative. The trend turned positive after 1994, but the 2008 economic crisis pushed net wealth significantly more into the negative. In 2013, the poorest households were less indebted, but due to the cuts by the Sipilä government, the poorest households were again nearly €17,500 in debt in 2019.

The second to fourth least wealthy deciles also lost wealth in the 1990s recession, as well as after the 2008 economic crisis. Similar to the poorest decile, these wealth brackets lost significant assets due to the cuts by the Sipilä government.

Conversely, the wealthiest decile has continuously accumulated more and more wealth. Their wealth more than tripled from 1987 to 2019. This wealth bracket was not affected by the 1990s recession or the 2008 economic crisis; on the contrary, wealth grew significantly. The Sipilä government also failed to damage the wealth of the wealthiest decile, and the richest 10% only became richer.

In the table below (Table 2), you can see how wealth disparities among Finns grew significantly. The richest decile became significantly richer, while the wealth of the poorest 50% has remained almost the same on average since 1987. From Table 3, it can be observed that the wealth of the poorest 50% has not grown nearly as much as that of the richest 10%.

Table 2. Wealth disparities between the richest 10% and the poorest 50% in 1987 and 2019.
Table 2. Wealth disparities between the richest 10% and the poorest 50% in 1987 and 2019. Wealth is measured in Average.
Table 3. Growth of wealth disparities between 1987 and 2019.
Table 3. Growth of wealth disparities between 1987 and 2019. Wealth is measured in Average.

The net wealth of the poorest 50% has grown approximately by 46.1% during the observation period. Before the Sipilä government’s term, the growth was 61.6%. Meanwhile, the wealth of the richest 10% has increased by 247.2% by 2019. The difference is relatively staggering, indicating that wealth does not accumulate fairly or evenly. The B50/T10 ratio in 1987 was 19.23, meaning the wealth of the richest decile was 19.23 times greater than that of the poorest 50%. In 2019, the corresponding figure was 45.68, revealing that wealth disparities have grown massively over 32 years.

Looking at the median, the growth of the wealthiest 10% in wealth is significant compared to the poorest 10%. The assets of the second group have grown immensely, while the poorest have further accumulated debt.

Table 4. Net wealth richest 10% vs poorest 10%.
Table 4. Household Net wealth in Finland, richest 10% vs poorest 10%. The richest 10 % is measured in orange.

Income Inequality in Finland Has Grown Tremendously Since the 1990s, with the Incomes of the Poorest Not Keeping Pace with Productivity

As evident from the above figures, the growth of wealth disparities in Finland has been significant since right-wing governments have been in power. Regarding income inequalities, a very similar trend is noticeable, with the incomes of the wealthiest increasing significantly more than those of other groups.

Unfortunately, due to Statistics Finland’s data, the observation period only covers the years 1995 – 2022, leaving the early years of the National Coalition Party in government outside the scope of the analysis. As mentioned earlier, given my time constraints, I cannot delve into separate statistics on this matter.

Table 5. Growth of income inequalities from 1995 to 2022, comparing Bottom 40/top 10 / top 1. The table does not measure percentage shares, although it appears so in the table.
Table 5. Growth of income inequalities from 1995 to 2022, comparing Bottom 40/top 10 / top 1. The table does not measure percentage shares. Blue colour is lowest 40 %, orange is top 10 % and violet is top 1 %.
Table 6. Growth of income inequalities in Finland from 1995 per year and development in euros and percentages in 1995 vs. 2022. In 2022, the wealthiest earned over €135,400 more than in 1995.
Table 6. Growth of income inequalities in Finland from 1995 per year and development in euros and percentages in 1995 vs. 2022. In 2022, the wealthiest earned over €135,400 more than in 1995. First column is year, second one represents the poorest 40 %, next one is richest 10 % and the last one is richest 1 %.

Income inequalities have sharply increased in Finland, especially between 1995 and 2000, where the disparities grew significantly. From Tables 5 and 6, it is apparent that the poorest 40% did not substantially increase their incomes on average throughout the entire observation period. In contrast, the richest 10% doubled their incomes, with variations within the affluent, as the top 1% increased their incomes by almost 162%. In terms of euros, the growth was smallest for the bottom 40%, totaling €4,899. The top 1% increased their incomes by €135,449 over the 27-year observation period, which is a substantial sum.

According to the statistics, stark figures emerge regarding income distribution fairness. In 2022, the top 1% earned 11.88 times more (B40/T1) than the poorest 40%. In 1995, the corresponding figure was 6.18, in 2000, it was 13.25, and in 2007, it was 12.96. After the end of Sipilä’s term in 2019, the ratio was 10.58, indicating that disparities increased even during the Marin government’s tenure. However, this was influenced by the crises, including the war initiated by Russia, as the wealthiest tend to profit more during crises. Thanks to the policies implemented during Marin’s government, the ratio may have remained relatively small due to the recently conducted policy measures.

For comparison, it’s noteworthy that in 1995, the top 1% earned about 8.78 times more annually than the poorest 10%, using the B10/T1 ratio. In 2022, this ratio had risen to 18.24, meaning the top 1% earned on average 18.24 times more annually than the poorest 10%.

Table 7. Share of all earnings by different income groups annually.
Table 7. Share of all earnings by different income groups annually.

An interesting way to examine the situation is to compile all income deciles into the same table and observe how their share has evolved. The share of the poorest income deciles has remained relatively small, and the trend is decreasing. In 1995, the five lowest income groups earned slightly over 30% of all earnings. By 2022, their share has decreased to about 25%. The top-earning 10% earned about 40% of all earnings in 1995, but by 2022, this figure has risen to over 50%. In 1995, the top 1% received about 30% of all earnings, while in 2022, their share has reached 40%. Interestingly, in 2022, these figures closely resemble the proportion of world wealth owned by the richest 1%.

Table eight contains data collected by the WID on income inequalities in Finland. According to this data, income disparities started growing in the early 1990s and have remained substantial since then. The poorest 50% have not significantly increased their incomes.

Income Inequality 1980-2022 Finland.

Government Debt Has Grown in Tandem with Income and Wealth Inequalities

Table 8. Development of government debt from 1980. Source: Valtionvelka.fi
Table 8. Development of government debt from 1980. Source: Valtionvelka.fi

An interesting and partly related subject of examination is the relationship between government debt and the growth of income and wealth inequalities. Before the year 1995, Finland had relatively moderate income inequalities, and in 1987, wealth inequalities were measured at 19.23 on the B50/T10 scale, indicating moderation. As demonstrated earlier, income and wealth disparities between the richest and poorest have significantly increased since the early 1990s.

Simultaneously, as income and wealth inequalities have grown, government debt in euros and as a percentage of GDP has experienced a steep increase. During the early 1990s recession, government debt skyrocketed, and simultaneously, wealth disparities among citizens also grew. Coincidentally or not, this period also saw the separation of capital and labor incomes into different tax brackets. The 2008 economic crisis compelled the government to incur debt again, even cutting the incomes of high earners, but at the same time, household wealth grew significantly.

Income and Wealth Inequalities in Finland Have Increased Significantly, and Productivity Gains Do Not Reflect in Workers’ Wages

What do the tables tell us about income and wealth disparities in Finland? Based on the tables, right-wing policies implemented since 1987 have significantly increased income and wealth inequalities in Finland, making society more unjust and unfair.

Since 1987, except for the Marin government, there has been consistent cutting from the poorest, evident in significantly lower wealth, especially in the assets of the least prosperous 10%. Coincidentally or not, the period of increased income and wealth disparities aligns with the historically high government indebtedness—similar indebtedness was not observed when so-called left-wing parties were building the welfare state. It is noteworthy that in the interim, we joined the European Union, eliminating the possibility of devaluation. Still, based on indisputable statistics, it seems that the increase in income and wealth inequalities plays a significant role in the background of government indebtedness alongside right-wing neoliberal policies. This observation is also supported by the situation in the United States, where neoliberal policies and cuts have created unrest and a government debt exceeding 200% of GDP. It is naive to think that if we pursue the same policies, the outcome in Finland would be different.

While income inequalities have more than doubled since 1995, the improved efficiency of workers has not reflected in the wages of the lowest income brackets. Productivity has grown even 3.5 times more than wages since 1979, and based on the statistics presented earlier, the majority of the increased income from labor has accumulated to the richest 10%, with an even larger share going to the wealthiest 1%. In addition to the growth of income inequalities, it can be observed that increased productivity has not correlated with wages. This casts a critical light on initiatives like the local bargaining advocated by the National Coalition Party, suggesting that it might be merely a proposal to lower workers’ wages. Even in the current model, wages can be negotiated upwards, and flexibility in working conditions is possible, but wages lower than the collective agreements cannot be paid.

Increased income disparities also mean that a smaller proportion of high incomes is paid as taxes to the state, and the incomes of the wealthiest accumulate even more through investments and various tax arrangements, paying minimal or even no taxes. Even on significant capital gains, only 34% taxes are paid, while on substantial earned incomes, the overall tax rate can exceed 50%. This, too, is a matter of justice – is it fair that individuals who earn their living through hard work lose over half of their income, while those who accumulate wealth through assets pay taxes at most 34%, and sometimes closer to 0%?

It would be prudent to consider, from both a justice and state finance perspective, returning capital incomes to the same tax rate. This would significantly increase state tax revenues and, on the other hand, lighten the tax burden on middle-income earners, thereby increasing available funds and enabling better maintenance of purchasing power. At the same time, small investors would receive relief when, for example, capital gains of 4000 euros would be taxed like earned incomes. In such cases, the percentage remains considerably lower for many, leaving more profits in their hands.

Based on the observations and statistics presented above, the Orpo-led government should pursue policies aimed at reducing income and wealth disparities and promoting the circulation of money. Currently, a surprisingly large amount of wealth escapes the tax authorities, leading to an increase in government debt. Simultaneously, the very low-income individuals are already heavily indebted. Perhaps, for the sake of justice and the state’s economy, it would be better to abandon cuts targeting low-income individuals. According to statistics, the situation is already difficult, and people are at risk of being pushed to the margins of society if/when Orpo’s government implements its harsh austerity measures. It may be that with the cuts, many are already forced to engage in illegal activities just to survive, which means that we are on the road to becoming like Sweden faster than we can say ‘cat.’

If the state finances are to be put in order, cuts should be directed where there is room for reduction. Otherwise, the direction will not change.

Anna panoksesi keskusteluun!

This site uses Akismet to reduce spam. Learn how your comment data is processed.