The raise will not have an impact on food prices, but consumers may notice it in the supermarket as up-ticks in the prices of alcohol, tobacco and cosmetics.

With the value-added tax levied on the tax-free prices of products and services, the average impact on consumer prices will be 1.2 per cent, according to the public broadcasting company. The Finnish Taxpayers’ Association has calculated that on a yearly basis the raise will create a 150-euro hole in the finances of individuals earning 2,500 euros a month. The impact will be 210 euros on individuals earning 4,100 euros a month and 320 euros on individuals earning 7,000 euros a month.

The Finnish government decided to raise the baseline rate as part of its ongoing effort to balance public finances.

Päivi Puonti, the director of forecasting at Etla Economic Research, told YLE on Friday that the baseline rate hike is expected to accelerate inflation by no more than 0.6 percentage prices if it is transferred fully to prices. Not all companies, however, are expected to transfer the hike to prices for reasons related to the market environment and their competitiveness.

“If there’s a lot of competition, companies have less leeway to raise prices. If there’s only a single company producing a particular commodity or services, it may be in a market position that gives it a better opportunity to raise prices,” she explained.

Puonti acknowledged that at the consumer level increases in the value-added tax tend to to have the largest relative impact on low-income earners.

“In terms of euros, most of the increases are paid by the highest-income earners. But if you look at disposable income, it’s clear that the increase will take a larger share away from low-income earners,” she said.

The government has also laid out plans to raise the value-added tax on certain products and services on 1 January 2025. The tax on sweets and chocolates will jump from 14 to 25.5 per cent as the products are moved under the baseline value-added tax scheme. The tax on books, medications, public transport fares, taxi fares, hotel accommodations, and culture and entertainment events is to rise from 10 to 14 per cent.

Aleksi Teivainen – HT