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Two percent pay rises required to offset inflation, tax hikes for average earners

As negotiators gear up for pay talks across the economy, Yle looks at the impact of inflation and tax on salaries in 2020.

Työntekijä täyttää vihanneshyllyä supermarketissa.
Retail prices edge up slightly every year. Image: Jyrki Lyytikkä / Yle

Industrial workers will get a 3.3 percent pay bump over the next two years after agreeing a deal with employers, in a contract that is expected to set the tone for talks in other sectors.

Some 90 percent of Finland's workers are covered by collective agreements between unions and employers’ organizations, so the talks are of interest to most wage-earners.

With unions clamouring for pay rises and employers determined to hold down labour costs, it could be a bumpy ride for negotiators. But what is the impact of different levels of pay increase for workers?

The charts in this story show how pay increases impact purchasing power for workers on different salaries, taking into account inflation and tax changes.

Someone earning 3,500 euros per month, which is close to the mean wage in Finland, would get a 52 euro gross pay rise if a 1.5 percent increase was applied.

However taxation changes coming in from the start of this year mean that he or she will pay a little more into state coffers this year.

According to Mikael Kirkko-Jaakkola of the Taxpayers’ Association of Finland, last year his tax percentage was 30.8 percent while in 2020 it will again be 30.8 percent, including tax-like social insurance payments.

In addition to tax and social charges, general increases in price levels also have an impact on how far wages go.

According to the Ministry of Finance, inflation is expected to be 1.3 percent this year.

In effect, therefore, a 1.5 percent pay rise for a person earning 3,500 euros means that purchasing power is likely to decrease by one-tenth of a percent.

A two-percent pay hike would mean an increase in purchasing power of some 0.3 percent.

For lower-income workers, the government’s taxation changes mean a lower tax bill, but those on higher incomes will pay more tax.

Those earning 7,000 euros per month will see purchasing power decrease unless they get a 2.5 percent pay rise, while those on 1,500 euros will see their wages go further if they achieve a 1.5 percent increase.

In addition to the general increases mandated in collective agreements, employers can also pay bonuses, overtime payments and other salary supplements which also boost pay.

Story continues after graphic

Change in purchasing power
Image: Seppo Suvela / Yle

For lower-income workers, the government’s taxation changes mean a lower tax bill, but those on higher incomes will pay more tax.

Those earning 7,000 euros per month will see purchasing power decrease unless they get a 2.5 percent pay rise, while those on 1,500 euros will see their wages go further if they achieve a 1.5 percent increase.

In addition to the general increases mandated in collective agreements, employers can also pay bonuses, overtime payments and other salary supplements which also boost pay.

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