Changes in car taxation

[Rip]

And if the tax is a genuine zero sum gain, it seems to penalise those that drive longer distances and that can be rich and poor.

It will penalize those that drive comparatively lot compared to the money they spend on buying cars.

[DMC]

This is probally the worst regressive tax i've seen in a while

Funny I see almost the opposite!

...

So all car prices should fall by roughly the same percentage.

This means the poor person who buys a very cheap car still pays much the same in euros for their car, because X% reduction on bugger all makes the car just a few euros cheaper. They would then have to pay the per km rate as an extra tax, and this would mean paying hundreds extra every year. A net increase in tax paid.

Meanwhile the rich person who buys a new car every couple of years will save 7000 per car, or 3500 per year, and have to pay hundreds for the new per km tax. A considerable net saving.

That is what makes the tax regressive.

[Upphew]

That is what makes the tax regressive.

Well, the tv-tax is regressive too. Maybe we'll see income tax going that way in the future also.

[kharnynb]

My car cost about 5000 euros, so i doubt it would decrease much with this change.
You might be able to buy a bit better/newer car for that money after 3-5 years with this law.....
Ballpark figure, my taxes would go up from about 200 euro a year to about 800 a year. nearly half a month of salary gone at the low end of things.

[Liam1]

I looked at the "densely populated" map, and no way that would work even remotely in savonlinna area.
There's no public transport, the costs would kill anyone on lower income with a normal for this area work/home trip.

Why will it raise costs? If they collect the same amount of revenue

Yeah. I'm sure new forms of tax "advertised" as revenue neutral, are generally actually designed to be revenue neutral (even if we ignore any questions would it be likely that running the new GPS based system would cost less to operate than the current one). Anyway, people can easily calculate how much 6 cents times the number of kilometers they drive annually is, and they can compare that with how much they on average year spend on buying cars, and do the math is there any chance they will not lose money.

Hi Rip - you're maybe right - but that is a different debate. Doesnt make the tax regressive though. Think that if the Govt really want this concept to fly, they will try to make it revenue neutral, to avoid losing support due to objections that taxes rise.
A quick calculation to see if this is tax neutral:
Tax: €900 for 15k (average?) driven pa. When I came here I "imported" two cars, Tulli calculated "tax values" on the 3 year old car of 9000 and the 1 year old car of 14 000. If these are an accurate indication, it is certainly not clear cut either way whether paying 6c / km reduces or increases tax.

[kharnynb]

You are confusing tax value and tax cost.

This tax is regressive, because it benefits someone who can afford to buy new more than someone who has to buy from the bottom of the heap.

[Upphew]

As a poor bastard I go and buy Toyota Yaris: 15 110 + tax 3 639,50
The rich dork goes and gets MB SLS AMG: 195 200 + tax 167 339,43
Now remove the tax and add 6c/km as tax. Which of us profits from this tax switcharoo? How many km I can drive before the tax goes over the 3639,50? *1
How much the MB must be driven before taxes are over 170 000€? *2
Who profits, rich or poor?


*1 about 60 660km
*2 about 2,8 million km

[kharnynb]

As a real poor bastard, you buy a 15 year old toyota corolla, like all the other poor jussi's with 200k on the counter, for 2000 euro's.

And you after about 3k km, you come out worse than before.

[Liam1]

But you are all going at it as if today's system is neutral!! It is not! All the mails prove that today's system is massively progressive. It's the starting point that is skewed, not the new tax. E.g Upphew - understand your maths but there is no logical reason for the MB SL owner to have to pay 167k. Also DMC - the rich guy is only "saving 7000 / year" because he has been arbitarily charged that much for the purchase of one of 1000's of things that he has bought that year.

If you start from scratch, not today's sytsem that makes new car purchases subsidse everyone else. There are two arguments to tax car owners

1) Big posh cars pollute, so should pay more. People shold pay based on what they consume / cost
- yes but all cars pollute and old cars often pollute more. Therfore new tax better. Maybe modify it a bit for CO2 emission. Today the system penalises anyone from buying a cleaner car. Also more you drive more you pollute / wear the roads.

2) Rich people should pay more.
- OK but why just cars? Why not houses, boats or just collect it on income tax? Also remember that car tax is already taken from net salary so if you can afford the posh car you've already paid a lot more. The progressive tax system must stop somewhere to avoid it being "tårta på tårta" i.e. you pay higher % income tax AND on what's left of your income, you pay % higher tax on your car

This tax is regressive, because it benefits someone who can afford to buy new more than someone who has to buy from the bottom of the heap.

In isolation yes, but not in the full context, because this is an artifical tax and additional tax- i.e. it doesn't need to be there at all and isn't in most countries. Using your logic all products should be income based to avoid being regressive, so if you nip down to your shops for a pint of milk, VAT should be 5 euros if you are rich guy and 5 cents if you are poor to avoid anyone paying less % of their disposable income on milk. It is the same logic- so again why just apply it to cars?


I agree that the change makes everything more regressive, but so would changing a sytem where tax rate is 95% on earnings over 50k to 90%. Doesn't mean that 90% income tax is regressive!!!

[DMC]

It's the starting point that is skewed, not the new tax.

I take a different view, on 2 counts.
Whether the starting point is skewed or not makes no difference - it is what it is. You cannot ignore the existing system. It is only right to compare any new proposals with the existing system to see whether and how the proposal would bring about an improvement.
The proposed new tax is definitely regressive. Even worse, it means those on lower incomes will pay more in absolute terms, not just as a %age of their incomes. That tells me that the proposed new tax most definitely is skewed. That is mainly a political view of course and your views may differ. Perhaps you see some virtue in hitting the poor in the pocket whilst reducing the tax bills of the better off.

[zax]

For those who ask "why not just stick the tax on fuel", remember we're moving towards a time when fewer cars will run on the stuff. Imagine if in 10 to 20 years time a quarter of all cars ran on electricity, charged by domestic supply. Another quarter are hybrids, twice as efficient as before. Government needs a new cash cow, so you pay for km driven instead. As a side effect they get to track your every move. Nice result!

[Liam1]

It's the starting point that is skewed, not the new tax.

I take a different view, on 2 counts.
Whether the starting point is skewed or not makes no difference - it is what it is. You cannot ignore the existing system. It is only right to compare any new proposals with the existing system to see whether and how the proposal would bring about an improvement.
The proposed new tax is definitely regressive. Even worse, it means those on lower incomes will pay more in absolute terms, not just as a %age of their incomes. That tells me that the proposed new tax most definitely is skewed. That is mainly a political view of course and your views may differ. Perhaps you see some virtue in hitting the poor in the pocket whilst reducing the tax bills of the better off.

I already wrote:

I agree that the change makes everything more regressive

.
However in absolute terms, I don't think it is regressive, because put simply Finland already taxes the cr*p out of high earners, so then charging them the same as others to use the roads is not regressive. Is it regressive that high earners pay the same to use the busses / trains, because that is IDENTICAL.

Oh and haven't a clue on why the lower income earners pay more in absolute terms. Why - do they travel more? And very low income earners cannot afford cars of any sort, so your argument is not linear.

I guess my political views may be different to yours but probably not that much. I think things have to be fair and efficient. The existing system is neither fair nor efficient and it also promotes poor environmental choices. As I said previously if the Finnish govt wants to redistribute income more than it actually does, why doesn't it add 2% on income tax for high earners rather than the tenuous link that rich people buy new cars. I know people far richer than I that live in a Helsinki centre and do not own a car; convesely I know petrol heads who earn less than me but spend all spare money (and time!) on their cars. You then get the lucky / most mobile ones who are often higher earners that go / work abroad for a year and bring 2 new cars back. Finally the tax distorts the car market and makes cars more expensive for everyone and not just new / posh cars.

[kharnynb]

Anytime a rich and a poor person pay the same in euro's, it hits harder in the pocket of a poor person.

Simply because a poor person will always have less money left after essentials.
Disposable income someone who earns only 1,5k per month after basics can be as little as 300 euros.
3k per month and you suddenly have easily 4 times as much "free cash" to spend per month instead of only double.

A good argument is also that the rich person has a lot more benefit from our society than a poor one.

[DMC]

Is it regressive that high earners pay the same to use the busses / trains, because that is IDENTICAL.

Yes, by definition. A regressive tax is one that is a greater proportion of a low income than a high income, so an identical charge for rich and poor will always be regressive. Pretty much what kharnynb said.

Oh and haven't a clue on why the lower income earners pay more in absolute terms.

If a rich and poor person drive the same distance they will pay the same total "per km" tax. The rich person, though, can offset this against the (average) 7000 euro per car tax reduction on their new car, whilst the poorer person gets little or no reduction on the price of their old banger. So the net effect is an increase in tax for the poor person who will pay more than the rich person, who will probably pay less tax than previously.

And very low income earners cannot afford cars of any sort, so your argument is not linear.

Agreed.

[Liam1]

Is it regressive that high earners pay the same to use the busses / trains, because that is IDENTICAL.

Yes, by definition. A regressive tax is one that is a greater proportion of a low income than a high income, so an identical charge for rich and poor will always be regressive. Pretty much what kharnynb said.

That's my point too! Virtually every indirect tax is regressive (Public Choice 101), so why single out cars? Kharnby's original quote was "This is probally the worst regressive tax i've seen in a while, it benefits rich people who buy new cars only." - the example above shows that it is the same - no worse - no better -than every other product / service bought in Finland!

Think we violently agree that the removal of a progressive tax "feels" like a regressive tax, but that's like arguing to a Finn that Spain is a cold country because you live in Saudi - relatively yes - absolutely no!

And I still don't fully agree that only rich people buy new cars. ca 125 000 were bought last year, average car owner maybe keeps 3 -4 years so probably ½million Finns buy new cars. Double as many nearly new cars sold and all these will see a big fall in prices that offsets the 500-1000 eur that the average driver will incur with the mooted tax. That's half the car population, so hardly an elete.

Also why take the risk of catching poor people who like cars and rich who never buy cars - just tax more in direct taxes!

Finally cars are I suspect like cigarettes and alcohol - the Finnish govt loses billions because they have distorted prices such that people buy elsewhere (legally or illegally). I for one brought forward purchase of a 2nd car and so imported 2 cars when I came here- judging by the "Importing car threads" here and number of non-Finnish plates on the roads, many others do the same. Everyone loses then, because then Estonia/Germany etc get proceeds of duties on these products and the same normal Finn pays more tax to make up the defecit.


Oh and everyone ignored the fact that the rich car owner will lose 7000 (in the earlier example) if the tax comes in force as they have paid a tax that disappears. That's 10 times the upper end of the annual loss quoted for those with lower priced cars - that doesn't seem so regressive ...and what about the poor sod that shelled out 165 000 in tax on his MB SL and the next guy walks in and pays zero?!!!! I'm starting to think Rip is right and everyone will lose - Ho - Hum!