Why is it so hard to build wealth on a salary?
Finland punishes hard work. Today you must pay earned-income tax on your wages before any of that income can go into savings. A wage earner can only invest what is left after tax. Capital income faces no such threshold, and wealth grows considerably faster as a result.
We want to make building wealth possible for everyone. A wealth account would let you save from your wages the same way you can from capital income. The idea is that you can invest the euros you earn from your work before tax is taken out of them, giving your investments an entirely new head start!
In practice, the wealth account is not a real account like a bank account, but a bookkeeping arrangement in the Finnish Tax Administration’s systems. Money that goes into savings and investments has no immediate tax consequences. You pay tax only when you withdraw money for your own use, and the withdrawal is then normally subject to income tax.
This simple change promotes people’s capitalism. When more and more wage earners are also owners, the economy becomes more resilient to crises and building wealth comes within reach of every wage earner.
Here are four reasons why the wealth account builds a better and fairer market economy.
“It’s time to make building wealth everyone’s right, whether your income comes as wages or as dividends!”
— Lauri Lavanti
Benefit 1/4: Invest your whole paycheck for a bigger starting capital
Investors can already defer tax on the returns from their holdings, for example through investment funds, insurance wrappers or the equity savings account. The real obstacle to a wage earner building wealth, however, is that heavy tax must be paid on wages before a single euro can be invested.
With a wealth account, savings are deductible in income taxation. You can therefore start investing with the full gross amount in one go, and compound interest gets to work with a far bigger engine from the very start.
This puts compound interest to work for both the state and the taxpayer. Building capital is not penalised up front; income tax is paid only when the funds are withdrawn for your own use.
“In Finland we talk a lot about incentives to work, but too little about how an ordinary wage earner could build wealth. I believe everyone should have the chance to build financial security through their own work. That also takes new solutions.”
— Ulla Santti
Benefit 2/4: Invest freely wherever you want, the taxman doesn’t set the terms
Today the Finnish tax system is full of complicated exceptions that steer how people invest. One investment is taxed differently from another.
That is inefficient for a market economy. In a wealth account, different investments stand on equal footing for tax purposes. Taxation no longer steers your decisions: you choose your investments by their return and risk, as markets should work.
Benefit 3/4: Switching investments no longer locks up your money
Many Finns’ savings are stuck in old investments they would like to get rid of. The capital gains tax due on selling, however, stops them from switching.
As a result, money sits in inefficient holdings instead of funding new Finnish innovations or growth companies. The wealth account solves this problem in one go. It frees assets locked up for tax reasons for more productive use.
You can freely sell your investments and buy new ones without having to pay tax in between. You pay the tax only when you move the money from the account into your own life. This makes our capital markets more dynamic and agile.
Benefit 4/4: Tax consumption, not wealth-building
In practice, the wealth account works like a progressive expenditure tax. It does not prevent capital from being built up through work, but it taxes the consumption of accumulated wealth. The system therefore does not favour the jet-set lifestyle and needless luxury consumption, but encourages thrift and securing your own finances.
When the rules are fair for everyone, the need for costly tax planning disappears. The system is also designed to be watertight: the overall system must include a capital gains exit tax, so that returns cannot be realised tax-free abroad. You cannot avoid tax by moving abroad.
“Building wealth should be encouraged, dodging tax should not. That is why the system must be built so that no one can escape tax through costly tax planning or by moving abroad with their wealth.”
— Essi Lindberg
Nor can anyone dodge tax all the way to the grave. The account cannot be used to defer tax forever, because on death it is realised as income of the estate. This ensures that taxes get paid and that the system stays fair to everyone.
“Besides targeting taxation better at the consumption of natural resources, this system can encourage perfectly ordinary people to take an interest in the economy and to plan their own finances and spending in the first place.”
— Johanna Muurinen
Let’s make building wealth everyone’s right
The wealth account tackles one of the biggest obstacles to Finns building wealth: how painfully hard it is to accumulate assets through diligent wage work. When savings can go into investments before tax is paid, we give work and enterprise the value they deserve.
“For us ordinary wage earners, the wealth account is an effective and fair tool and an excellent incentive to build wealth.”
— Arttu Laitinen
This is the market economy at its best. It does not just protect the interests of those who are already wealthy, but gives everyone the same rules for building their financial security. It removes market inefficiencies, directs money to productive uses and harnesses compound interest to benefit all of Finland.
“Moreover, as society moves to a basic income, people with irregular earnings will also be able, at least at the system level, to build up savings through the wealth account.”
— Taru Hallikainen
Join us in making people’s capitalism real. Let’s choose a solution that rewards hard work and brings a fair market economy within reach of every wage earner.
Why is this proposal here too?
I am one of the authors of this proposal. The Market Greens are the Greens’ pro-market network that I founded – I am publishing the proposal on my own site as well, because the economy is one of the focus areas of my parliamentary campaign. The wealth account continues the line of our earlier proposal, more markets. More Market Green posts are on the category page, and the original version of the proposal is on the Market Greens’ site.
Frequently asked questions
What problem does the proposal solve?
As a starting point, different kinds of income should be treated as similarly as possible for tax purposes. If one form of income enjoys significant tax advantages, there should be significant and sensible reasons for them. We therefore propose extending to wages certain advantages that today exist only for certain kinds of capital income. In our view, being able to save and invest before paying tax is a benefit that it is neither sensible nor fair to limit to certain kinds of capital income.
Is the change difficult to implement?
Not technically. Finland already has the equity savings account, in which trades inside the account are tax-free and tax is paid only on withdrawal, and the Tax Administration already administers it. In their recent official statement, Ministry of Finance officials propose reforming the equity savings account into an investment savings account that could hold funds and other listed products as well as shares. The European Commission has also recommended that member states introduce similar savings and investment accounts as part of the EU's Savings and Investments Union. The wealth account takes the same idea further: money saved from wages would also go into the account before tax. Legislative work is needed, for example on the rules for withdrawals, emigration and estates, but the foundation exists.
How does the change affect tax revenue?
We have not yet calculated the effect and do not want to present a guess. The direction is clear: in the short term, tax revenue falls, because wages moved to the account are not taxed straight away. The tax does not disappear, however; it is paid when the money is put to use. The overall effect depends on the details of implementation, such as how much can be moved to the account each year and how withdrawals are taxed. That is why we propose that the Ministry of Finance or the VATT Institute for Economic Research assess the effects before any decisions are made.
If the state's tax revenue falls, do the system's costs come at the expense of something else?
In the short term, yes: deferred tax is revenue the state receives only later. That is why the cost of the wealth account must be assessed and reconciled with the fiscal adjustment of public finances before it is introduced. In the long term, the deferred tax returns to the state when the savings are put to use.
Is there a detailed, workable plan for the wealth account?
Not yet. This is an opening to bring wage earners' wealth-building into the tax debate. The principles are clear: wages moved to the account are deductible in income taxation, investments can be switched inside the account without tax, tax is paid on withdrawal, and deferred tax falls due at the latest on emigration or death. The details, such as how withdrawals are taxed and the effect on tax revenue, will be settled in further preparation.
Are savings deducted from earned-income tax, or from taxable earned income?
From taxable earned income. Wages moved to the account are treated as if they had not yet been paid out to you: no income tax is paid on them until you withdraw them for your own use. That is why you can invest the full gross amount.
How is this green policy (focused on environmental issues, sustainable development and social justice)?
Green policy is about thinking long term. The wealth account rewards saving and taxes consumption, so it encourages thinking about the long term rather than the next purchase. It advances social justice, because today it is easiest to build wealth for those who already have capital; the wealth account gives wage earners the same opportunity. When people have savings, they, and the whole economy, weather crises better. Channelling savings into investment is also a goal of the EU's Savings and Investments Union, which funds, among other things, the climate transition.
At what tax rate are the original wages taxed on withdrawal?
This has not yet been settled. The starting point is that withdrawals are subject to income tax. The exact model, that is, whether a withdrawal is taxed as earned income for the year it is made and how returns accumulated in the account are treated, will be settled in further preparation. The choice affects both the saver's benefit and the state's tax revenue, so it must be assessed together with the effects on tax revenue.
Why is this proposal here too?
I am one of the proposal's authors, and the economy is one of the focus areas of my parliamentary campaign. The Market Greens are the Greens' pro-market network that I founded; the original version of the proposal is on the Market Greens' site.
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YEL must not raise the entrepreneurship barrier
Finland's YEL reform would scrap the new-entrepreneur discount just as AI lowers the barrier to starting a business. Three fixes that keep the barrier low.
