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7. Assessment of selected Finnish measures

7.1 Fixed term tax credit

Finland introduced a time-limited tax credit to offset electricity expenses incurred from January to April 2023. To be eligible for this credit, individuals must have had electricity costs exceeding €2,000 for their primary residence during the four-month period. The credit covered 60% of costs exceeding this threshold, up to a maximum of €2,400 per primary residence (not per person), and it applied to only one primary residence. Hence, holiday homes were not eligible for the tax credit. To receive the full €2,400 credit, electricity expenses for the four-month period had to reach €6,000 (The Finnish Tax Administration, 2023).
Furthermore, there was a €100 threshold that was applied to both the electricity tax credit and other tax credits for household expenses. If a consumer did not claim any other household expense credits, this €100 was deducted from the eligible electricity tax credit amount (The Finnish Tax Administration, 2023). In October 2022, the Finnish government projected that the overall expenses for the temporary fixed-term tax credit would amount to 265 million euros. The breakdown of these costs by contributor is provided in Table 3. The government's proposal to the parliament emphasized significant uncertainties linked to these estimated effects, primarily because future consumption patterns, price levels, and, consequently, the tax credit per household, were uncertain. Nevertheless, by April, only 1800 people had applied for credit from the scheme for a total of 2.5 million euros (Yle, 2023).
Amount (million euros)
Kela (the Social Insurance Institution of Finland)
Table 3 Projected costs of the Finnish fixed term tax credit measure. Source: (Finnish Parliament, 2022)

7.1.1 Distributional impacts

In October 2022, the Finnish government estimated that around 252,000 households would be affected by the fixed-term tax credit. The credit was anticipated to have a significant impact on households that rely on electricity for heating, with approximately 96 percent of the credit expected to benefit those households (Finnish Parliament, 2022). 
The Finnish tax credit measure favours households with high electricity consumption, which can primarily be expected to be individuals with larger homes and higher incomes. Hence, we can expect it to be regressive, providing greater benefits to high-income groups. Before its implementation, the Finnish government also anticipated that the majority of the tax credit would be claimed by individuals in the highest income brackets, see Table 4 and Figure 8.
Table 4 Expected distribution of tax credit by income decile. Source: (Finnish Parliament, 2022)
Income decile 
Number of households 
Total credit, mill. euros 
Change in income for the average household in the decile, euros  
3 600 
3 100 
14 100 
21 400 
26 400 
1 100 
26 100 
34 300 
33 500 
1 000 
41 300 
1 150 
47 700 
1 310 
Figure 8 Share of expected tax credit by income decile. Source: (Finnish Parliament, 2022)
The fixed-term tax credit has most likely primarily helped high-income households. The government commented this in the proposal by stating that it was challenging to quicky implement an income-based system. Hence, they connected the measure to an existing tax credit for household expenses (Finnish Parliament, 2022).
Additional support measures were implemented to mitigate income distribution disparities. Given that this is a tax credit program, households must have sufficiently high incomes to benefit from it. To ensure all eligible individuals receive their full entitlement, the government introduced a parallel compensation measure through Kela (the Social Insurance Institution of Finland) for those with lower incomes who could not fully utilize the tax credit (Finnish Government, 2022). In April 2023, 1400, people had applied and received support through Kela for a total amount of 0.3 million euros. Originally, the government prepared for 120 million through the Kela compensation scheme (Yle, 2023). Another step taken to assist all households was reducing the VAT for electricity from 24 percent to 10 percent during January to April 2023. This measure also benefitted high-income households.

7.1.2 Climate and environmental impacts

Any effort to offset high electricity usage may encourage increased consumption, potentially leading to adverse environmental effects. However, since the tax credit measure was in place for only four months, it's unlikely to have a significant long-term impact on electricity consumption. There was also a ceiling put on the sum which could be received as tax credit, to limit the perverse effects of the measure. Further, it appears that the compensation measure will be used to a much lower extent than what was originally projected by the Finnish government.  

7.1.3 Coherence with existing policies

In general, this measure doesn't appear to pose a substantial conflict with existing environmental policies. However, the measure is incorporated into an existing program designed for tax credits related to household expenses, typically claimed for work carried out within consumers' homes, like cleaning, childcare, or renovations. Adapting this measure which covers monthly recurring expenses, as in the case of electricity, is not in line with the measure's original intent and principles.

7.2 Extended payment period for electricity bills

Finland introduced a deferral measure to extend the payment period for electricity bills from January–April 2023 to assist both households and businesses in managing their winter electricity bills. Customers could request an extension, but only for consumption-related electricity bills between January 1st to April 30th, 2023. Transmission costs were not included in this extension (Finnish Government, 2023).

For households:

Consumers had the option to extend their payment period for up to 120 days from the original bill payment due date. The request for the extension had to be submitted before the initial bill payment due date. No additional costs or interest will be imposed for this extended payment period.

For Businesses:

Businesses could also apply for an extended payment period, with a maximum of 60 days. In addition, businesses were subject to an annual interest rate of 1.53%, imposed by the electricity company during the extended payment period. It's worth noting that credit institutions and financial institutions were not eligible for an extended payment period, as specified in the Parliament's proposal.
Extending the payment periods does have an impact on retail sellers of electricity. It may result in delayed receivables for these sellers, which could potentially lead to liquidity shortages. To address this issue, central government guarantees may be provided for the bank loans or pension insurance company loans taken by retail sellers to support their liquidity (Finnish Government, 2023).

7.2.1 Distributional impacts

For households, the deferral measure targeted all consumers, providing the possibility to delay payments of electricity bills without inferring additional costs. As to what extent the deferral measure was used by the consumers in Finland, we have found no data. Without further data, we can say little about the actual distributional effects of the deferral measure. It is likely that the option to delay electricity bill payments was used by vulnerable consumers to relieve the financial burden from high energy prices, but also for less affected consumers that could leverage of the additional liquidity and gain low risk interest on capital.
For businesses, the imposed 1.53% interest rate is likely to have increased the threshold for requesting postponement of payment. With such a short postponement period, it is unlikely that companies that were not in need of immediate liquidity could leverage the 60 days extension period offered. Also, financial and credit institutions were not eligible for the support. For companies in need of immediate liquidity to pay electricity bills, we expect the deferral measure to have had a positive impact, offering a short but relatively cheap indirect loan. 

7.2.2 Climate and environmental impacts

Delaying electricity payments to increase liquidity and offer short term financial relief is determined to have had a low environmental impact. Due to the short-term nature of the relief and the delay in compensation support, the measure should have had little to no effect on consumers actual electricity consumption. The support has rather worked to smoothen the financial burden while the price signals of electricity remained strong. Even with a higher degree of predictability in the measure, we expect a low impact on consumption and thus also a low environmental impact.

7.2.3 Coherence with existing policies

The deferral measure was implemented mainly to reduce the financial burden of high electricity prices. As we expect the measure to have a very low impact on electricity consumption, and no direct effect on prices or incentives for energy saving measures, there is no friction between the temporary deferral measure and other environmental policies on national or EU-level. The measure may have impacts on other non-environmental legislation and policies at the national level. However, it is outside of the scope of this study. This type of measure supports some of the objectives of EU policy in relation to ensuring a just and equitable transition, as it helps to alleviate financial burden from high energy prices and provides some temporary support to vulnerable consumers.