Finland’s main automotive lobby is calling for tax incentives to encourage low-income earners to switch to electric cars.
The government of PM Petteri Orpo (NCP) intends to further reduce the vehicle tax on old cars with internal combustion engines.
This latest move follows its decision during the spring budget debate to grant tax relief of 10 million euros for owners of petrol and diesel-powered cars that are over 10 years old.
Before that, the cabinet had already made a similarly targeted reduction in vehicle tax. That 50-million-euro tax reduction focused on older cars with medium and high emissions. The cost of traditional motoring has been a crucial issue for the Finns Party in particular.
The government says the relief is necessary to help low-income households whose car operating costs have increased.
The latest wave of tax relief, which was circulated for comment on Thursday, would take effect at the beginning of 2028 – more than half a year after the end of the Orpo government’s term.
Tax discount of only six euros per car
The latest round of tax relief for older, high-emission cars may make it even more difficult to achieve Finland’s legally mandated goal of carbon-neutrality by 2035.
The timing of the draft law favouring high-emission cars also coincides with an exceptional heat wave in Europe, the globe’s fastest-warming continent. Researchers say the heat wave is linked to climate change, which is being accelerated by the continuing use of fossil fuels.
However, the tax cut will not have a significant climate impact, says Tero Lausala, managing director of Finland’s largest car-industry association, the Central Organisation for Motor Trades and Repairs (acronymed in Finnish as AKL). The tax cut is too small to affect consumers’ choice between, for example, a new electric car and an old combustion engine car.
“Although the discount applies to approximately 60 percent of all passenger cars and vans in Finland, it is still only six euros per year per car on average. Any larger tax discount would be going in the wrong direction,” Lausala says.
Road emissions must be cut to meet climate goal
However, the AKL warns that Finland will not achieve its climate goals without a significant reduction in traffic emissions.
Finland has committed to halving transport emissions by 2030.
“To achieve that, according to calculations, there should be around 900,000 chargeable cars in Finland by then. Now there are less than 400,000, and there are only a few years left,” Lausala says.
Failure to cut transport pollution could result in additional costs of hundreds of millions of euros if emissions must be offset, as required by EU law.
Lowest car sales since ‘90s recession
Lausala argues that new car sales should be accelerated. About half of new cars sold in Finland now are fully electric, but the number of new car registrations is still low due to the economic situation.
“New passenger cars are being sold in Finland at the same pace as during the worst years of the recession in the 1990s,” Lausala says.
In his view, taxation plays a key role in what kind of cars people in Finland buy and how much they drive them – so it should be reformed from a climate perspective.
“The focus of taxation should be shifted from car acquisition to use and possession. At the same time, high-emission vehicles should be taxed more than low-emission vehicles,” he suggests.
In his view, people with lower incomes should be able to switch more easily to electric and plug-in hybrid cars, which have lower operating costs than traditional cars.
The AKL notes that road traffic emissions account for nearly a quarter of all emissions produced in Finland, excluding the land use sector, and approximately 95 percent of carbon dioxide emissions from domestic transport. The country’s rail network, for instance, is nearly emissions-free.
