1. Tax Subsidies- Achievement of Accountability Visa Paajanen/NAOF 4.10.2011

2. 2 Backgroud of the audit effectiveness audit project (autumn 2004) goals for the project: - how to produce audit information of effectiveness and produce relevant audit information to the Parliament

3. 3 Content of the Audit THE AUDIT QUESTION: - How the accountability is achieved in the case of tax subsidies? (the question of transparency)

4. 4 Findings + in most cases tax subsidies have better incentive effect than direct income transfers +the preparation of tax subsidy legislative proposals have become better + the efficiency evaluations at preparatory stage have developed + there are tax subsidy law proposals where some optional policy instruments have been researched and there are even cases where two optional (tax subsidy vs. direct support) instruments have been tested at the same time there is no clear connection to governments annual budget proposal - ex post efficiency evaluation is unsystematic and it is made very seldom

5. 5 Findings - the reporting of the tax subsidy amounts has diminished during last six years transparency and the fulfilment of accountability has weakened - there are attempts to circumvent the spending limits by tax subsidies the spending limits are losing their meaning (the number of tax subsidy laws is increasing clearly although their amount is increasing only slightly) - tax subsidies remain in force although the original problem does not exist anymore - the amount of tax subsidy is often difficult to estimate beforehand - the allocation of a tax subsidy is often difficult

6. 6 Findings tax subsidy has been used in the same role as direct support (refunding of the energy taxes in agriculture) forest taxation: misleading accounting methods the deduction of interest costs of households housing loans; impossible to control what kind of loans (purpose of loans) are de facto included in deductions

7. 7 Recommendations tax subsidies have to be taken better into account in presenting performance targets in the Government Budget and in operational and financial plans tax subsidy laws have to be enacted using same rules and principles when enacting budget acts tax subsidies ought to be dealt with the same system than budget grants tax subsidies ought to be allocated to each budget title effectiveness and performance of operations and financing of tax subsidies ought to be evaluated as budget grants

8. 8 Recommendations annual evaluation of cost-effectiveness and operational performance tax subsidies have to take into account in Governments spending limit decisions when planning new tax subsidies their targets ought to be expressed clearly when planning tax subsidy its effects ought to be compared with those of other policy instruments (for example: direct support) Good practice the restricted deduction of labour costs in household work

9. 9 Process of accountability Audit was presented in parliament (audit committee and financial commitee) In parliamentary communication parliament in plenary session called for government: 1. better information about tax-subsidies 2. decisions how government will take tax-subsidies into budget- process Government started recearch-work. Several new tax-subsidies were found and amount of subsies was much higher than perdicted earlier. Still it is questionable how it is possible to calculate tax-subsidies in budget-ceilings.

10. 10 Why this report had impact? clear connection to parliaments decision-making economic situation during the process lot of hopes to circumvent budget-ceilings with tax-subsidies => ministry of finance was also interrested in subject