EP316 · Economy · first published 2025-03-19

Negotiation Club: Capital | Tere Sammallahti, Jussi Lindgren and Petri Roininen | Negotiator 316

The Negotiation Club takes on a word that two professions use to mean different things. A banker's capital is the right-hand side of the balance sheet — where the money came from. An economist's capital is the left-hand side: bridges, roads and housing. The distinction turns into policy: of Finland's roughly EUR 1,000 billion in national wealth, more than half sits in real estate that produces nothing and has been falling in value, while private financial wealth is EUR 675 billion, about EUR 150,000 per adult — EUR 150,000 to 250,000 less than in the other Nordic countries. The episode works through municipal balance sheets, imputed rent, the earnings-related pension system as a second form of taxation, what inheritance tax does to firms, the arbitrariness of the self-employed pension scheme, the return of avoir fiscal to the debate, and finally Germany's suspension of its debt brake and what it does to interest rates.

Sami Miettinen · Sections: AI and the Economy + AI and Society

Negotiation Club: Capital | Tere Sammallahti, Jussi Lindgren and Petri Roininen | Negotiator 316

Summary: The episode starts from a dispute over a definition: a banker’s capital is the financing side of the balance sheet, an economist’s capital is fixed productive assets. When one word does duty for two different things, you get policy that believes Finland is wealthy.

The hardest single number is EUR 675 billion of private financial wealth, roughly EUR 150,000 per adult — and the fact that the equivalent figure in the other Nordic countries is EUR 150,000 to 250,000 higher.

The most interesting argument is not either side’s headline claim but an objection that is raised and then answered: an economist would say it makes no difference whether a municipality sells an asset or takes the cash flow, since fair value is the present value of future cash flow. The answer is that the model leaves out entrepreneurship and ownership.

A note on reading this. This is an opinionated conversation between three right-of-centre candidates, recorded ahead of Finland’s spring 2025 municipal elections. The interpretations are theirs, and structural argument, prediction and political provocation have been kept apart here. Miettinen states in the episode that he is politically unaffiliated but closes by openly urging viewers to vote for all three guests, which is worth knowing when judging the tone. Statements are attributed to a named speaker only where the speaker is unambiguous.

Capital means two things — and policy follows from that

Miettinen opens with an observation he says took him thirteen years in London to make: economists use “capital” in a sense entirely unlike the one used at a banker’s table.

Roininen supplies the balance-sheet version that frames the whole episode:

There are two sides to a balance sheet. One is where the money came from — and that is the capital we usually mean in the world of finance. But in national accounts an economist may be looking at bridges and roads and housing as the central capital.

The suggestion around the table is to call the latter by the name it already has on a company’s balance sheet: fixed assets. This is not pedantry. Roininen’s point is that a banker looks first at return on capital, and the large capital lying around Finland may produce nothing at all:

If we have EUR 1,000 billion of this national wealth, most of it, more than half, is in real estate. And we have now seen how that has come down — while the welfare its return creates may be quite limited at the moment.

The concrete case: the owner of a EUR 500,000 flat looks rich in the statistics, but flats have not moved in a couple of years. There are assets; there is no investable capital.

Imputed rent: a book value that ends up in GDP

From this follows the episode’s technical core. In the national accounts, housing wealth is valued at roughly historical cost less depreciation rather than at market value, and its return is modelled as the cash flow forgone by not renting — imputed rent, which is carried all the way into GDP.

Two consequences are named:

1. GDP looks higher than it is, and real policy signals are taken from that number.
2. It is a short step from imputed rent being counted to imputed rent being taxed. Miettinen offers this as a provocation (“their favourite tax would be an imaginary imputed-rent tax”), not as a forecast — but the mechanism by which a notional item becomes a tax base is real.

It is also noted that in the regions the market value melts away continuously, while book value knows nothing of a market.

Municipal balance sheets: 55,000 flats that are not counted as capital

Lindgren says he has read Helsinki’s consolidated financial statements and noticed that the result for the period is half a billion in surplus. Sammallahti takes the observation to the balance sheet:

The City of Helsinki owns 55,000 flats alone, with a market value of more than EUR 10 billion. If the city sold a small one per cent of them, it would not have to recapitalise Heka every year.

Espoo is in a similar position, he says: the municipal housing company holds perhaps 10 to 15 per cent of the entire housing stock, which he considers far too large a market distortion. He adds an observation that is checkable and therefore more interesting than a statement of principle: buildings put up with interest subsidy are demolished at 30 to 40 years of age, while privately owned housing companies next door stay in good repair. He gives an example from his own neighbourhood.

The energy fund created from the sale of Espoon Sähkö is offered as the counter-example: after some early pain, once the money was moved into index funds it became, in Sammallahti’s words, a proper money machine.

Sammallahti’s conclusion is two moves:

1. Sell a small part of the municipal housing stock (about EUR 10 billion in Helsinki, a few billion each in Espoo and Vantaa).
2. Privatise the municipally owned companies.

In between comes a story worth reading as a general warning about municipal finance: when pandemic money briefly left Espoo’s consolidated balance sheet a good EUR 100 million in surplus, the council chamber immediately demanded “investments in the future” — and the point that this was a one-off item did not land.

The objection that is raised, and answered

Here the conversation does what political panels usually do not: it states the best objection out loud.

An economist would probably say it makes no difference whether you sell it or take the cash flow — because the fair value ought to be exactly the present value of that future cash flow. Right?

The answer is not “yes it does matter, because private is better” but something more precise: the present-value model is correct on its own assumptions, and what it omits is entrepreneurship and ownership. Balance-sheet assets in the hands of politicians are, in the table’s phrase, money with no master: there is no party whose own interest is tied to the return. Solidium’s returns are cited as an example, with the caveat that Solidium’s hands are partly tied (Neste is named).

The provocation that captures the same point: nobody would hand their bank card to a neighbour, but put a tie and a blue check shirt on the same man and call him a senior actuary, and he becomes the most trusted person on the planet.

The statistics release and the EUR 675 billion

The sharpest media criticism in the episode concerns a single release. Statistics Finland led with the finding that inequality has increased. According to Miettinen, the same data primarily said something else: Finns’ financial wealth had shrunk.

The figures presented:

The argument is not that wealth differences do not matter but that the wrong difference is in focus: within-Finland differences are small by Nordic standards, while the gap between Finland and Sweden or Denmark has widened sharply over twenty years. Miettinen also notes that the debate always slides into the difference between median and mean, which he considers an irrelevant detail next to the difference between countries.

Hundred-year mortgages and the squire’s syndrome

Lindgren asks the episode’s best “what if we are the ones who are wrong” question: Swedes have hundred-year mortgages. Would using a massively larger debt multiple in fact be sensible here too?

The answer ties two things together. In Sweden an 85-year-old can die knowing that the inheritance will not immediately trigger a roughly seven per cent tax bill delivered as an enforceable demand; the housing company shares and the loan on them pass to the child as they are. The same structure would not work in Finland.

Finland’s own history is recounted: mortgage terms were for a long time 10 to 12 years, and only the Nordic bank mergers of the late 1990s brought 25-year loans into the market. That raised Finnish purchasing power for housing by something like 60 to 70 per cent — and since housing cannot be built that fast, it levered prices upward.

Two concepts survive the episode:

• The squire’s syndrome. In the wealth statistics a million euros looks like working capital, even when EUR 900,000 of it is locked in a detached house and the person lives hand to mouth.
• Country-risk diversification. If you own a flat in Finland, you already hold a large Finland position. Technically you should not own anything else here at all.

A high tax rate is a high cost level

Sammallahti argues that the debate systematically forgets that high taxes are not only a transfer but a price level:

If 46 per cent of the price of a new flat is tax, then when you buy that EUR 300,000 flat, EUR 138,000 of it is tax and tax-like charges.

Against this it is conceded, in the name of intellectual honesty, that if pension contributions had not risen as they have, the overall tax rate would — with the rest of tax policy unchanged — have fallen considerably.

The pension system as a second form of taxation

This is the longest and most contested part of the episode.

The earnings-related pension system is described as a second form of taxation in practice: it takes about 24 per cent of the payroll, nobody owns it, and roughly EUR 270 billion has been set aside and is invested primarily abroad — while Finland complains of a shortage of capital.

Miettinen’s provocation. Is this the thing to fix?

Lindgren’s answer, which does not bend. He defends diversification: if EUR 270 billion sits in one portfolio, a large part of it must be efficiently diversified outside Finland, so that a downturn in the economy does not melt the pension assets at the same moment. Roininen replies that the economy sinks further the more of the money is sent abroad — a self-fulfilling scenario. Neither gives ground, and this is the most honest passage in the episode: these are genuinely two defensible positions.

Lindgren also points to a structural difference with public finances: anyone can go to the finance ministry’s or parliament’s website and see where tax money goes line by line, whereas on the pension side nobody in Finland can say whether the capital there is too much, too little or about right — the system is too complex. His formulation: EUR 270 billion is too important a pot to leave to six chief investment officers.

Miettinen’s preferred fix is a partial funded pension on the Swedish model: roughly 2.5 percentage points of the contribution into a personal funded account, where people can also take risk at home. The subject is treated at length in A 401(k) for Finland | Catherine Reilly | Negotiator 267.

The asymmetry between generations is formulated more clearly here than in most pension debates: for someone already retired the pension is a pure asset — a positive cash flow. For a twenty-year-old it is a promissory note: ahead lies a bleak series of contributions and a political decision about whether the retirement age is 67 or something else entirely. In between are people for whom the net is zero.

Kimmo Kiljunen’s idea of liquidating roughly EUR 150 billion into infrastructure and transition financing is worked through and rejected: it would collapse the system under its own impossibility, as the large age cohorts would be paid out of what remained. Sammallahti offers a more modest version — about EUR 15 billion, roughly 7 to 8 per cent of the pot, channelled through growth funds — and Miettinen a third: temporarily cutting the pension contribution by, say, five percentage points for five years to bring the marginal rate down. All three are presented as openings rather than costed proposals; the episode says plainly that the transition periods would have to be calculated.

Inheritance tax, the self-employed pension scheme, and what they do to firms

Two effects of inheritance and gift tax are argued to be lost under the debate about percentages:

1. Who lives here and where the assets are invested. In Sweden people came back and brought their capital with them.
2. Where the money to pay it is torn from. Inheritance tax must be paid in cash, and that cash has to come out of the company after corporate tax and capital income tax — at which point the effective wedge approaches 50 per cent.

Finland’s 60 per cent succession relief is described as a conditional contraption you have to jump through. Sweden granted 85 per cent and moved to capital-gains taxation anyway. The consequence in Finland, on Sammallahti’s account, is that each generational handover shreds employing firms: foreign buyers take the best ones, the weak ones are wound up, and domestic buyers have neither the money nor the expertise.

The self-employed pension scheme (YEL) draws the episode’s sharpest single criticism, and it is procedural rather than ideological: notional income is set in practice by what the entrepreneur said on the phone to a clerk at the pension insurer, and the estimate is benchmarked against the barber next door. Lindgren, noting that he is not a lawyer, finds it odd that tax-like charges can be set by that kind of discretion. Sammallahti adds that the new mechanism widens inequality between entrepreneurs: an established one gets a relative discount compared with someone who has just started a firm.

Avoir fiscal and a bridge built from the public balance sheet

Esko Aho has said, as a guest on Negotiator, that avoir fiscal — the imputation system for corporate tax — was the single largest factor that lifted Finland out of the 1990s depression. Miettinen adds the floating markka to the list, and says Aho did not really disagree.

The observation the episode makes: avoir fiscal has come back into the rhetoric in recent weeks, having last been widely discussed around 2018. A move toward the Estonian tax model is treated as belonging to the same family.

The problem is financing, and this produces the episode’s most concrete opening. Sammallahti frames the negative loop — cut, raise taxes, growth contracts — and says the country has to get into the opposite loop, where taxes are cut and growth returns. The transition is financed from the balance sheet, not from state revenue:

• Sitra. The first candidate, but not large enough.
• State and municipal companies and property. Here the scale exists.
• Solidium, holding around EUR 7 billion. Miettinen recalls that the idea of building the bridge on Solidium’s capital was originally Björn Wahlroos’s.
• Pension assets, as above.

The table’s saying sums up the timing argument: good decisions are made in bad times, and in good times only bad ones are made. The counterweight is the episode’s most melancholy hypothesis: what if the structural reforms had been done around 2005, when the debt ratio was small and there was a buffer — that was the good time, and the decisions were not made.

International capital: Germany’s debt brake and the return of interest rates

The second theme is the euro and international capital. In the week of recording, Germany’s incoming government asked the sitting Bundestag for a two-thirds majority to disable the debt brake.

Lindgren gives the background: the debt brake descends from the euro-crisis bargain in which the European Stability Mechanism was accepted on condition that the fiscal compact followed, to be ratified in member states at constitutional level. In Finland it went into ordinary legislation.

His analysis of debt brakes is double-edged rather than party-political:

• If a debt brake is not at constitutional level, it is regulation of the same rank as the budget: a simple majority changes it whenever it likes.
• If it is at constitutional level, it becomes politically very rigid — as is now being seen in Germany.

Sammallahti’s provocation is the episode’s most quotable line: do you know what the best debt brake is — don’t let the left into government. Roininen defends the rule on the grounds that it would force productivity measures and structural reform, while conceding that a crisis needs a back door. Miettinen refers to Heikki Westman’s earlier appearance and to Finland’s border security act passing by a five-sixths majority only just — while the Germans are being asked for only two-thirds.

The scale is put in proportion: Germany’s roughly EUR 500 billion defence and infrastructure programme, in a country of 86 million, would correspond to about EUR 35 billion at Finnish scale. Roininen adds the distinction that is usually missing from the debate: Germany has a large defence maintenance backlog, and Finland does not. The comparison should not look only at today’s difference but at the integral over history.

A prediction is offered, and is worth marking as a prediction: if every European country starts pushing debt into the market and buying armour with it, inflation expectations follow and rates rise. Long rates in the euro area have already risen. The parallel with the early 1990s is explicit: German reunification debt raised rates for everyone else in the ERM regime.

Defence bonds

The last concrete opening is domestic. About 98 per cent of the additional financing share of Finnish government debt is held abroad, because there is not enough domestic financial wealth.

In the 1990s government debt was sold to Finnish retail investors. Lindgren explains why the programme was discontinued: administration costs were around one per cent of the capital, far too expensive relative to the benefit. His point is that today the position may be different — with current technology that cost is of another order.

Miettinen’s proposal is a defence bond into which Finns could put deposits sitting in savings accounts. Sammallahti enters a realistic caveat: people always turn to bank accounts, but most of that money is ordinary households’ couple of thousand euros of working cash after a house purchase — there is not as much to take as is assumed. He still thinks the idea itself is good.

The thought experiment the episode ends on is Miettinen’s: what would happen if the earnings-related pension system bought the entire foreign-held stock of government debt onto its own balance sheet? Finns would no longer owe anything abroad through the state, and there would be money left over. The answer comes immediately and is the right one: you have just invented the perpetual motion machine. What the arrangement would actually mean is then said out loud — socialising the pension fund to consume the government debt.

The final argument is the one that sticks best. Invest a euro in a US-listed fund and you get an investment return. Invest the same euro in a Finnish growth fund that invests in Finland and you get the investment return plus 24 per cent in pension contributions — or possibly a loss, if it does not go well.

What the episode leaves you with

Three things stand out:

1. A definition is a policy. When capital means bridges and financial wealth at the same time, the debate can call Finland wealthy and capital-poor in the same sentence.
2. The municipal balance sheet is bigger than the municipal budget debate. 55,000 flats and more than EUR 10 billion is not a political opinion but a number that exists regardless of what anyone wants to do with it.
3. The disagreement over pension assets did not resolve, and should not have. The diversification argument and the domestic-multiplier argument are both valid, and the episode leaves them standing against each other.

Related episodes

• Real Estate and Growth-Company Negotiations – Petri Roininen | Neuvottelija 2 — Roininen’s own episode on the real estate and growth company side.
• A 401(k) for Finland | Catherine Reilly | Negotiator 267 — the technical treatment of a partial funded pension.
• Negotiation Club: Gifts, the Constitutional Law Committee and Intergenerational Wealth | Tere Sammallahti and Onni Rostila | Negotiator 377 — inheritance tax and intergenerational wealth.
• The growth report | Sami Miettinen and Martin Paasi on Viisasteluklubi — inheritance tax and the size of the state.

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