On taxes and subsidies

Finland has been recently trying to revamp its laws and taxation when it comes to saving for pensions. Previously the setup has been that individuals gain tax benefits if they save towards their pensions via voluntary pension insurances, which are managed by private companies. These companies typically charge an arm and a leg for offering this service, which seems logical for them and raises the question of how silly this is for the government to essentially subsidize private companies in this way. And taking into account the fact that most likely these funds will anyway be very conservatively managed and create less-than-optimal profits for their owners (and the overpriced management fees on top), the system seems flawed.

Anyway, the changes in the legislation seem to focus on introducing a setup where the individual person can use a multitude of different financial instruments when saving, and is able to perform reallocation of capital with no tax consequences, as long as they do not withdraw the capital from these special accounts before they reach the pension age. Sounds a lot more reasonable than what we've previously had. However, I think this still doesn't address the rather fundamental problem of market distortions that are caused every time the government steps in.

I'm personally very skeptical about any types of subsidies or benefits that the government (or any other authority) hands out. They may benefit some, but most likely the overall consequences aren't understood due to the complex nature of the world that we live in. A very good example of this is in the Finnish tax legislation where you can deduct parts of the interest payments that you incur from your house loan. While I technically understand the intention behind that, I fear that in fact these types of subsidies merely end up directly into the house prices and push them further up, meaning that the net benefit for an individual who is looking to purchase a house is more or less zero, at best.

Additionally, the problem on sudsidization via taxes is that it is so bloody complex. Combine, for instance, the two above topics: saving via investing and purchasing a home. You get tax benefits from your home loan, but if you get any types of capital incomes from abroad, you start losing your tax benefit. This doesn't happen with capital income from Finland. Ok, I can see that this might encourage Finns to invest in Finland. Fair enough. But now my investment portfolio has an increasing amount of risk that stems from the fact that I do not distribute my savings geographically. So if things go south in Finland and the economy goes bad, I lose my job (and thus my steady income from wages), and then I also lose my equity that I've been trying to build up for the rainy day, because I haven't been able to achieve a properly diverse portfolio of ownings from abroad. A double-whammy right in the back of my head. (And yes, I am aware that I could invest abroad via mutual funds that are managed by Finnish financial institutions, but the amounts they charge for this service are ludicrous to say the least).

So ultimately I think the goal should be to get away from tax benefits and subsidies, which unnecessarily complicate the system and don't even achieve the intended results at the end of the day. Instead we should scrap these types of systems in favor of a lower tax rate. And as an additional benefit, we could also decrease the size of the tax authority, which would no longer need such a large machinery to operate...