The government of Prime Minister Petteri Orpo (NCP) has reached agreement on a budget framework for 2025-2028 following two days of talks.
The administration had set itself a goal of achieving some nine billion euros worth of spending cuts and tax rises during its term in office — with about six billion euros of austerity measures already in place.
At a press conference announcing the budget plans on Tuesday, Orpo said his government had made "difficult but necessary decisions" to tackle the country's escalating state debt and associated economic challenges.
"I understand, we understand that people are concerned and upset about these decisions and at this time. But I firmly believe that if we do these things now, in the long term things will be better for Finland and for Finnish people than they are today. We will turn this around," he said.
Finland is set to take on about 14.4 billion euros in new debt this year, and while the nation's debt ratio is about average for the EU, it is significantly higher compared to the other Nordic countries.
Finland's state debt stood at 156 billion euros at the end of 2023, up from 54 billion in 2008.
Government raises VAT to 25.5 percent
The latest round of belt-tightening measures will see Finland's rate of value added tax (VAT) raised to 25.5 percent, from the current level of 24 percent, with the change likely to come into force before the end of this year.
This is likely to mean a further rise in the price of petrol and diesel, if vendors decide to pass on the increase to consumers.
The rate of VAT applied to certain foods high in sugar, such as chocolate, will also increase, from 14 percent to 25.5 percent. An extra levy will also be placed on soft drinks, tobacco and some alcoholic drinks.
The government however intends to keep the rate of VAT on other food products as well as restaurant meals at 14 percent, and will also make no change to the 10 percent rate on medicine, accommodation, books and cultural events.
The increased VAT rate will, according to the government's estimated figures, inject more than one billion euros a year into the state coffers.
The budget plans also include "moderate changes" to some income tax rates as well as the taxation of larger pensions, or between 23,000 and 57,000 euros per year.
"For someone who receives an annual pension of 30,000 euros, the effect is about 100 euros per year," Orpo explained, but noted that the total tax rate will not rise and taxes on low and middle income earners will be reduced.
Changes to the household tax credit system is projected to save the state about 100 million euros.
The PM further added that the cuts are needed because Finland needs to avoid being subject to the EU's excessive deficit procedure (EDP). An EDP can be launched against an EU country if it is deemed to have failed to abide by the Stability and Growth Pact (SGP), which is a set of regulations governing each member state's fiscal policies.
Cuts to healthcare and education
Finance Minister Riikka Purra (Finns) presented the finer details of the budget plans during Tuesday afternoon's press conference, which included cuts to regional healthcare authorities — officially called wellbeing service counties — as well as reduced budget allocations for municipalities.
Purra added that there will be cuts to healthcare and education, but the government has no plans to reduce the budget of the army, police or the Finnish Border Guard.
In the healthcare sector, budget cuts will see minimum staff-to-patient ratios for 24-hour elderly care drop to six nurses for every ten patients, Purra outlined, a measure that will initially save 45 million euros per year — later rising to 119 million euros.
Emergency services in primary and specialised care will be centralised and downsized, with some regions losing certain services.
In addition, the 'treatment time guarantee' will be set at three months, and at six months for dental care — saving about 130 millions euros, according to Purra's estimates.
Cuts to education will include a 100 million euro drop in funding for vocational training institutions, although the cuts will affect students who have already completed a secondary vocational or higher degree.
Changes to the student housing allowance benefit will save the state about 57 million euros, Purra noted.
Users with an Yle ID can leave comments on our news stories. You can create your Yle ID via this link. Our guidelines on commenting and moderation are explained here.