Tax Breaks Announced by Finland’s Government

HELSINKI (Reuters) – Finland’s government announced tax breaks for companies and employees to boost the economy during a mid-term budget review completed late Wednesday.

In office since June 2023, the government had promised to prevent public debt from increasing despite a slow recovery from recession. However, during the mid-term budget discussions, it opted to ease budget discipline and implement tax breaks to foster growth.

Corporate tax will be reduced from 20% to 18%, while employee income taxation will see a total reduction of €1.1 billion ($1.25 billion).

Prime Minister Petteri Orpo stated, “We will make Finland one of Europe’s most attractive countries for investments,” following two days of budget talks. He emphasized that boosting growth is essential to fund enhanced spending on defense and other government expenditures.

The Finnish economy contracted by 0.1% last year, and the Bank of Finland cautioned that the 0.8% growth forecast for this year is at risk due to tariffs and ongoing global trade conflicts.

The tax breaks will be partly financed through a one-time withdrawal from the state pension fund, according to the government.

Finance Minister Riikka Purra confirmed that the government is committed to stabilizing public debt by the end of 2027 but admitted it will likely miss its goal of reducing the fiscal deficit to 1% of GDP by that time.

Calculations from the finance ministry indicate that the deficit should shrink in 2026 and 2027 due to the pension fund withdrawal, but it is expected to rise again in 2028 and 2029 after the government’s term ends.

Initially estimating the 2024 deficit at 3.7% of GDP, the right-wing government found it had actually reached €12.2 billion, or 4.4%, exceeding the European Union’s 3% limit. The government now anticipates a €12.3 billion deficit in 2025.

Earlier this month, the government also announced plans to increase defense spending to 3% of GDP by 2029, up from 2.4%, to satisfy growing NATO obligations.

($1 = 0.8819 euros)