Govt decides further austerity measures, hikes tax

The four-party alliance government led by conservative Kansallinen Kokoomus (National Coalition Party-NCP) on Tuesday announced further spending cuts of three billion euros and increase in the Value Added Tax (VAT) as a part its austerity measures.

Leaders of the Kokoomus, Perussuomalaiset (Finns Party), Suomenruotsalainenkansanpuolue (Swedish People’s Party of Finland-RKP) and the SuomenKristillisdemokraatit (Christian Democrats of Finland-CD) reached agreement on the budget framework for the years 2025-2028 after two days negotiation discussions ended on Tuesday.

The ruling parties´ leaders from a press conference after the meeting announced the cuts in various sectors including education and health and the decision to increase the VAT from 24% to 25.5%.

The government, which earmarked austerity measures of nine billion euros during its regime already took spending cuts of about six billion euros after taking over the office in June 2023.

Speaking at the press conference, Prime Minister Petteri Orpo said that the decisions of spending cuts and increase the VAT were taken in the budget plant to curb the rising state debt amidst the ongoing economic difficulties.

He said the government understood the people´s concerns and dissatisfaction over the decisions but took the decision considering the betterment of the country in the future.

The VAT for certain foods including chocolate will be also hiked from 14 percent to 25.5 percent while additional tax will be imposed on soft drinks, tobacco and some alcoholic products.

The government targeted to earn more than one billion euros through increasing the VAT.

The VAT on other food products including restaurant foods, however, will remain unchanged at 14 percent while the VAT on medicine, accommodation and cultural events will remain unchanged at 10 percent.

The prices of petroleum products will increase further after implementation of the increased rate of VAT by the end of this year.

The government also decided to increase income tax for some earning groups including the pensioners, who earn more than 23,000 euros annually.

Speaking at the press conference, Finance Minister Riikka Purra said that the government cuts included the allocations in the regional healthcare sector, known as wellbeing service counties and municipalities.

She said that the cut will take place in education and healthcare sectors but allocations for the army, police and Border Guard would not be reduced.