Draft budget
Minister of Finance Riikka Purra’s draft budget for 2025

The Ministry of Finance’s draft budget for 2025 implements the Government’s policies to strengthen general government finances. The draft budget totals EUR 88.1 billion and shows a deficit of EUR 12.2 billion.

The estimated deficit is EUR 0.6 billion lower than in the current year when taking into account the second supplementary budget for 2024. The deficit will decrease due to measures taken by the Government to strengthen general government finances. Without these, the deficit for 2025 would be just under EUR 16 billion.

The draft budget will be published in full on Friday 9 August at budjetti.vm.fi.

Reversing the trend towards indebtedness

The Government’s economic policy priorities are economic stability, employment, economic growth and safeguarding welfare services. The goal is to stabilise the general government debt ratio by 2027. A further reason for deciding on the measures to improve general government finances is that this will avoid triggering the EU’s excessive deficit procedure. Over the longer term, the goal is to balance general government finances and set the debt ratio on a downward path towards the level of the other Nordic countries.

With these objectives in mind, the Government decided in the Government Programme on a package of measures, including both savings measures and structural policy measures to increase employment, that would strengthen general government finances by EUR 6 billion. Additionally, in the spring 2024 session on spending limits, the Government decided on spending cuts and tax measures that would boost general government finances by a total of EUR 3 billion. 

To ensure that the goals set for general government finances can be achieved, it is important that the savings measures in question are implemented as planned. When the Government’s decisions are implemented in full and within the planned timeframe, the growth of the debt ratio will come to a halt in 2027. 

The Government will actively monitor the implementation of the sets of measures in its budget and spending limits sessions and will respond with corrective measures if there is a risk that the measures will fall short of the targeted level. 

Economy gradually picking up after recession

The Finnish economy grew slightly in the first quarter of 2024, and according to a forecast published by the Ministry of Finance in June, the recovery will pick up speed towards the end of the year. Growth is expected to accelerate in 2025, although the measures needed to reduce the general government deficit will curb the growth in demand to some extent.

The growth in private consumption will ramp up as household purchasing power is boosted by slower inflation, lower interest rates and higher income. Investments will perk up as construction recovers from its sharp decline and investments related to the energy transition and security increase.
Despite the recent turmoil in the financial markets, the outlook for the global economy has remained stable. Growth is expected to pick up especially in Finland’s key export markets in Europe in 2025. Finland’s cost competitiveness has remained fairly strong, which will support Finnish exports as demand in the market recovers.

Employment will continue to decline in 2024 but will resume growth again in 2025 once the economy recovers and the supply of labour is increased through the Government’s employment measures and immigration.

The Ministry of Finance will update its economic forecast in August and it will form the basis for the Government’s budget proposal. The Ministry of Finance will publish its autumn forecast on 23 September.

Scale of savings included in draft budget corresponds to earlier decisions 

In preparing the savings measures decided on in the Government Programme and in the spring 2024 session on spending limits, individual measures have emerged whose savings impacts will be delayed or fall short of what was previously estimated. The ministries’ proposals thus did not fully correspond to the savings decisions made by the Government. The agreed savings are included in the Ministry of Finance's draft budget in full. 

The draft budget includes more than EUR 100 million in new savings to compensate for the shortcomings. The compensation measures include, among others, a reduction in central government funding for church and religious activities and for the social duties of the Evangelical Lutheran Church  (EUR -20 million), the coeliac allowance (EUR -9 million), changes to the municipality categories for the housing allowance (EUR -2.7 million), the hepatitis C eradication programme (EUR -3.7 million) and an increase in revenue recognised from Metsähallitus (EUR +6 million). In addition, the implementation of the savings targeted at reimbursement for the cost of social assistance during integration will be adjusted so that the agreed savings (EUR -58 million) can be realised in full. 

Draft budget for 2025 approximately EUR 12 billion in deficit

The draft budget for 2025 totals EUR 88.1 billion, which is EUR 0.1 billion higher than the sum budgeted for 2024, including the second supplementary budget. The growth in expenditure is explained by the ex-post control of the funding of wellbeing services counties and by the index adjustments to statutory and agreement-based indexed expenditure. At the same time, the Government's savings decisions have reduced the level of expenditure.

Compared with the General Government Fiscal Plan drawn up in spring 2024, the Ministry of Finance's draft budget includes additional discretionary expenditure of EUR 13 million. 

The Ministry of Finance’s draft budget shows a deficit of EUR 12.2 billion. The estimated deficit is EUR 0.6 billion lower than the sum budgeted for 2024, including the second supplementary budget. 

Compared with the spring's General Government Fiscal Plan, the deficit has grown by EUR 1.5 billion. Tax revenue estimates have decreased by around EUR 1 billion compared with the estimates drawn up in the spring. This decrease for 2025 is explained by lower than predicted tax revenue in 2024 and the decision to bring forward the increase in the excise duty on tobacco products to November 2024, which will move an estimated EUR 0.45 billion of tax revenue from 2025 to 2024. Further reasons include an increase in the estimated debt interest payments in line with the forecast updated at the beginning of summer. Interest expenditure on central government debt is estimated at EUR 3.5 billion in 2025.

As the measures taken by the Government to strengthen general government finances will enter into force gradually during the parliamentary term, the impact of the adjustment measures will not be felt fully in 2025. The draft budget includes savings that will reduce on-budget expenditure by just under EUR 2 billion, in addition to which the tax adjustment measures will increase tax revenue by about EUR 1.2 billion. However, the impact of tax revenue for 2025 will be weakened by the transfer of around EUR 0.45 billion of tax revenue to 2024 due to the increase in the excise duty on tobacco products taking place earlier than planned.

Since the measures outlined in the Government Programme and in the government session on spending limits held in the spring cover general government finances as a whole, the measures are not only targeted at on-budget entities.

Central government on-budget revenue, expenditure and balance, EUR billion

Implementation of growth measures decided on in the Government Programme and the government session on spending limits press ahead 

The Government Programme includes several decisions that strengthen the conditions for economic growth, for example to improve investment permit procedures and to promote the competitiveness of the markets.

The Government Programme includes several decisions that will boost economic growth. These include improving permit procedures for investments and enhancing market competitiveness. To accelerate investments, the tax credit for large-scale industrial investments outlined in spring 2024 is under preparation. To strengthen the capital markets of growth companies, Finnish Industry Investment Group will be provided with a capital injection of EUR 300 million during the parliamentary term by restructuring central government assets.

The Government is committed to the national target of increasing Finland’s research and development (R&D) expenditure to four per cent of GDP by 2030. Under the current Act on Research and Development Funding, the Government will increase central government funding for R&D activities to 1.2 per cent as a percentage of GDP by 2030, provided that private sector investments increase to 2.8 per cent. In terms of the Act on Research and Development Funding, this an increase of EUR 280 million in 2025 relative to overall R&D funding in 2024. The draft budget of the Ministry of Finance includes the increases in appropriations and supplementary budget authorities outlined in the spring spending limits decision. The purpose of these additional resources is to accelerate sustainable economic growth, strengthen competitiveness and boost productivity. The Government will increase Business Finland’s budget authority for R&D funding by EUR 85 million, and funding will be allocated especially to support R&D activities in companies and to encourage collaboration between companies and researchers. Provisions have also been made to replace the EuroHPC LUMI supercomputer with a new supercomputer. The Research Council of Finland’s budget authority for research projects will be increased. A temporary post-doc programme for research institutes will also be launched in 2025. National match funding for R&D projects financed by the EU will be raised by EUR 15 million.

A one-off EUR 4 billion investment programme to be implemented over the government term will also boost growth. The programme will be financed using central government property income and revenue generated by the Housing Fund of Finland. This way, investment expenditure will not increase the central government borrowing requirement during the government term. The draft budget of the Ministry of Finance only includes the investment programme measures decided earlier during the government term. The intention is for new measures included in the investment programme to be outlined in the government budget session.

Administrative savings allocated more precisely

The implementation of the central government productivity programme decided on in the Government Programme and the savings in operating expenses decided on in the spring 2024 government session on spending limits are proceeding according to plan. The savings incorporated in the 2025 draft budget have been allocated on the basis of the ministries' own preparation. The ministries have been able to make savings not only in the operating expense items of the government agencies and public bodies but also in other consumption expenditure items comparable to operating expenses and to some extent also in discretionary government grant expenditure.

The draft budget includes savings in operating expenses totalling roughly EUR 281 million compared with the 2024 Budget. This is around 3 per cent of all central government operating expenses. The percentage share varies by administrative branch. 

Tax decisions included in the Government Programme and related to the government session on spending limits taken into account in the revenue estimate

The Government’s taxation policy encourages work and self-employment, and supports domestic ownership. Many of the tax measures set out in the Government Programme have already been implemented in 2024. In addition, given the serious situation facing general government finances, the Government decided in connection with the spring 2024 spending limits session on more tax measures to bolster general government finances. The Government has chosen measures that treat people fairly and do as little harm as possible to economic growth.

In line with the Government Programme, an adjustment corresponding to the change in the Index of Wage and Salary Earnings will be made at all income levels, apart from the two highest income brackets of the central government income tax scale. Another EUR 100 million will be allocated to reducing taxes on work, with the main focus being on low- and middle-income earners. In addition, a child increment will be made to the earned income deduction. 

Municipal finances will be strengthened and municipal taxation will be made more effective by abolishing the earned income allowance and correspondingly increasing the earned income deduction. As part of general government adjustment measures, the pension income allowance will be scaled back, but in such a way that the taxation of the smallest pensions will not increase. The tax credit for household expenses will also be reduced. 

The standard value-added tax rate and the rate of tax on certain insurance premiums will be raised from the current 24 per cent to 25.5 per cent. The increase will come into effect on 1 September 2024. The value-added tax rate for sweets will be raised from 14 per cent to the new standard value-added tax rate of 25.5 per cent as of 1 June 2025.

In addition, as decided in the Government Programme, commodities currently subject to a reduced value-added tax rate of 10 per cent will be moved within the scope of a 14 per cent value-added tax rate from the beginning of 2025, with the exception of newspapers and periodicals. The value-added tax rate for the compensation that the Finnish Broadcasting Company receives from the State Television and Radio Fund is still being discussed by a working group deliberating the funding for the Finnish Broadcasting Company. The value-added tax rate for incontinence pads, menstruation pads and children's nappies, on the other hand, will be reduced to 14 per cent in line with the Government Programme.

Tax revenue will also grow because the minimum threshold for relief in value added tax will be abolished. The minimum threshold for value added taxation of small-scale business will be raised from EUR 15,000 to EUR 20,000.

In 2025, tax revenue will also grow because the training deduction that employers are entitled to will be abolished, the taxation of rental income in agriculture will be restructured, the excise duty on soft drinks and spirits will be raised, and the excise duty on tobacco products will be raised on 1 November 2024 and on 1 July 2025. The amendment to the Excise Duty Act, which extends the tax liability in distance selling of alcohol, will also increase tax revenue after it enters into force in 2024.

In addition, fairway dues will be again collected in full in 2025. As of 2026, the vehicle tax on electric vehicles and plug-in hybrid vehicles and the propelling force tax on camper vans will be raised, which will increase tax revenue already in 2025. The reduction in the basic tax on motor vehicles adopted earlier, which applies to the older stock of vehicles, will diminish tax revenue.

Funding of wellbeing services counties to increase

Wellbeing services counties mainly rely on central government funding to finance their operations. Approximately EUR 26.2 billion is proposed for universal funding of the wellbeing services counties in 2025. The index increase will increase the funding by around EUR 660 million.

The estimated cost of the increase in the need for health and social services is approximately EUR 240 million. Following an ex-post control, nearly EUR 1.5 billion was added to the funding. The transitional equalisations for 2025 will reduce the funding by approximately EUR 70 million.

The measures recorded in the Government Programme and the additional measures included in the General Government Fiscal Plan for 2025–2028, such as maintaining the maximum waiting time for access to care at 14 days and then increasing it to three months, and reducing and developing the minimum staffing level for 24-hour care for older people by means of technology, have largely been taken into account in the Ministry of Finance's proposal. The combined impact of the Government Programme's measures and additional measures will reduce funding by approximately EUR 347 million. 

More central government transfers to municipalities

Central government will allocate approximately EUR 5.6 billion in central government transfers and other government aid to municipalities in 2025. EUR 3.3 billion is proposed for central government transfers to municipalities for basic public services. The increase in central government transfers is largely explained by the decision to move the responsibility for organising employment and economic development services from central government to municipalities at the beginning of 2025 and the municipalities' greater responsibility for financing unemployment security. In addition, the reformed Integration Act, which will enter into force at the beginning of 2025, will increase the municipal responsibility for promoting integration. The transfers of funding related to these reforms from other administrative branches account for approximately EUR 870 million.

From 2025 onwards, central government transfers to municipalities will include a permanent increase of EUR 277 million to alleviate the impact of the health and social services reform on central government transfers. The level of central government transfers takes into account both increases and reductions in municipalities' duties and obligations. These changes, including savings from deregulating the municipalities' duties, will reduce central government transfers by a net amount of EUR 24 million.  

The index increase of central government transfers to municipalities for basic public services is approximately EUR 50 million, taking into account that in line with the Government Programme, a reduction corresponding to one percentage point will be made to the index increase of central government transfers for basic public services.

Preparation of the draft budget for 2025 continues

• 9 August: Proposal of the Ministry of Finance for the 2025 budget published online at budjetti.vm.fi. 
• 3 and 4 September: Government budget session
• 23 September: Budget proposal examined in an extraordinary Ministerial Finance Committee meeting and in a plenary session of the Government, and published at budjetti.vm.fi.

Inquiries:
Jussi Lindgren, Special Adviser to the Minister of Finance (Economic Affairs), tel. +358 295 530 514, jussi.lindgren(at)gov.fi