Finland: Government will raise VAT to 25.5 percent aiming to collect one billion euros a year more

BUDGET FRAMEWORK AGREEMENT:

• Prime Minister Petteri Orpo's government has finalized a budget framework for 2025-2028.
• The administration aims to achieve nine billion euros in spending cuts and tax increases during its term, with six billion euros already implemented.

VAT INCREASE:

• Finland's value-added tax (VAT) will rise to 25.5 percent, up from 24 percent.
• Expected implementation before year-end, affecting fuel prices and certain food items like sugary products and soft drinks.
• The government plans to maintain lower VAT rates for essential goods like food and medical items.

REVENUE BOOST AND TAXATION CHANGES:

• The VAT hike is projected to generate over one billion euros annually for the state.
• Moderate adjustments in income tax rates and larger pension taxation (for pensions between 23,000 and 57,000 euros per year) are also part of the plan.
• Emphasis on minimizing impact on low and middle-income earners, with tax reductions for these groups.

OTHER FISCAL MEASURES:

• Changes in the household tax credit system estimated to save around 100 million euros.
• Finnish VAT rate of 25.5% will be the second-largest in the EU, with Hungary maintaining the highest VAT rate.
• Finland's Insurance Premium Tax rate will also align with the new VAT rate.

EU COMPLIANCE AND DEFICIT MANAGEMENT:

• PM Orpo stated that these measures are necessary to avoid EU's excessive deficit procedure (EDP), a consequence of not meeting the Stability and Growth Pact (SGP) regulations.
• EDP can be initiated if an EU country fails to comply with fiscal policies outlined in the SGP.

SOURCE:

• Finland plans "difficult but necessary" spending cuts and tax rises | Yle News | Yle