Abolition of education agency, refugee quota proposed
The government on Thursday published the draft budget of 89.6 billion euros for the year 2026 with a deficit of 9.9 billion euros, said the for the Ministry of Finance.
The draft budget reflected the austerity measures announced earlier by the four-party alliance government.
Despite the adjustment measures already decided by the Government, the position of general government finances remains serious. Without new adjustment measures, the general government debt ratio would, according to a forecast published by the Ministry of Finance in June, escalate to over 90% of GDP in 2029, said the ministry.
The difficult economic situation and rising interest expenses have played a part in mounting indebtedness. While the economy is projected to recover, the ageing of the population will continue, and the additional funds that need to be invested in security will remain substantial in the coming years.
According to the draft budget, the government will curb general government indebtedness and the new adjustment measures will bolster general government finances by EUR one billion at the 2027 level.
A procurement authority of several billion euros for defence materiel in the draft budget will strengthen Finland's defence capability as part of Finland's commitments to increase defence funding.
The deficit in 2026 will be reduced on a one-off basis by around EUR 2.3 billion by entering as revenue the remaining cash receipts of National Housing Fund to the central government budget in connection with the dissolution of the Fund. This does not reduce indebtedness in central government or general government. Without this entry as revenue, the deficit would be EUR 9.9 billion, which is around EUR 3.3 billion less than this year.
“The position in general government finances has further deteriorated since the spring. Our credit rating was downgraded in July, and now it seems that indebtedness cannot be brought under control without an additional adjustment of at least one billion euros. I do not wish to increase taxation. For this reason, I propose that the adjustment be implemented entirely by cutting non-core expenditure. I am not proposing cuts to central government's core duties,” said Finance Minister Riikka Purra.
The draft budget announced to cut in various sectors including arts, culture, sports, education, cruise ships and Kela reimbursements for visiting private doctors.
Finnish National Agency for Education to be dissolved
The existing Finnish National Agency for Education will cease to operate on 1 January 2027 and the functions that the Finnish National Agency for Education has decided to retain will be transferred to the Ministry of Education and Culture. This is estimated to generate a savings in appropriations totalling EUR 15 million in 2027.
Savings by freezing funding of universities, others
University index increases will be frozen for 2026 and 2027. The effect of this is estimated at around EUR 59 million in 2026 and about EUR 112 million in 2027.
With church tax revenue having increased as a result of tax adjustments made by central government, funding for the Evangelical-Lutheran Church and the Orthodox Church will be reduced by EUR 9 million.
The Parliament's practice of issuing Christmas bonuses will be discontinued, which will bring savings of around EUR 40 million.
Defence materiel procurement to rise
In spring 2025, the government decided to increase Finland’s defence investment to 3% of GDP by 2029. Finland is also committed to further raising its defence spending to 3.5% by 2035 in line with the target agreed by NATO. In addition, 1.5% of GDP will be allocated to defence-related expenditure by 2035.
The Ministry of Finance’s draft budget for 2026 includes procurement authorities of EUR 3 billion for defence materiel procurement, multiplying the existing procurement authority of EUR 0.5 billion in the 2025 Budget.
The Finnish Defence Forces will launch a modernisation process of land defence. Of the procurement authorities, EUR 1 billion will be spent on the development of joint weapons systems and EUR 2 billion on materiel development. The expenditure associated with the raised procurement authorities will be mainly incurred in the early 2030s.
Cuts to development cooperation outside Finland
Funding for official development assistance (ODA) administered by the Foreign Ministry will be reduced by EUR 65 million. In 2027, the saving would increase to EUR 100 million. The appropriation for development policy loans and investments will also be reduced by EUR 30 million. In addition, the EUR 10 million increase in humanitarian disaster relief made in the mid-term policy review will be cancelled.
Cuts to integration, admittance of resettled refugees
The payment of imputed central government transfers to municipalities and wellbeing services counties for the integration of immigrants will be discontinued. This saving in the budget authority is estimated to come to EUR 167 million in 2026 and EUR 150 million in 2027. In addition, Finland will cease to take resettled refugees. From this measure, the savings in the budget appropriations would amount to about EUR 6 million in 2026 and to EUR 9 million in 2027.
Savings from NGO grants
Discretionary government grants awarded to associations and foundations for the promotion of health and social wellbeing will be cut by EUR 100 million. Funding allocated to the promotion of arts and culture and the construction of sports facilities will be reduced by EUR 35 million.
Tax policy supporting economic growth
The draft budget implements the tax measures adopted by the Government this spring to boost economic growth and to strengthen general government finances. The most significant measures are related to easing taxation on labour to support household purchasing power and improve incentives for work. General government finances will be bolstered by tightening the tax base and by increasing the taxation of items such as tobacco and alcohol. There are no new tax increases in the draft budget. The total tax ratio will not increase next year. In accordance with the Government Programme, the municipalities will be compensated for the tax revenue impact of changes made by the Government to tax bases.
Finances of the wellbeing services counties
Approximately EUR 27.1 billion is proposed for the universal funding of wellbeing services counties. The funding will increase by approximately EUR 0.9 billion compared to the approved 2025 Budget. The transition to the 2026 cost level is the main reason for the growth in funding. The index for funding in the wellbeing services counties will rise by 3.24 per cent in 2026. This will increase the funding of the wellbeing services counties by around EUR 849 million. It is estimated that annual growth in the need for healthcare and social welfare services will increase funding by approximately EUR 248 million in 2026. The difference between the actual and imputed costs of the wellbeing services counties was lower in 2024 than in 2023, which means that the ex-post adjustment made for 2026 will reduce the funding of the counties by around EUR 183 million.
Municipal finances
Central government will allocate approximately EUR 5.7 billion in central government transfers and other government grants and subsidies to municipalities in 2026. The Ministry of Finance proposes a total of EUR 3.3 billion for central government transfers to municipalities for basic public services, which is about EUR 20 million less than the amount in the 2025 Budget. As part of the adjustment measures, central government transfers will be cut by altogether EUR 225 million, of which EUR 75 million was already included in the spring spending limits decision and EUR 150 million constitutes new adjustment measures. By transferring restructuring of support for learning from the branch of government of the Ministry of Education and Culture and increasing the private education providers’ municipalities of residence reimbursement to 100 per cent, central government transfers for basic services will also increase. These changes will increase the central government transfers for basic services by EUR 57 million. The revision of the division of costs between central and local government will increase the central government transfer by EUR 69 million. A more specific estimate will become available in the course of preparing the budget proposal.
The index increase of central government transfers to municipalities for basic public services is approximately EUR 87 million.
The government will discuss on the draft budget in its session on September 1 and 2.
Source: www.dailyfinland.fi
