Finland’s public debt has been climbing for over a decade, hitting record levels. The combination of slow economic growth, repeated financial shocks, and rising public expenditures has pushed the debt-to-GDP ratio past 80% in 2024. Fixing this won’t be a quick job—structural changes and long-term fiscal discipline are needed to steer Finland back toward financial stability.

Why Is Debt Growing So Fast?

• Economic Shocks – The financial crisis, COVID-19, and the recent recession all slowed down revenue growth.
• Rising Costs – Inflation, wage increases in the public sector, and rising pension costs are pushing expenses higher.
• Government Spending – Efforts to soften economic blows, such as tax cuts and subsidies, have increased the deficit.

The Government’s Plan

The Finnish government has introduced fiscal tightening measures to slow down debt growth. Some of the key steps include:
✔️ VAT Increase – The standard VAT rate rose to 25.5% in September 2024.
✔️ Spending Cuts – Public sector budgets, including funding for local governments, are being trimmed.
✔️ Higher Social Security Contributions – A counterbalance to reductions in unemployment insurance fees.
✔️ Increased Military Spending – Investment in defense is ramping up, including new fighter jet deliveries starting in 2025.

Will It Be Enough?

Even with these adjustments, Finland’s deficit is still projected to exceed 3% of GDP, breaking EU fiscal rules. The EU’s new financial framework requires debt-heavy countries like Finland to keep spending in check and lower their debt levels over time.

The Future of Public Spending

One of the biggest challenges is the rising cost of wellbeing services counties, which handle healthcare and social services. Their budget deficit hit €1.7 billion in 2023, and cutting costs while maintaining essential services is proving difficult.

To tackle this, the government is:
📌 Encouraging efficiency reforms in healthcare and social services.
📌 Exploring new revenue models, including county-level taxation.
📌 Setting stricter financial guidelines to ensure local governments stick to their budgets.

Can Finland Avoid a Financial Crisis?

Compared to some EU countries, Finland’s debt situation is not yet critical, but the trajectory is worrying. If borrowing continues unchecked, Finland risks higher interest rates, weaker investor confidence, and long-term economic instability.

What Needs to Happen?

1️⃣ Sustained Fiscal Discipline – The government must stick to its budget cuts and avoid unnecessary spending.
2️⃣ Stronger Economic Growth – Boosting exports, employment, and innovation will help grow tax revenues.
3️⃣ Efficiency in Public Services – Healthcare and social services need restructuring to reduce waste and costs.
4️⃣ Smart Taxation – Finding the right balance between taxes and business incentives is key.

Bottom Line

Fixing Finland’s public debt won’t happen overnight. The government is taking steps, but without continued discipline and economic growth, the situation could worsen. Balancing spending cuts, tax increases, and investment in growth will determine whether Finland can successfully bring its debt under control.