Government’s budget decisions hit many business owners hard

Suomen Yrittäjät, the Finnish SME association, considers actions to sanitize the public finances necessary. “Finland’s economic situation is extremely grave. Change is necessary, even if it hurts. It could hurt a lot more in the future if we don’t turn the tide now,” CEO Mikael Pentikäinen says.

The Government agreed on tax hikes worth over €1bn, the vast majority of which will come from increasing the general VAT rate from 24% to 25.5%. Suomen Yrittäjät says increasing VAT is less damaging than raising taxes on incomes and businesses.

“However, the increase is too large and it will often affect the same business owners whose YEL premiums have gone up and who will be hit by the end of the VAT relief scheme in 2025. The increase will make many businesses’ lives more difficult, because they won’t be able to pass it on. Many companies will have to close shop,” CEO Mikael Pentikäinen says.

“It’s now even more important for the Government to raise the VAT threshold to €30,000. Even the Tax Authority has recommended that,” Juhana Brotherus, a Vice President and Chief Economist at Suomen Yrittäjät, says.

Brotherus considers raising the VAT rate to second highest in the EU problematic.

“Firstly, if it were 25%, it would be the same as in Sweden and Denmark. Secondly, precisely one quarter would be simple for businesses and consumers to calculate. Thirdly, raising just the highest VAT rate makes the difference between it and the discounted VAT rate the largest since 1998. The difference between VAT rates treats different businesses differently and increases the risk of tax evasion,” he says.

Severe cut to household expense tax credit

“The VAT hike will hit the troubled construction sector and be felt in the prices of new houses and flats, as well as renovations. At the same time, the substantial cut to the household expense tax credit will affect demand for services,” Brotherus predicts.

The Government is improving the conditions for economic growth by introducing professional diesel for heavy goods traffic when the fuel suppliers’ emission trading pursuant to the EU directive enters into force in 2027.

“Professional diesel has been eagerly awaited. Finland has a challenging location, and all means to improve our competitiveness are necessary. All the proceeds from road-traffic emission trading should be used to reinforce the clean transition and the introduction of alternative fuels,” Brotherus says.

Concerns about execution of investment incentives

The Government is preparing a temporary tax credit for “large” industrial investments which support the transition to the net-zero economy, such as battery and hydrogen, as well as the fossil-free steel industry.

“From the perspective of public finances, the planned tax credit is expensive, and it will see Finland jump right into the subsidy race started by the big EU countries. A maximum of €150m and 20% per project is a very large tax credit in the Finnish context,” Brotherus says.

“The terms of tax credits should also take small businesses into account. There is no lower threshold for the size of the credit, but the press release only talks about large investments. SMEs play a significant role as developers of green technology and enablers of the transition. There are no grounds for excluding numerous smaller projects from the scheme,” Brotherus says.

The tax credit should be timed to ensure it does not benefit projects that would otherwise have been completed. The credit should attract to Finland projects that support the net-zero economy transition and encourage them to start up. The Government says that the tax credit would be granted by 31 December 2025 to new and confirmed investment projects.

“It’s critical for the tax credit to be available retroactively from now on. Otherwise the risk is total freezing of investments until the scheme goes live,” Brotherus says.

Labour market reforms must be delivered

Suomen Yrittäjät is happy that the conversation on the well-being service counties has moved from just money to structural reforms.

“The change of the stiff personnel ratio for round-the-clock care is necessary, and it gives the chance for new, innovative solutions. In the future, broader cooperation and fair competition with the private sector will give opportunities to raise quality and efficiency,” Pentikäinen says.

Pentikäinen stresses the need for the Government to deliver its programme of structural reforms.

“It’s important for the Government to purposefully deliver its labour market reforms and other actions which strengthen growth and competitiveness. An important part of the growth package is increasing competition and restricting the public sector’s business activities, which corrode private companies’ growth and lead to waste of tax euros through evasion of procurement legislation.”

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