Draft budget
Draft budget of Minister of Finance Riikka Purra to stabilise the debt ratio; budget deficit to be reduced to below EUR 10 billion

The Ministry of Finance's draft budget for 2026 implements the guidelines of the Government’s spring mid-term policy review and includes the Minister of Finance's new adjustment measures proposed by the Minister of Finance to ensure that the debt ratio stabilises towards the end of the parliamentary term. The draft budget totals EUR 89.6 billion and involves a deficit of EUR 9.9 billion. When entering as revenue a one-off revenue item from the National Housing Fund, the deficit amounts to EUR 7.6 billion.

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. The difficult economic situation and rising interest expenses, for example, 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.

Minister of Finance Riikka Purra’s draft budget:

• The draft budget will curb general government indebtedness in line with the objectives set out in the Government Programme. 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. This is also a response to 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 draft budget will be published in full on Friday 8 August at budjetti.vm.fi.

Aiming to halt mounting debt ratio

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. 

To achieve these objectives, the Government has decided on measures to strengthen general government finances by EUR 9 billion. 

Additionally, in its mid-term policy review in spring 2025, the Government adopted substantial new measures to boost economic growth and to dismantle obstacles to growth. 

These growth measures will be partly financed by means of the new adjustment measures.

The Ministry of Finance's draft budget includes the central government savings measures decided by the Government in all respects apart from the savings in operating expenses decided in spring 2025. The ministries will prepare and present the allocation of these saving in their responses to the draft budget on 13 August.

Based on the most recent forecast, achieving the objective of stabilising the debt ratio will require new adjustment measures that will strengthen general government finances by about EUR one billion. To ensure that the goals set for general government finances can be achieved, it is also important that the adjustment measures previously decided be implemented as planned. 

“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,” says Minister of Finance Purra.

Cuts to direct business subsidies and R&D expenditure

Direct business subsidies will be decreased by excluding service personnel from the maritime crew subsidy (approx. EUR 36 million). In addition, cuts to Business Finland's 

R&D budget authority will reduce the amount of direct business subsidies.

The Act on Research and Development Funding will be updated to postpone the 1.2 per cent target for central government R&D funding until 2035. At the same time, the allocation of the increase in R&D funding will place more emphasis on sectors that boost growth. The saving for 2026 would be EUR 80 million, of which EUR 24 million will be realised by freezing the index increases for universities, EUR 25 million will be allocated to the Research Council of Finland's research project authority and EUR 11 million to Business Finland's grant authorities, while EUR 20 million will be deducted from previously unallocated R&D funding. The saving for 2027 is estimated at EUR 160 million, which would be allocated in the same way as the saving for 2026.

Cuts to development cooperation and other funding 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 promotion and ending 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.

Cuts in central government transfers to local government – cuts in primary and lower secondary education should be avoided when implementing the savings

The Government decided on substantial cuts in central government operating expenses in the Government Programme, in the additional measures in spring 2023 and then in spring 2024. Based on the decisions made to date, the effect of central government measures on local government finances has strengthened local government finances. The consolidation of general government finances requires adjustment measures of such a scale that local government finances will need to bring more efficiency to its administration and introduce savings. As part of the new adjustment measures, a EUR 150 million cut will be made in central government transfers to local government for basic public services. The aim is not to make cuts in primary and lower secondary education but to allocate savings to reducing bureaucracy, among other things. As a result of the new adjustment measures, the net impact of central government measures on local government finances will weaken local government finances by just shy of EUR 100 million. Municipalities' operating expenses amount to over EUR 20 billion.  

Finnish National Agency for Education to be dissolved in its current form

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 will also be made in the funding of universities, among other things

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.

A complete publication of the new adjustment measures proposed by the Minister of Finance has been appended to the press release.

Freezing growth in liabilities for housing financing debts

Guarantee liabilities for housing financing have grown to over EUR 21 billion and are expected to further increase by around EUR 1 billion, depending on the amount of new loan interest subsidy authority allocated in the General Government Fiscal Plan for 2026–2029. Since 2022, Finland has included interest-subsidised loans in general government consolidated EDP debt.  

The working group led by State Secretary Mika Nykänen recommends that central government liabilities be reduced by easing the use of exemptions from the restrictions. Consequently, central government liabilities and debt would diminish to the same extent as the items exempted from the restrictions and interest-subsidised loans. A reform of the right-of-occupancy system is also under preparation. In the government coalition talks, the parties decided to halt the increase in debt liabilities from the right-of-occupancy system by discontinuing new production of right-of-occupancy housing. The right-of-occupancy system must be reformed to reduce central government debt liabilities.

The Ministry of Finance proposes that the Government launch a package of measures to reduce the guarantee liabilities for housing financing and to significantly restrict their growth.

Procurement authorities for defence materiel will be increased by billions 

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.

Difficult situation in general government finances 

The macroeconomic forecast published by the Ministry of Finance in June shows that the recovery in the economy that started in 2024 will continue and GDP is projected to grow by 1.0% in 2025 and by 1.5% in 2026. The general government deficit is expected to be 4.2 per cent of GDP in 2025. In 2026, the deficit will diminish, but will remain at 3.6 per cent of GDP.

The Ministry of Finance will update its economic forecast in the course of August and this will form the basis for the Government’s budget proposal. The Ministry of Finance will publish its autumn forecast on 22 September.

Overall appropriations in the 2026 draft budget amount to EUR 89.6 billion, which is EUR 0.5 billion less than the sum budgeted for 2025 (including the second supplementary budget). Interest expenditure on central government debt is estimated at EUR 3.2 billion, which is EUR 0.2 billion more than budgeted for this year (including the second supplementary budget).

The Ministry of Finance's budget proposal shows a deficit of EUR 9.9 billion, taking into account that entering as revenue the remaining cash receipts of National Housing Fund to the central government budget will not reduce central government and general government indebtedness. This is around EUR 3.3 billion less than this year. When entering as revenue a one-off revenue item from the National Housing Fund, the deficit amounts to EUR 7.6 billion.

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 2026. Government Programme measures and additional adjustment measures in spring 2024 as well as savings decisions specifying them in spring 2025 will reduce on-budget expenditure by a total of around EUR 3.3 billion, which is approximately EUR 0.9 billion more than in 2025. In addition, the tax adjustment measures will bolster general government finances by about EUR 1.3 billion at the 2026 level. 

The new adjustment measures included in the Ministry of Finance's draft budget will bolster the on-budget balance by approximately EUR 0.8 billion at the 2026 level.

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

* Including entering as revenue the remaining cash receipts of National Housing Fund totalling EUR 2.3 billion.

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. 

The Government will continue the measures outlined in the Government Programme to ease the obligations of the wellbeing services counties. The statutory changes in obligations and the resulting changes in funding amount to approximately EUR -78 million relative to 2025. This sum also includes new tasks that are expected to arise, the biggest of which is an increase of EUR 16 million for informal and family care.

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, 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.

Continuation of the preparation of the budget proposal for 2026

• 8 August: Ministry of Finance draft budget for 2026 published online at budjetti.vm.fi. 
• 1 and 2 September: Government negotiations in the budget session.
• 22 September: Budget proposal examined in an extraordinary meeting of the Ministerial Finance Committee and in a plenary session of the Government, and published at budjetti.vm.fi.

Inquiries:
Mika Niemelä, Director General of the Budget Department, tel. +358 295 530 525, mika.niemela(at)gov.fi 
Jussi Lindgren, Special Adviser to the Minister of Finance (Economic Affairs), tel. +358 295 530 514, jussi.lindgren(at)gov.fi