According to the Finnish Economic Policy Council, the fiscal consolidation measures implemented by the Government are sufficient to keep net expenditure growth within the limits set by the EU fiscal rules in 2026. However, the measures currently in place are unlikely to be sufficient in 2027 and 2028. According to the Council, it would be advisable to decide on further measures to strengthen public finances during the Government’s autumn 2026 budget negotiations. At a minimum, the Government should avoid decisions that would weaken public finances beyond 2026.
Finland was placed under the EU’s Excessive Deficit Procedure (EDP) in January 2026 after its general government deficit exceeded the 3% of GDP reference value. As part of the procedure, the Council of the European Union set a corrective net expenditure path for Finland, which establishes the maximum annual growth rates of net expenditure under the EU fiscal rules.
In Finland’s Annual Progress Report published in April, the Ministry of Finance requested the Finnish Economic Policy Council to assess Finland’s compliance with its net expenditure path and the adequacy of the corrective action taken by the Government. This is the first assessment carried out by the Council as part of its statutory duties as Finland’s independent fiscal institution (IFI).
“Finland has so far complied with its net expenditure path, but fiscal space will be very limited in the coming years. From a longer-term fiscal policy perspective, it would be advisable to agree on further measures to strengthen public finances during the autumn budget negotiations. This would reinforce the commitment to sustainable fiscal policy beyond the current government term,” says Professor Niku Määttänen, Chair of the Finnish Economic Policy Council.
Finland has so far complied with its net expenditure path
According to the Council, Finland has so far complied with its corrective net expenditure path. In 2025, net expenditure growth remained well below the maximum growth rate permitted under the previous net expenditure path, and the fiscal consolidation measures adopted by the Government are sufficient for 2026. The EU fiscal rules do not specify in detail what measures may qualify as corrective action, and the Council has taken this flexibility into account in its assessment.
However, without further fiscal consolidation measures there is a significant risk that Finland will exceed the maximum net expenditure growth permitted under the current corrective net expenditure path in 2027 and especially in 2028, even after taking into account the flexibility provided by the national escape clause for defence expenditure. The general government deficit is also forecast to remain well above the 3% of GDP reference value.
The next government, which will take office after the 2027 parliamentary elections, is therefore likely to bear considerable responsibility for both correcting the excessive deficit and achieving a broader rebalancing of Finland’s public finances. From a longer-term fiscal policy perspective, it would be prudent for the current Government to decide on further measures to strengthen the public finances during the autumn 2026 budget negotiations. At a minimum, the Government should avoid new decisions that would increase net expenditure or otherwise weaken public finances beyond 2026.
National escape clause for defence expenditure expires in 2028
The national escape clause for defence expenditure will expire at the end of 2028. Based on currently available information, the flexibility relating to defence expenditure will no longer be available from 2029 onwards. If Finland wishes to maintain defence expenditure at a higher level than previously, this will require either substantial expenditure cuts or an increase in public revenue. It would be advisable to begin such a shift in fiscal policy before 2029, even though the EU fiscal rules do not currently require it.
Link: Assessment of compliance with the net expenditure path and corrective action by the Finnish Economic Policy Council,pdf (in Finnish)
Further information:
Chair Niku Määttänen
niku.maattanen@helsinki.fi
Tel. +358 29 412 8721 / +358 41 545 6721
Senior Economist Jonne Lehtimäki
jonne.lehtimaki@vatt.fi
Tel. +358 295 519 422