New NATO member plans to cut pensions

The Finnish government eyes spending cuts and tax hikes to fill a hole in the 2025 budget

The Finnish government has no choice but to cut pensions in order to improve public finances, Finance Minister Riikka Purra has said in an interview with Helsingin Sanomat, a local newspaper. The issue of pensions is a part of the political debate this month, as the government is looking to make €3 billion in additional cuts to the 2025 state budget.

According to the minister, cuts to occupational pensions are inevitable as part of the government austerity package. Purra said that the government could freeze the annual cost of living-based increases in pensions or raise taxes on some pensions.

“My understanding is that it’s impossible to reach the desired outcome without dealing with pensions,” the newspaper cited Purra as saying on Wednesday. The government will debate the measures at a framework session scheduled for next week, Purra added.

In an earlier interview with Iltalehti newspaper, the finance minister said that the lowest pensions are unlikely to be targeted.

“We have a large and very well-off pensioner population, with high life satisfaction and enough money for self-fulfillment and travel. At the same time, we have pensioners who can barely make ends meet and have to decide between medicine and food,” she explained.

“Small tweaks” will not improve the situation, and there is no chance of a return to the “good old days,” Purra warned.

The Finnish government earlier introduced cuts to basic social security benefits such as housing support and unemployment allowances for low-income groups. Several human rights groups sounded the alarm over the cuts, warning that they could lead to a rise in relative poverty among young adults, single parents and elderly.

The 2024 budget agreed upon by Finland's ruling center-right coalition last year saw the deficit widen by 35%, or €11.5 billion euros ($12.28 billion) compared to 2023. Prime Minister Petteri Orpo said at the time that Finland’s economic outlook had become increasingly gloomy. In 2023, the country’s GDP declined by 0.4% year-on-year, according to EU economic data.

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Finland has seen a decrease in tax income, which has been attributed to the aging population and low birth rate. According to Iltalehti newspaper, Finland is getting into debt at an alarming rate. However, the government “is hardly cutting corners” on internal and external security, the publication notes. When defense expenditures are not counted, social security and education are the largest government expenditures, it adds.

Finland joined NATO a year ago. Before the accession, the country spent 1.7% of its GDP on defense, according to World Bank data. The country has since increased its defense budget, as NATO members are expected to spend 2% of their GDP on defense.