The climate-fiscal timebomb: Finland

08 March 2026

Fiscal outlook

Finland recorded a 4.4% deficit and a debt-to-GDP ratio of 82.5% in 2024. On 20 January 2026, the Council of the European Union opened an Excessive Deficit Procedure against Finland, stipulating that the country takes the necessary measures to reduce its deficit by the end of April 2026 and put an end to it by 2028. The new government has introduced multi-billion euro spending cuts. However, it has also enacted tax cuts, further impeding income streams.

Deficit measures the level of borrowing in a given year. Debt-to-GDP compares the total public debt to the size of the economy. Both are currently used to determine how much borrowing a member state is allowed to undertake. However, neither measure in itself determines a government’s capacity to sustain higher levels of public investment. Fiscal sustainability depends on growth, the multiplier effects of investment, interest rates, inflation, the structure of the economy and external risks such as climate change. NEF advocates moving away from strict numerical debt targets.

Rising climate costs

Finland’s Arctic regions are warming four times faster than the global average, eroding permafrost and damaging roads and utilities. According to a recent report of the Finnish Climate Change Panel, heavy rainfall, flooding, and rising water levels are expected to get drastically worse, with damages expected to increase by between 16% and 120% by 2050. The 2025 summer broke heat records across Lapland, while forest fires ravaged more than 300 hectares in five days. The country is further experiencing the collapse of its forest and peatland carbon sinks, which have been crucial to the country’s goal of achieving carbon neutrality by 2035.

What NEF’s modelling shows

Organisation for Economic Co-operation and Development (OECD) projections show Finland’s GDP declining by 8% by 2050 and 11% by 2070 under current policies. Our modelling shows the following:

Under current policies (BAU – business as usual), Finland’s debt is 51 pps higher than the baseline in 2050 and 163 pps in 2070.

With early EU mitigation and sufficient adaptation spending, debt is 28 pps higher in 2050 and 50 pps in 2070.

Delayed EU investments and insufficient adaptation results in higher debt levels of 40 pps in 2050 and 74 pps in 2070.

EU early action combined with global cooperation results in 2 pps lower debt levels than the climate-agnostic baseline in 2050 and 20 pps lower levels in 2070.

Progressive taxation, such as a wealth tax, combined with EU early action would increase debt by 18 pps in 2050 and by 27 pps in 2070 compared to the climate-agnostic baseline.