Finland’s government is proposing a major overhaul to how its 21 welfare regions are financed, aiming for long-term savings of 390 million euros while attempting to curb growing inequality between growing and shrinking parts of the country. On Monday, the government sent a draft proposal for consultation on changes to the funding model and savings, which would cut financing by 65 million euros starting next year. The move directly addresses what the government calls a concerning 'differentiation' between regions, driven largely by a system that currently allocates 13 percent of funding based purely on population size.
Minister of Local Government Anna-Kaisa Ikonen of the National Coalition Party is now explaining the reasoning behind the cabinet’s proposals. 'There is a big change underway between regions,' Ikonen said, outlining the core problem. Regions losing population and aging, such as Kymenlaakso, South Savo, South Karelia, and Satakunta, are under particular pressure. Their residents' service needs do not decrease, but their funding grows very slowly because it is tied to a shrinking population base. Meanwhile, funding grows robustly in expanding urban areas.
Rebalancing the Funding Formula
To address this, the government is adjusting the two main pillars of the funding formula: service need and population. Currently, 80 percent of funding accounts for service need, factors like illness rates and the age of residents. Under the new proposal, this weight will be reduced to 60 percent from 2025 onwards. However, in a counteracting 'savings compensation' move planned for 2028, the government will then decrease the weight of population size by one percentage point and correspondingly increase the weight of service need.
The net effect is a complex rebalancing act. 'In areas where funding growth is strongest, it will be possible to slow down expenditure growth a little more,' Ikonen explained. This means regions with strong population growth, like Helsinki, Vantaa, Kerava, and Western Uusimaa, will see their funding increases moderated. The goal is to gently brake spending in areas with rapidly growing resources while preventing service viability from being jeopardized in struggling regions. 'Balancing so that incentives for regions to balance their economies remain, but so that services are not endangered in some areas, is challenging,' Ikonen conceded.
The Challenge of Transition Grants
Separate from the formula change, the government is also seeking a total of 120 million euros in savings from transition grants. These grants were designed to cushion the financial impact of the massive social and healthcare reform that created the welfare regions. A report led by State Secretary Marina Erhola before Christmas suggested the transition grants should be removed entirely. Minister Ikonen noted that doing so would have brought 'unreasonably large impacts to some regions.'
The largest recipients of these transition grants are Helsinki, Kymenlaakso, and South Savo. Phasing them out gradually, rather than cutting them immediately, appears to be the government's chosen path to avoid catastrophic budget shocks for these key areas. This element of the proposal underscores the delicate political and economic geography at play, where the capital region and some of the most vulnerable older industrial regions are both significant recipients of this temporary support.
Regional Impacts and Ongoing Calculations
The proposed changes will create clear regional winners and losers, at least in terms of the rate of funding growth. Minister Ikonen confirmed that even after the changes, 'the percentage growth in funding will be completely different in areas where the population is growing.' The calculations, which factor in service need, population, and the proportion of foreign-language speakers, are still being finalized and will be updated during the spring. This leaves room for adjustments before the proposal is finalized and sent to the Eduskunta for debate and a vote.
The political context is crucial. The reform is being pushed by a right-leaning coalition government committed to finding substantial public sector savings. The debate in parliament will likely see strong opposition from parties representing areas slated for slower growth, as well as from mayors and council chairs in affected cities. The Finnish government district in Helsinki will be the focal point for intense negotiations as the proposal moves through the consultation phase and into the legislative process.
A Long-Term Fiscal Reshaping
This funding model shift represents more than a simple budget cut. It is a long-term reshaping of fiscal flows between Finland's regions, with profound implications for local democracy and service provision. By reducing the link to pure population numbers and slightly re-emphasizing need, the government is attempting to steer against market forces that concentrate people and wealth in urban centers. The success of this policy will be measured over decades, in the viability of schools, healthcare stations, and elder care in rural municipalities.
Minister Ikonen’s emphasis on the ongoing nature of the calculations suggests the final numbers may shift. However, the core direction is set. Finland is moving to a system where a region's funding growth is less dependent on whether it gains residents and more reflective of the actual health and age profile of the people who live there. The coming months will reveal whether this technical adjustment to a funding formula is enough to address the deep-seated challenge of regional inequality, or if more fundamental changes to the structure of the welfare regions themselves will eventually be demanded.