Finland's city of Kouvola collected significantly less tax revenue than forecast last year, a shortfall that highlights broader pressures on municipal finances across the country. Preliminary figures from the city's 2025 financial statement, released on Tuesday, show a €6.1 million gap in anticipated income tax revenue, with total tax income falling €4 million below the previous year.
The Numbers Behind the Shortfall
The city's income subject to withholding tax grew by just 0.7 percent, starkly below the national average of 1.9 percent and a dramatic slowdown from Kouvola's own 2.8 percent growth a year earlier. Corporate tax revenue also dropped sharply, coming in at €17.5 million compared to €20.1 million in 2024. City officials noted that forecasting tax income is difficult due to multiple factors, with unemployment being a primary one. The data substantiates this concern. By the end of December, there were 10,962 unemployed people in the Kymenlaakso region, an increase of 623 from the year before, with the highest rise concentrated in the Kouvola area.
Kouvola's experience reflects a nationwide trend where municipalities generally overestimated their tax revenue. The total municipal tax yield for the entire country did not grow at all last year. 'The numbers show our local economy is under clear strain,' a city financial official stated, attributing the slowdown to weaker-than-expected growth in wages and corporate profits within the city's boundaries.
State Compensation and Structural Deficits
While tax revenues fell, the city did receive state subsidies. Kouvola was allocated €1.7 million in state contributions for 2025, designed to offset its increased obligations to provide employment services and fund unemployment security. However, this was contrasted by a payment the city had to make the previous year, amounting to €5.3 million. Furthermore, cuts to state subsidies resulting from the social and healthcare reform (Sote) amounted to a significant €27.3 million in 2025.
City Finance Director Hellevi Kunnassalo provided a blunt assessment in the official release. 'Even though we received additional funding, it still does not fully cover the costs. The collapse of the state subsidy reform continues to punish Kouvola for many more years and keeps municipalities in a state of uncertainty,' Kunnassalo said. This points to a persistent structural challenge where mandated service costs are rising faster than the revenues available to fund them, a dilemma familiar to many mid-sized Finnish cities outside the growth hubs of Helsinki, Tampere, and Turku.
A Mixed Financial Picture
Despite the tax revenue disappointment, other areas of the city's finances performed better than budgeted. Financing income and expenses were more favorable than forecast, with interest costs ending up €1.5 million below the budget. Gains from the sale of securities were €0.7 million higher than estimated. On the operational side, income was €0.5 million better than forecast and operational costs were €2.5 million lower than budgeted. Consequently, the operating margin—the net cost of operations—was €1.7 million better than the budget anticipated.
This operational efficiency, however, was overshadowed by the larger revenue and subsidy issues. The city's debt stock grew by approximately €18.6 million in 2025, reaching €330.2 million by year's end. This increase in borrowing, while managed, underscores the gap between ongoing infrastructure and service commitments and the incoming revenue streams.