Review of reforming transport taxation and financing completed

The Ministry of Transport and Communications and the Ministry of Finance have completed a joint outlook review of the current state of transport taxation and financing, and options for reform. The review report is the first part of the Government’s comprehensive reform of transport taxation and financing set out in the Programme of Prime Minister Petteri Orpo’s Government.

The ministries assessed the current system and future reform needs against four policy goals:

• maintaining Finland’s competitiveness
• protecting people’s purchasing power
• meeting national and EU emission‑reduction targets cost‑effectively, and
• safeguarding the sustainability of public finances.

The evidence and assessments in the report will feed into the second phase of the project. The evidence base draws on statistics, policy studies, research findings and scenario calculations based on expert analyses. The assessments reflect public officials’ views on how to advance the policy goals and what to prioritise.

The assessments also carry uncertainties. Shifts in the security environment, EU policy and the economy may be rapid and differ significantly from the assumptions on which the assessments are based.

Ensuring the sustainability of public finances emerges as the biggest challenge

The transport sector plays a major role in the challenge of making public finances sustainable. Revenues from transport taxes are falling rapidly. At the same time, costs are rising as Finland seeks to prevent the deterioration of transport infrastructure, develop the network, purchase transport services and cover transport‑related subsidies.

Preliminary sectoral analysis shows that taxes and charges collected from transport now cover only part of the public spending, tax concessions and damage costs linked to the sector. On the other hand, emissions trading will increase central government revenue, while greenhouse gas emissions and traffic accidents will decline. The report notes that Finland needs a clear picture of the transport sector’s socio‑economic cost correlation and its development to enable further analysis and decisions.

The report proposes that the project’s second phase should assess in more detail the cost correlation between the current taxes and charges collected from transport and the public spending and damage costs, across the whole sector and for each mode of transport.

This would make it possible to better define the sector’s role in ensuring the sustainability of public finances, and to choose effective methods to reform transport taxation and financing. The next phase could also set a timeline for carrying out the reform gradually. A new review would focus primarily on domestic road and rail transport.

Finland’s logistical conditions place a strain on the economy

Because of the country’s industrial structure, scattered locations and long international distances, Finland’s economy is relatively transport‑intensive, which weighs on its competitiveness.

Maintaining Finland’s competitiveness and ensuring that international transport remains interoperable with competitor countries will require progress in the shift to new power sources across all modes of transport. It will also be necessary to keep existing transport infrastructure in good condition. However, there is little scope to lower the total amount of transport‑related taxes and charges in road and rail transport.

A sustainable shift to new power sources could, in the long run, bring down transport costs and make travel more affordable for everyone in Finland. Scenario analysis suggests that the cost of private motoring could even fall once electrification has advanced significantly, provided that vehicle prices come down, electricity remains reasonably priced, and low-emission options that are technologically and economically competitive enter the market. The transition to new power sources will continue for decades, and progress may be slower than anticipated particularly in heavy goods transport.

EU’s future climate policy is still to be determined

The EU regulates extensively the use of fossil fuels in transport. Road, maritime and air transport fuels are subject to distribution obligations. A new emissions trading scheme for the distribution of road transport fuels will complement the existing schemes for air and maritime transport. Finland committed to the existing EU Emissions Trading Scheme in 2022. Many other pieces of legislation on the means of transport are tied to these instruments and to the aim of cutting emissions.

What’s next?

The Ministry of Transport and Communications and the Ministry of Finance propose that in 2026 the evidence base for reforming transport taxation and financing be expanded and the options defined, so that the results are available in time for drafting the next government programme.

Inquiries:

Niko-Matti Ronikonmäki, Director of Unit, Ministry of Transport and Communications, tel. +358 295 342 016, [email protected]

Markus Teräväinen, Senior Ministerial Adviser, Ministry of Finance, tel. +358 295 530 719, [email protected]