Sweden cuts food VAT in half but Finland cannot afford similar tax relief

Sweden’s food prices will drop from Wednesday as the country halves its value-added tax on groceries, but Finland’s weak public finances make a comparable tax cut unfeasible, reports Finnish broadcaster Yle.

The temporary VAT reduction, from 12 percent to 6 percent, applies to all food except alcohol and will remain in effect until the end of 2027. The Swedish government estimates the change could save an average household around €600 annually, though the state will lose nearly €2 billion in tax revenue next year alone.

A special commission will monitor whether retailers pass the tax cut on to consumers. Research professor Tuomas Kosonen of the government’s economic research institute notes that VAT increases typically raise prices more sharply than cuts lower them. “There’s a threefold difference in impact,” he said, adding that businesses may absorb much of the relief as profit rather than reducing shelf prices.

Swedish consumer surveys suggest most shoppers doubt the tax cut will significantly lower their grocery bills, and few plan to change their spending habits. The government has tasked the Swedish Consumer Agency and the National Institute of Economic Research with tracking price adjustments, though individual items like a €0.20 loaf of bread would see only minor reductions (about €0.01 cheaper).

Kosonen called the Swedish move “not necessarily very sensible” but acknowledged Sweden’s stronger public finances could withstand the revenue loss—unlike Finland, where rapid debt accumulation rules out similar measures. “Finland simply doesn’t have the fiscal space for this,” he said.

Earlier this year, Finland trimmed its food VAT by half a percentage point, a cut that also applied to restaurant meals, accommodation, books, and medicines. Reversing just the reduced rates for food and dining would generate €2.8 billion—“a fairly significant adjustment,” Kosonen noted, though he declined to advise policymakers. Last year, VAT contributed €22.4 billion to Finland’s state coffers.

Sweden has also proposed a temporary fuel tax cut after global price spikes linked to tensions in the Strait of Hormuz. Finland’s prime minister has ruled out similar relief.