The government's decision means the VAT rate will remain at 24 percent from July 1 and the income tax rate will reach 24 percent from 2026. While the security tax was originally planned as a temporary measure, the increases in both VAT and income tax are now permanent.

"Our defense needs have increased considerably, because we agreed that five percent is the minimum we will contribute to national defense in the coming years," said Minister of Economic Affairs Erkki Keldo (Reform).

The two percent profit tax for companies will be abolished. The individual income tax will be calculated after the deduction of tax-free income. The previous solution would have meant a two-percent tax liability from the first euro earned.

"This would have hit pensioners and low-paid workers hardest because they would not have been subject to the tax-free minimum. From next year, the €700 minimum tax threshold will apply to everyone. This means that in real terms we will lower labor taxes and do away with what would have broken our tax bubble – the two percent corporate profit tax," said Keldo.

The Social Democratic Party (SDE) say the VAT increase should not be made open-ended.

"From the Social Democratic Party's point of view, making the VAT increase permanent, which is regressive and paid most by low-income earners, does nothing to make our tax system fairer," said SDE Vice-Chair Riina Sikkut.

Andrei Korobeinik, a member of the Center Party's executive board, said the government's decisions will not make life easier for those earning low incomes.

"Of course, if we look at the forecasts, they will change, but for this year, six percent inflation and about two percent wage growth are predicted. The real wage will actually lose purchasing power. Those ordinary people who should have it easier will actually lose out financially this year," Korobeinik said.

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