By Essi Lehto and Anne Kauranen
HELSINKI (Reuters) -Finland on Thursday slashed value-added tax on electricity to 10% from 24% over the winter and said it would pay more subsidies to those struggling with rising bills and inflation, as Europe struggles with soaring electricity costs.
The measures led the government to raise its 2023 fiscal spending forecast compared with one month ago, abandoning a goal of tightening public spending after the pandemic in order to ease inflation struggles.
"We live in a war-time economy," Prime Minister Sanna Marin told reporters, referring to the war in Ukraine and its negative implications for European economies.
"We see already now that around Europe calls are intensifying for peace at any price because every household can feel this situation in their own pockets," she said.
A significant proportion of Finnish households use electricity to heat their houses during the cold Nordic winter months, and the government said it would seek to compensate rising prices by lowering the value-added tax on electricity to 10% from December to April.
The cost of the measures, which include electricity bill-based deductions on income tax or a direct subsidy for low-income groups, will amount to roughly 800 million euros in next year's budget.
The government has proposed public spending of 80.5 billion euros ($80.6 billion) for 2023, up from 79.5 billion suggested by the finance ministry a month ago.
The budget deficit for next year is now seen at 8.1 billion euros instead of the 6.3 billion planned originally.
"The good economic growth we still had at hand in the beginning of the year now threatens to slow down significantly next year," Finance Minister Annika Saarikko told a news conference.
She added that the economic distress could become deeper than estimated and even result in a recession.
($1 = 0.9985 euros)