High taxation biggest brake on SME growth – particularly acute in one group of companies

High taxation is the single biggest factor weakening SMEs’ willingness to grow and invest, a new Yrittäjägallup survey shows. As many as 66% of SMEs say the level of taxation reduces their appetite for growth. The negative effect of taxation is particularly pronounced among small employer companies.

“Tax policy is in our own hands. The next government must also adjust the economy primarily by cutting spending rather than raising taxes,” says Mikael Pentikäinen of Suomen Yrittäjät, the Finnish SME association.

“In particular, structural reforms are needed that extend working hours, improve the efficiency of the pension system and reduce payroll-related costs,” Pentikäinen adds.

After taxation, the next most significant factors weakening growth and investment appetite are economic prospects (52%) and public debt (44%). The policies of US President Donald Trump (42%) are also seen as a significant factor weakening growth. NATO membership, by contrast, increases willingness to invest.

A total of 1,185 SME representatives responded to the Yrittäjägallup survey in February, 45% of whom were sole traders.

Trump’s policies felt in the retail sector

Across sectors, taxation weighs most heavily on companies in retail and construction. In retail, economic outlook and President Trump’s policies also rank among the most significant factors reducing growth. Professional services report the fewest factors holding back growth.

“NATO membership still encourages investment, although its positive impact has diminished somewhat. President Donald Trump deserves much of the credit for that, as his unpredictable policies alarm many business owners,” Pentikäinen says.

Although economic prospects reduce growth appetite for many companies, they are also the strongest factor encouraging growth. One in six SMEs (16%) says economic outlook increases their willingness to grow. Access to finance (11%) and availability of labour (9%) follow on the list.

However, the balance figures for all listed factors remain clearly negative. The balance figure for the level of taxation is by far the weakest, at -63. Balance figures are calculated as the difference between the share of respondents who say a factor increases growth appetite and those who say it reduces it.

Taxation also dampens investment

Taxation is also the biggest brake on investment appetite: 65% of SMEs say taxation reduces their willingness to invest. Economic outlook (60%), labour costs (56%) and government actions (53%) follow on the list.

Among the factors listed, only NATO membership receives a positive balance figure (+18). As recently as August 2024, positive balance figures were also recorded for energy availability, infrastructure and workforce quality, but their effect has now turned negative.

Trade union activity is no longer the biggest barrier to investment as it was previously.

“The new industrial peace legislation has played an important role here,” Pentikäinen says.

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