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Financial management of local authorities in Sweden. Problems of scale. Björn Sundström SALAR bjorn.sundstrom@skl.se. Municipalities and county councils/regions . Municipalities 290. 20 County councils (21 Counties ). Local government expenditure.

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financial management of local authorities in sweden

Financial management of local authorities in Sweden

Problems ofscale

Björn SundströmSALARbjorn.sundstrom@skl.se

slide2

Municipalities and county councils/regions

Municipalities290

20 County councils (21 Counties)

local government expenditure
Localgovernmentexpenditure

Source: Eurostat, national sources and DEXIA calculations

composition of local government revenues
Composition of localgovernmentrevenues

Source: Eurostat, national sources and DEXIA calculations

local govenment tax revenue
Local govenment tax revenue

Source: Eurostat, national sources and DEXIA calculations

problems of scale

Problems of scale

The smallerthe municpialitiesare the higher are the costs per capita (SEK per capita)

SEK/capita

Municipalities by size

costs for elderly care infrastructrure and politics are especially high in small municipalities
Costs for elderlycare, infrastructrureand politics are especially high in small municipalities

Cost per capita (SEK) for elderlycare by size

Cost per capita (SEK) for politicalactivities by size

Cost per capita (SEK) for infrastructure by size

we live in a new economic geography
We live in a new economicgeography!

Number ofgrowing

Municip.

Size of the labour market regions

slide10

Small tomorrow

Small today

delegated functions

Delegatedfunctions

Inter-municipal cooperation

boundary reforms in sweden municipalities
1862-1951

1952

19621962-1969

1969

1974

1977-2012

2400 rural municipalities, 10 boroughs, 90 town/cities

816 rural municipalities (> 2000 inh/municip.), 88 boroughs, 133 town/cities

> 8000 inh./municipality, coherentterritory in terns ofeconomicgeography, municipal blocks (300)

Voluntarymerges

Compulsory municipal boundary reform (obligatorium)

The amalgamation reform is implemented (277 municip.)

277 municipalitiesbecame 290

Boundary reforms in Sweden (municipalities)
a new municipal structure in denmark
A new municipal structure in Denmark
  • In 2007, 271 municipalities became 98 with an average size of 55,000 inhabitants,
  • 14 counties became 5 regions
  • A minimum size for the new municipalities was set at 20,000 inhabitants
  • Regions, as opposed to the counties, cannot impose taxes
  • New tasks to perform for the municipalities
  • A financing and equalisation reform necessary
the equalisation system
The equalisationsystem
  • Income equalisation: tax base guarantee as per cent of national average taxable income
  • Cost equalization due to demography, rural areas etc
  • Equal economic conditions to all municipalities and county councils
  • Differences in tax rates reflects only different efficiency or ambition
why income equalisation
Why income equalisation?

Large differences in taxable income

  • With an average (income) tax rate of 20,70 % will
  • Danderyd obtain a tax income of 68 000 SEK per capita.
  • Borgholm obtain a tax income of 28 000 SEK per capita.
  • All municipalities need approx. 41 000 SEK per capita
the financing principle
The financing principle

“No new responsibilities should be imposed on the municipalities and county councils unless they can finance them without raising taxes.

If the Government or Parliament adopt decisions that enable the municipalities to provide services more cheaply, they should reduce government grants to a corresponding extent.”

managing local government reforms
Managing local government reforms
  • Have focus on the challenges to be solved
  • Criteria for distribution of responsibilities have to be discussed
  • Overall vision and strategy
  • Find necessary support for the reforms
  • Organisational structureA strong change management as well as effective project management is most important
tax on income from employment
Tax on income from employment

Social securitycontributions (employercontributions etc.), 43%, are includedin tax on income from employment in the municipal sector

taxation
Taxation
  • Municipalities and county councils have constitutional power to independently set the local tax rate
  • Tax base = wages, entrepreneurial income, social benefits replacing income, pensions. Minus basic deduction.
  • Average tax rate 2011 = 31,55 % (20,73 % municipalities + 10,88 % county councils)
    • Highest combined tax rate = 34,17 % (Ragunda, Jämtland)
    • Lowest combined tax rate = 28,89 % (Vellinge, Skåne)
  • Small real estate tax tomunicpalitiesintroduced 2009
composition of local government revenues1
Compositionoflocalgovernmentrevenues

Source: Eurostat, national sources and DEXIA calculations