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Financial management of local authorities in Sweden

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

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  1. Financial management of local authorities in Sweden Problems ofscale Björn SundströmSALARbjorn.sundstrom@skl.se

  2. Municipalities and county councils/regions Municipalities290 20 County councils (21 Counties)

  3. Localgovernmentexpenditure Source: Eurostat, national sources and DEXIA calculations

  4. Composition of localgovernmentrevenues Source: Eurostat, national sources and DEXIA calculations

  5. Local govenment tax revenue Source: Eurostat, national sources and DEXIA calculations

  6. Breakdown of municipalities’ costs foractivities 6

  7. Problems of scale The smallerthe municpialitiesare the higher are the costs per capita (SEK per capita) SEK/capita Municipalities by size

  8. 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

  9. We live in a new economicgeography! Number ofgrowing Municip. Size of the labour market regions

  10. Small tomorrow Small today

  11. How to handle the challenges

  12. Delegatedfunctions Inter-municipal cooperation

  13. Developmentof local government income tax rate 1930– Elderly care reform

  14. 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)

  15. 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

  16. 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

  17. 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

  18. Incomeequalisation for municipalities, outline diagram

  19. Whycostequalization?Cost per capita in different agegroups

  20. Level of charge-financing in municipal tax-financed activities

  21. Level of charge-financing in municipal business activities

  22. 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.”

  23. 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

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

  25. 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

  26. Compositionoflocalgovernmentrevenues Source: Eurostat, national sources and DEXIA calculations

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