Local authorities' financial resources shall be commensurate with the responsibilities provided for by the constitution and the law.
Subnational governments are responsible for a large range of public services and benefits in key areas, making Sweden one of the most decentralised unitary countries in the OECD. Expenditures of counties/regions and municipalities represent a significant part of total general government expenditures in the fields of health (almost the totality, 97% in 2017), housing and community amenities (91% in 2017), education (80% in 2017), recreation, culture and religion (79% in 2017) and environmental protection (51% in 2017).
More generally, subnational governments account for about 50% of the general government expenditure and 25% of GDP (the OECD averages are 40.4% of public expenditure and 16.2% of GDP): it demonstrates their fiscal importance. Following the Nordic tradition of a strong welfare system, the social expenditure is also greater than the OECD unitary countries’ average. Since the municipalities are responsible for a wider selection of tasks, they manage roughly twice the budget of counties. In 2020, municipalities total expenditures amounted SEK 715 billion (EUR 69.65 billion) and regional expenditures SEK 393 billion (EUR 38.28 billion).
Social protection and health care form the largest subnational government spending categories. Together these accounted for almost 55% of subnational expenditure, followed by education and general public services. For the regions, the main category of spending is health care (around 90%). For the municipalities, social protection and education are the main services. Compared with counties, municipalities are responsible for a much wider range of services. For example, they are responsible for housing and community amenities, for recreation and culture (which are not mandatory), for economic affairs and transport (jointly with the transport companies organised by counties).
In 1993, the “funding principle” (finansieringsprincipen) has been adopted by the Parliament, meaning that if central government allocates a new task to local government, it must also specify how it should be funded. The 2005 monitoring report pointed out the increasing use of “rights legislation” that gives specific clients the right to particular services. This started back in the 1980s when the Social Services Act and other legislation on disabled persons were introduced that provided undisputable rights to certain services, independent of the resources available to local government. Although recognising that it was important to safeguard that people in vulnerable positions receive the services that they are entitled to, the 2005 report considered that this type of legislation might limit the scope of local self-government. A problem, according to the report, was that the Parliament was the final arbiter and that the local government had no say over how the funding principle is interpreted. For this the Congress recommended that there should be an institutionalised way of evaluating the actual costs for providing rights-based services, such as an independent audit commission.
SALAR has also emphasised how important it is that the Government's calculation basis is transparent for both Municipalities and Regions, and for the Riksdag. In 2018, Riksrevisionen (the National Audit Office) published the report Den kommunala finansieringsprincipen – tillämpas den ändamålsenligt? (RIR 2018:8). The purpose of the report was to assess whether the Government's application of the financing principle has been sufficient in order to result in adequate financial regulation, in accordance with the intention of financial regulations. The review refers to both preparatory work and cost calculations and is mainly based on three examples (upper secondary school reform 2011, childcare allowance and general preschool for three-year-olds and increased teaching time in mathematics). Riksrevisionen was critical and considered that the financing principle is not applied in the way it is intended. More specifically:
- The preparatory work for the proposed reforms is in many respects unclear and deficient. Important sub-objectives have not been met (particularly when it comes to deliberations and time frames).
- No analysis is made of how reforms affect individual municipalities and there is limited support for municipal financial impact assessments.
- Reform costs are seldom constant over time and are not followed up.
During the consultation procedure, the government stressed that it partly agreed (skr. 2017/18:300) with the conclusions in the report and stated that it is important to ensure well-founded calculations and the smooth functioning of the preparation processes. Therefore there is an ongoing development of impact assessments in the Government’s Offices.
Riksrevisionen recommended preparing municipal financial reforms in a transparent and well-founded manner, also by giving committees sufficient support to make most calculations in accordance with the guidelines; moreover to invite representatives of Municipalities and Regions to participate with adequate timeframes to the preparatory work for Municipal economic reforms. In addition, the review and assessment of the economic consequences of the municipal reforms should include an analysis of how the consequences differ between different Municipalities. Particularly important would be to carry out follow-ups to assess cost implications over time. The government did not agree with this recommendation (skr. 2017/18:300) but stated instead that there would be no need to introduce general cost follow - up in order to post-regulate reforms. It would entail increased administrative costs and the government would already be following up and analysing the municipalities' needs for additional resources, as well as how well the municipal cost equalisation system reflects the structural differences that exist between municipalities and between regions.
From its side, SALAR largely agreed with Riksrevisionen's recommendations, but unlike Riksrevisionen, SALAR believes that the settlement amount should always be made in kronor per inhabitant. A possible solution in cases where a new activity, with significant differences in cost implications between Municipalities, is created is to adjust the settlement amount. New regulations and reforms will inevitably affect municipalities and regions differently. However, over time, and with new regulations in many areas, it is likely that the differences will even out. SALAR further believes that adjustments made when there is a lack of documentation should be followed up once a few years after entry into force, not followed up several times. This allows for adjustments of an incorrect regulation to be made. Thereafter, these regulations should also be included in State grants and the Riksdag's assessment of the size of State grants, ie not be followed up specifically in the coming years.
Another aspect, according to SALAR, is when authorities make binding decisions on rules changes for activities in Municipalities or Regions. The financing principle also applies in these cases. But an authority has no resources for the corresponding costs, it must be handled in the state budget process, which makes it difficult to issue regulations and thus the willingness to live up to the financing principle. It should therefore be the duty of the authorities to always contact the responsible Ministry when funding issues arise.
According to SALAR, nothing has happened with regard to the aforementioned Riksrevisionen's recommendations. In other aspects, the application of the financing principle has generally deteriorated over time, while it needs to be applied more consistently. Negotiations on the financing principle between Ministries and SALAR have virtually ceased. One cause would be the pandemic that has taken up a lot of focus and has also consumed a lot of resources from the State. Another cause would be the parliamentary situation where the Government needs to negotiate with supporting parties may have made it more complicated to also take into account the principle of financing.
For its part, the Ministry of Finance underlined that the financing principle is applied when new responsibilities are given to municipalities and regions, or when existing responsibilities are altered. If the competences refer to activities that are voluntary for the municipalities and regions, the state does not have to provide financing. Sometimes it is however possible to apply for earmarked grants.
In line with the concerns expressed above the rapporteurs consider that Sweden is partially complying with the principle of commensurability.