Local authorities shall be entitled, within national economic policy, to adequate financial resources of their own, of which they may dispose freely within the framework of their powers.
What was already guaranteed in the Swedish Constitution (Chapter 1, Section 7/2) before 2011 has now been shifted to the new Chapter 14 in the Instrument of Government which stipulates in its Article 4 that local authorities may levy taxes for the management of their affairs.
The majority of local revenues (about 70 %) are derived from local taxes. Municipalities and county councils have the same tax base, namely taxable incomes from salaries, wages and taxable transfer payments (for example pensions, payments from health insurances and unemployment benefits). Each local authority currently decides independently its own tax rate. However, the national Parliament has the power to decide the level of local taxation (tax capping), a provision which is not in operation now but could be activated at any point in future.
SALAR has informed the rapporteurs that the Congress recommendation inviting the authorities to clarify the local authority’s power of taxation has not been met but SALAR does not find it necessary to bring the question back to the table. In the 1990s and during the financial crisis, the Parliament decided to make temporary restrictions on the right of municipalities to raise their rate. The Council of Legislation criticized the then government's proposal and questioned whether it was compatible with the Constitution. The introduction of the principle of proportionality in 2011 might pave the way in favour of local autonomy in this field.
State grants constitute about 16 % of the revenues, are nominally fixed and decrease in real terms through inflation. They are also not linked to demographic changes. In 2012 general government grants amounted to approximately 82 billion SEK and grants for specific purposes to approximately 49 billion SEK (Govt. communication 2012/13:102 p.11). In 2012 earmarked grants corresponded to an average 6% of revenue for the municipalities and 9 % for the county councils. Further revenues are fees charged for some of the services provided at local level.
The so-called “funding principle” is applied since 1993 in relation to new compulsory state regulations concerning the municipal sector. Financial compensation for mandatory tasks entails an impact assessment ex ante, is calculated as a lump sum and is allocated through general or earmarked grants to the municipal sector on a per capita basis. In the Budget Bill for 2014, the Government recognised the problem that regulations by independent government bodies that do not entail new legislation are not covered by the funding principle and that there is a need for guidelines on how to apply this principle.
Local authorities in Sweden are currently not affected by the economic crisis and the global budgetary situation was described as rather good which is due to temporary circumstances. Net income in municipalities and county councils has reached the record level of 18 billion SEK in 2012, largely due to non-recurring revenue items. When AFA Försäkring insurance company returns the premiums (for health insurance) paid in 2005 and 2006 in December 2013. Net income will fall back to approximately 10 billion SEK in 2013 and it is expected to remain at that level until 2016, given the successive rises in government grants and an increase of 0.40 SEK in local government taxes compared to their present level.
The financial equalisation procedure is now based in the Constitution through Article 5 in the new Chapter 14 which stipulates that “according to law, local authorities may be obliged to contribute to costs incurred by other local authorities if necessary to achieve an equal financial base”. Changes were made, as of 1 January 2005 based on a 2003 report, combining the equalisation system and the government grants system into a mainly state-funded equalisation system. The system consists of five parts: 1) income equalisation, 2) cost equalisation, 3) a structural grant, 4) a transitional grant and 5) an adjustment grant/charge. The changes meant that significantly fewer municipalities and county councils became net contributors to the system. In 2013, eight municipalities are paying a charge of a total of 1.6 billion SEK and one county is paying a charge of 0.2 billion SEK. The State grants amounts to approximately 86 billion SEK. The Swedish Agency for Public Management is mandated to investigate and to follow up local government financial equalisation systems and to continuously propose updates.
A special cost equalisation system was introduced for municipalities under the Act concerning Support and Services for Persons with Certain Functional Impairments in 2004 and changed with effect from 2009. The reason given for setting up an equalisation system was that there are major cost differences between municipalities and equalisation is needed to put all municipalities on an equal financial footing to provide services under the Act. Similarly, a special government grant provides for cost equalisation separate from the regular equalisation system for county councils for paying for pharmaceutical benefits.
The rapporteurs would like to mention here the situation in Flen, where costs have gone up in social welfare particularly due to the arrival of a proportionally high number of refugees increasing integration costs (2000 refugees in a town of 16 000 inhabitants). They heard from the councillors and the Mayor that the financial equalisation system does not take into account the issue of refugee influx sufficiently. They claimed that Flen, which has a decreasing population and high unemployment rate (among youth and migrants), suffers from the lack of centrally coordinated planning of refugee integration which creates problems for a small town the size of Flen, with increased social security, education and housing costs, without adequate and rapid compensation from the State.
The local government tax base is to some extent sensible to fluctuations in employment and economic growth. A bill on local government balancing funds, applicable as of 1 January 2013, strengthens the possibilities for municipalities and county councils to create municipal equalization reserves. They can now accumulate profit equalisation reserves within the framework of their own capital to cover deficits that may arise as effects of cyclical variations or regression. The rule applies retroactively, so profits can be set aside from 2010 onwards, although the actual decision cannot be made until the end of the 2013 fiscal year.
Sweden is a rare case among European countries in that the majority of local revenues are derived from local taxes and that with a ratio of 70%. It is also a rare case in that local authorities have not been affected by the economic and financial crisis at all. The financial equalisation system is enshrined in the law and works well.
The rapporteurs are of the opinion that, all in all, Sweden complies with the provisions of Article 9 of the Charter.
The following data are taken from the Economy Report on Swedish municipal and county council finances – October 2012, Swedish Association of Local Authorities.