7164 326 1

The Economy Report.

On Swedish Municipal and County Council Finances – November 2007

Information concerning the content of the report: Maj-Lis Ă…kerlund tel +46 8 452 77 54 Jessica Bylund tel. +46 8 452 77 18 Bo Legerius tel. +46 8 452 77 34

Swedish Association of Local Authorities and Regions Department of Economy and Governance, Section for Economic Analysis SE-118 82 Stockholm | Visitors Hornsgatan 20 Phone +46 8 452 7747 | Fax +46 8 452 72 26 info@skl.se, www.skl.se Š Sveriges Kommuner och Landsting 1st edition, February 2008 Graphic form & production: Elisabet Jonsson Translation: Ian MacArthur, Elisabet Jonsson, Anders Brunstedt.

Cover illustration: Jan Olsson Form & Illustration AB. Printers: KLF Digitalttryck, Stockholm.

Fonts: BerlingNova och Charlotte Sans SKL. Paper: Xerox Colotech 120 gr.

ISBN: 978-91-7164-326-1 (edition in Swedish: 978-91-7164-293-6, ISSN: 1653-0853 )

Foreword The Economy Report illustrates the financial situation and conditions of county councils and municipalities and the development of the Swedish economy over the coming few years. It is published twice a year by the Swedish Association of Local Authorities and Regions (salar).

This issue covers the period to 2011. We conclude that the situation today is relatively favourable. But we also include an outlook to 2020, because much more difficult problems await in the somewhat longerterm. This is why a long-term strategy needs to be drawn up to finance welfare provision.

Where possible we have taken account of the financial implications of the 2008 Budget Bill in our calculations. However, further analyses of it will be necessary.

The present report has been written by economists at the salar Section for Economic Analysis. The Summary (supplemented with some tables and diagrams from the main report) and the Annex are published here as a separate English document. Ian MacArthur has translated the Summary, following slight revisions by Anders Brunstedt and Elisabet Jonsson.

February, 2008 Maj-Lis Ă…kerlund Section for Economic Analysis, Swedish Association of Local Authorities and Regions

On Swedish Municipal and County Council Finances

1

Contents Summary and conclusions ........................................................................................ 3 Municipalities – major adaptions of activities required .............................................................. 3 County councils – work to increase efficiency of health care must continue ........................ 4 The economy – employment growth with mild overheating in 2008 .................................. 5 Financing welfare provision – a long-term strategy is needed .............................................................................. 6 The economic context ................................................................................................ 7 Tasks and financing should be reviewed .......................................................... 8 Annex .............................................................................................................................. 10

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The Economy Report. November 2007

Summary and conclusions

SEK billion

Despite the favourable development of the economy, municipalities and county councils face a number of challenges. Municipalities will be able to achieve net income in line with healthy finances in the next few years, if they make the necessary adaptations of their activities. For county councils our calculations already show negative net income in 2010, partly because population trends will lead to greater increases in needs for county councils than for municipalities.

In the longer term, the challenge facing municipalities Diagram 19 • Net income for municipalities and county councils and county councils is greater. To meet this challenge, excluding extraordinary items, SEK billion the relatively favourable period in the next few years Total Adjusted government grants Municipalities County councils should be used for a broad political discussion on prior16 14 ities and to draw up a long-term strategy for the role of 12 the public sector.

10 8 6 4 2 0 –2 –4 –6 –8

Municipalities – major adaptations of activities required

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: Swedish Association of Local Authorities and Regions.

This year it looks as though net income for the municipalities will be in line with healthy finances. If general government grants are adjusted upwards in line with the growth of the tax base, there are good prospects of achieving good finances up until 2011. This also assumes that the volume of activities does not increase by more than just under 1 per cent per year.

Despite a relatively moderate overall increase in needs, many municipalities are facing the need to reassign priorities within and between activities. One example is that the number of pupils in compulsory school is decreasing while the number of upper secondary pupils is increasing.

At the same time, the proportion of pupils attending independent schools is growing rapidly. This results in poorer conditions for the effective planning of school services. The municipalities that choose to introduce the child-raising allowance announced by the Government will face cost increases that will require further adaptations of their activities.

On Swedish Municipal and County Council Finances

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Summary and conclusions

Table 7 • Cost increase due to demography, central government reforms and labour market programmes, fixed prices Average 06/07 2001–2006

Contribution to change, percentage points Demographic needs 0.4 0.1 Central govt reforms excl. lss* 0.6 0.1 lss 0.4 0.3 Plus jobs, educational leave replacement positions 0.1 0.4 Other volume change** –0.1 1.1 Total volume change, % 1.4 2.0

07/08

08/09

09/10

10/11

Average 2006–2011

0.0

0.0

0.1

0.0

0.1

0.1 0.3

0.0 0.3

0.0 0.3

–0.1 0.3

0.0 0.3

–0.5 0.9 0.9

–0.4 0.5 0.4

0.0 0.5 0.8

0.0 0.5 0.7

–0.1 0.7 1.0

*Lagen om stöd och service (lss), a law stipulating special support and service for disabled persons. **Including a small effect of an assumption of a continued increase in the share of children enrolled in municipally financed child care.

Source: Swedish Association of Local Authorities and Regions.

Diagram 2 • Volume growth in tax-financed activities Index 2006=100 Childcare

Compulsory school

Upper secondary school

Elderly care

Disability care

Other Total excl grants

116

The favourable conditions for municipalities are temporary. After 2009 the scope for municipal cost increases will be limited by an expected longer-term decrease in the number of hours worked in the economy.

112

Index

108 104 100 96 92

2006

2007

2008

2009

2010

2011

Source: Swedish Association of Local Authorities and Regions.

County councils – work to increase the efficiency of health care must continue For the county councils we expect a surplus of sek 5 billion in 2007.

Population trends and developments in medical technology will lead to much greater cost pressures in county councils than in municipalities.

This will make great demands on the county councils to continue their improvement work so as to provide higher quality in health care and scope to finance new treatment methods. Despite a calculation using a restrained increase in costs, net income in county councils already reaches sek –7 billion in 2011. Even if general government grants increase in line with the tax base, this will lead to a deficit.

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The Economy Report. November 2007

Summary and conclusions

Diagram 6 • Volume of costs and real tax base Percentage change on the previous year Real tax base

Volume of costs

3.0 2.5 2.0 1.5

Per cent

As we approach 2020 demographically driven needs will increase more than at present. The costs for the developments in medical technology that are needed to offer citizens health care of high quality will probably also continue to rise. Society does not lack resources for this – but the present financing model requires higher county council taxes or higher government grants along with continued increases in efficiency. History shows that county council costs already rose more rapidly than the tax base in 2000–2006. Then the main part of the costs increase was financed by increases in taxes and government grants.

1.0 0.5 0.0 –0.5 –1.0

2001

2002

2003

2004

2005

2006

Note: The tax base has been corrected for price changes in county council resources. Read more in Ekonomirapporten. Maj 2007, page 45.

Source: Swedish Association of Local Authorities and Regions.

Table 15 • Cost increase due to demography, central government reforms and trend, fixed prices Percentage change on the previous year Average 06/07 2001–2006

Contribution to change, percentage points Demographic needs 0.7 0.8 Central govt reforms 0.4 0.5 Long-term trend 0.7 0.7 of which pharmaceuticals over and above demography 0.3 0.3 Total cost pressure, % 1.9 2.1 Other volume change, % Total volume change, %

–0.2 1.7

0.1* 2.2

07/08

08/09

09/10

10/11

Average 2006–2011

0.8 –0.1 0.7

0.7 –0.3 0.7

0.7 0.0 0.7

0.7 0.0 0.7

0.7 0.0 0.7

0.4 1.4

0.4 1.2

0.5 1.4

0.5 1.5

0.4 1.5

0.0 1.4

0.0 1.2

0.0 1.4

0.0 1.5

0.0 1.5

* In 2007 adjustment costs disappear, reducing the cost pressure by 0.4 percentage points. The gross level of the item Other volume change is 0.5 percentage points.

Source: Swedish Association of Local Authorities and Regions.

The economy – employment growth with mild overheating in 2008 Domestic demand is now fuelling growth and we assume that the Swedish economy will continue to get stronger in 2007 and 2008. gdp growth is expected to be 3.6 per cent in 2007 and 3.0 per cent in 2008 after which it till move towards a slower pace more in line with the trend for the economy.

Despite the already very good situation in the labour market we expect further employment growth in 2008. This is expected to result in overheating tendencies that will lead to lasting higher pay increases, building up inflationary pressure that will threaten the Riksbank's in-

On Swedish Municipal and County Council Finances

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Summary and conclusions

flation target. Both employment and gdp will therefore gradually rise more slowly, as the situation on the labour market becomes more strained and monetary policy tightens. This will lead to a favourable development of the tax base in 2007–2008, but thereafter it will only make a minor contribution to increased resources for the local government sector.

The development of the economy in 2007–2011 will result in lasting surpluses in public sector finances. Initially we see surpluses both in central government and in municipalities and county councils. Our assessments of local government consumption and our assumption about nominally unchanged government grants already lead to negative net income in the local government sector in 2011.

The longer-term development of public finances indicates that the distribution of tax revenue will be skewed in some sense. Demographic cost pressure will be directed at the activities of municipalities and county councils and central government will accumulate considerable surpluses.

Diagram 18 • Demographic conditions for needs in the local government sector Index 2006=100 Municipalities

County councils

130 125

Index

120 115 110 105 100

2010

2020

2030

2040

Financing welfare provision – a longterm strategy is needed Our outlook to 2020 shows that there are no demographic conditions for the tax base to give the same contributions as today to the finances of the sector.

At the same time, demographic needs will make greater demands on the activities of both municipalities and county councils. To meet to future challenges in welfare policy, the relatively favourable period over the next few years should be used for a broad political discussion on priorities. It is high time to draw up a long-term strategy for the scope and financing of welfare services.

2050

Source: Statistics Sweden and own calculations.

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The Economy Report. November 2007

The economic context The upturn in employment this year has been stronger than expected.

We believe that a further slight increase in employment is possible without inflation gaining pace. In recent years there has been a marked improvement in the tax base of the local government sector and therefore in the scope for municipal and country council activities, but the slowing of the labour market means that the increases will slacken in real terms. It is not possible to count on the same positive contributions from the economy in the future.

This year employment, expressed as the number of hours worked, is expected to increase by 3 per cent on last year. This is the largest annual increase since measurements began in 1950. It is worth noting that the record is being set after two years of relatively high employment increases. This means that the number of people in employment has increased by more than 200,000 between 2004 and 2007. At the same time, open unemployment has fallen from 8.0 per cent to 6.1 per cent.

For municipalities and county councils the improvement in the labour market is especially pleasing. Increases in employment normally have a distinctly more positive impact on the scope for activities than the corresponding economic growth with unchanged employment has.

A positive development on the labour market contributes, in several ways, to more and more people paying income tax, which gives higher tax revenue. Economic growth driven exclusively by productivity improvements can give corresponding revenue improvements but leads at the same time to costs increases, as the pay increases that follow from the increased productivity also contribute to corresponding pay rises for staff in the activities financed by municipalities and county councils.

Economic growth is normally coupled to a very small extent to employment increases. Even though Sweden today produces 16 times more than 100 years ago, the number of hours worked and paid for is not much higher than it was then. So in the long run the local government sector has not had that much to gain from employment change.

This is the perspective from which the strong development of the labour market in recent years should be viewed. It is thus a cyclical recovery and not a break with previous trends. We are moving from a state with considerable reserves of unused labour to a state with better balance on the labour market. This shift has resulted in more rapid pay growth and rising inflation, but also in a tighter monetary policy with higher interest rates.

On Swedish Municipal and County Council Finances

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The economic context

In the future strong domestic demand in combination with a favourable international economy can be expected to result in a slight further strengthening of the labour market. It is also likely that the supply of labour can increase even more, partly as a result of the Government's labour market policy reforms, and that unemployment can be pressed back a bit more (table 1). But it is highly probable that we are now at a point where continued employment increases will tend to drive inflation upwards and result in higher and higher interest rates. Within about a year both nominal and real growth of the tax base will return to more normal figures. Then there will not be the same scope for expansion in the local government sector as there is today.

Table 1 • Key indicators for the development of the economy Percentage change on the previous year unless otherwise stated

gdp Employment, hours Open unemployment* Hourly pay, whole labour market** Change in consumer prices Tax base***

2007

2008

2009

2010

2011

3.6 3.0 6.1

3.0 1.3 5.5

2.1 0.1 5.8

1.9 –0.1 5.8

1.8 –0.2 5.8

4.4 2.1 5.9

4.9 2.4 5.8

4.6 2.8 5.1

4.4 2.3 4.6

4.3 2.0 4.3

* As a percentage of the labour force. ** As defined in the National Accounts. *** Excluding changes in regulations.

Source: Swedish Association of Local Authorities and Regions.

Tasks and financing should be reviewed Today the situation is quite favourable in several ways. Employment and tax revenue are growing strongly. For the local government sector as a whole, the demographic problems are relatively limited. Much more difficult problems await in the slightly longer term. The tax base will not continue to generate the same additional revenue as today, at the same time as responding to demographic needs will gradually become more and more difficult, especially for the municipalities.

It is important to see the strong development in recent years in this context. As pointed out above, very little of long-term economic growth can be attributed to employment increases. Up until 2020 the population of working age is expected to be largely unchanged even though immigration is assumed to continue to provide considerable net contributions. This means that the demographic conditions for greater employment are worse than for a very long time. In view of this, there are not many signs that more hours of work will be done in 2020 than are done today.

Non-existent or weak negative employment growth means that the real growth of the tax base will be limited to half of one per cent. Such

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The Economy Report. November 2007

The economic context

an increase may be sufficient to meet to the relatively moderate demographic demands in the next few years, but it is too small to cope with the greater demands that elderly care will face in a decade. The additional contributions are also too small to cope with a continued development of the quality of municipal and county council activities. With a higher economic standard, expectations on the public sector will increase at the same time, with demands for better schools, health care and social care.

The problem is not that society as a whole lacks resources to finance the further development of welfare services like schools, health care and social care. The problem is that the additional resources required are not accommodated within the present financing system. To meet the challenges of the future, the relatively favourable period in the coming decade should be used for a broad political discussion on priorities and to draw up a long-term strategy for the role of the public sector. In fact, the Swedish Association of Local Authorities and Regions has recently appointed a programme committee to carry out work on the forms for the future financing of the commitments of the municipalities and county councils. It is fully possible to combine a higher material standard with better welfare services �as long as� the financing problem is solved.

On Swedish Municipal and County Council Finances

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Annex This annex reports some key indicators and a number of tables and diagrams taken from the municipality and county council sections that have been summed here to give an overall picture.

This is followed by diagrams showing the breakdown of costs and revenue for municipalities and county councils separately.

An aggregate picture of municipalities and county councils Table 28 • Key indicators for municipalities and county councils Per cent and thousands 2005

Average tax rate, per cent 31.60 Municipalities, incl. Gotland 20.84 County councils (acc. to Statistics Sweden’s official statistics) 10.76 County councils, excl. Gotl. 10.81 Number ofemployees* Municipalities County councils

2006

2007

2008

2009

2010

2011

31.60 20.83

31.55 20.78

31.44 20.72

31.44 20.72

31.44 20.72

31.44 20.72

10.76 10.82

10.78 10.84

10.73 10.79

10.73 10.79

10.73 10.79

10.73 10.79

1 090.1 1 107.6 1 123.8 1 134.4 1 141.5 1 154.8 1 167.0 827.3 840.6 852.9 859.9 864.2 874.1 882.9 262.8 267.0 270.9 274.5 277.3 280.7 284.1

*Thousands; average number of people in employment according to the National Accounts.

Source: Statistics Sweden.

Table 29 • Aggregate income statement SEK billion, current prices, unless otherwise stated Outcome 2006

Forecast 2007 2008

2009

133 –646 –20 –533

135 –678 –21 –564

139 –712 –21 –594

142 –744 –22 –624

147 –780 –23 –656

152 –817 –23 –688

Tax revenue 458 General government grants & equalisation 86 Net financial income 4 Net income before extraordinary items 15

481 93 3 13

508 96 3 13

534 98 3 11

559 98 3 4

583 99 3 –3

2.3

2.2

1.7

0.7

–0.5

3.9

7.5

11.0

Income of activities Expenses of activities Depreciation Net expenses of activities

Share of taxes and grants, % General government grants adjusted upwards by tax base forecast Net income for the year after adjustment of government grants Share of taxes and grants, % Cost reduction to achieve 2 per cent, which corresponds to a volume change of or a tax change of (in SEK) Net income for the year with the 2 per cent target Share of taxes and grants, %

2.8

Calculation 2010 2011

15

12

8

2.3

1.8

1.1

+2.0 0.4% –0.08

–1.0 –0.1% +0.07

–6.0 –0.7% +0.32

13

13

14

2.0

2.0

2.0

Source: Statistics Sweden and Swedish Association of Local Authorities and Regions.

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the Economy Report. November 2007

Annex

For the net income for municipalities and county councils together, see diagram 19 on page 3.

Diagram 20 • Aggregate cost growth broken down by volume and price in municipalities and county councils Per cent Volume

Price

8 7

Per cent

6 5 4 3 2 1 0

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Source: Swedish Association of Local Authorities and Regions.

Diagram 21 • Breakdown of costs by activity, municipalities and county councils, ca SEK 640 billion Other health and medical care 3% Dental care 1%

Preschool services and school age child care 9% Compulsory school 12% Upper secondary school 5%

Specialist mental health care 3% Specialist physical health care 16%

Other education 3% Elderly care 13%

Primary care 6% Other activities 14% Commercial activities 4%

Disability care 7% Individual and family care (incl. financial assistance) 4%

Sources: For diagrams 21-31 the data for county councils come from the Swedish Association of Local Authorities and Regions and the data for municipalities come from Statistics Sweden.

On Swedish municipal and county council finances

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Annex

Diagram 22 • Breakdown of municipalities’ costs for activities in 2006, ca SEK 431 billion Preschool services and school age child care 13% Compulsory school 17% Upper secondary school 8% Other education 4%

Breakdown of costs

Elderly care 19% Disability care 10% Financial assistance 2% Individual and family care (excl. financial assistance) 4% Commercial activities 6% Other activities 16%

Diagram 23 • Breakdown of county councils’ costs for activities in 2006, ca SEK 208 billion Primary care 19% Spec physical health care 49% Spec mental health care 8% Dental care 4% Other health care 9% Political activities, health care 1% Education and culture 2% Transport and infrastructure 5% Other activities 4%

Diagram 24 • Breakdown of municipalities’ costs by cost type in 2006, ca SEK 431 billion

Municipal and county council costs can be described in two ways: by breaking them down by activity and by breaking them down by cost type.

If costs are broken down by activity (diagrams 22 and 23) three conclusions can be drawn: • First, the core activities of municipalities and county councils account for a considerable part of total costs. For municipalities, schools, health care and social care account for more than 75 per cent of costs. For county councils health care accounts for 90 per cent of costs. In diagram 23 the pharmaceutical benefit scheme is included in the various activities.

• Second, it is clear that a large part of municipal and county council costs are related to demographic factors, i.e. changes in age structure affect costs. When account is taken of changes between the relative shares of different age classes, the relationship between age structure and costs is stronger for the municipalities than for the county councils.

• Third, a large share of costs is regulated through legislation – laws and government ordinances – which limits the scope for municipalities and county councils to reduce their costs when changes occur on the revenue side.

Personnel costs 57 % External goods 8% Purchase of services 13% Other services 6% Grants and transfers 6% External rents for premises 4% Calculated capital costs 6%

Diagram 25 • Breakdown of county councils’ costs by cost type in 2006, ca SEK 208 billion Personnel costs 50% External goods 19%

When costs are broken down by cost type (diagrams 24 and 25) it can be seen that the largest single cost type is personnel costs.

These costs account for 57 per cent of municipal resources and 50 per cent of county council resources. There are also staff-related costs in the parts of municipal and county council activities that are run by other entities on behalf of local governments. If these services are included, then the overall personnel-related costs for municipalities and county councils amount to more than 70 per cent and about 65 per cent of total costs respectively. The remaining 30 and 35 per cent of costs mainly consist of costs for premises, purchases of goods and grants and transfers (mainly municipal costs for financial assistance, i.e. social assistance to individuals). The large share taken by personnel costs means that both the price and the volume of the workforce are crucial for total costs.

Purchase of activities 10% Other services 11% External rents for premises 1% Grants and transferers 6%

Breakdown of revenue Diagrams 26 and 27 (on page 13) show how municipalities and county councils each finance their activities. Municipalities and county councils raise the bulk of their revenue by themselves. Tax

Depreciation etc. 3%

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the Economy Report. November 2007

Annex

revenue, fees and charges and certain other revenues finance 80 per cent of their activities. At first glance this may appear to give a picture of a large measure of financial freedom of action. However, as taxes are high in most municipalities and county councils, this way of increasing revenues can have limitations. In the case of fees and charges, the possibilities of increasing revenue are very limited as the Government has introduced maximum charges in child care and elderly care.

The remainder of revenue consists of contributions from the state in the form of government grants. Most government grants to municipalities are given in the form of unrestricted funds. A small part of government grants is targeted at various activities and is linked to some action to be taken by the municipality in return. A large part of government funding for county councils consists of the grant for the pharmaceutical benefits scheme.

Diagram 26 • Breakdown of municipalities’ revenue for activities in 2006, ca SEK 443 billion Tax revenue 68% General government grants 11% Specific government grants 5% Fees and charges 7% Sales of activities and contracts 1% Rents and leases 3% Other revenues 5%

Diagram 27 • Breakdown of county councils’ revenue for activities in 2006, ca SEK 212 billion

Breakdown of income from fees and charges Traditionally, self-financing by municipalities and county councils has consisted of taxes, on the one hand, and fees and charges, on the other. The latter source has accounted for a small portion of revenue. Charges and fees have a dual role: as a source of revenue and as an instrument for influencing the consumption of various local government services.

Fees and charges are reported in two ways here: first, how much municipalities and county councils raise in fees and charges and for what activities and, second, how large a share of local government costs is covered by fees and charges, both in total and per activity.

In 2006, municipalities collected sek 14.3 billion in fees and charges in tax-financed activities. Since 2001 revenue from fees and charges has decreased by sek 2.2 billion due to the introduction of maximum charges for some services. The largest individual source of charge revenue is pre-school services and schoolage childcare. Other activities with substantial charge revenue are elderly care and infrastructure and protection. In the latter case this involves large fees for municipal parking and some physical planning.

If the municipalities’ revenue from fees and charges is related to their costs (level of charge-financing) we see that they finance 3.5 per cent, which is a reduction of just less than 1.5 percentage points since 2002. Previously pre-school services and school-age childcare was the activity with the highest level of chargefinancing. In 2006 the area infrastructure and protection is highest (diagram 28).

Tax revenue 74% General government grants 6% Specific government grants 3 % Fees and charges 3% Grant for pharmaceutical benefits 10% Other revenue 5%

Diagram 28 • Level of charge-financing in municipal tax-financed activities 2006 Total Other Disability care Elderly care Education Preschool etc Culture and leisure Infrastructure and protection

0

2

4

6

8

10

12

14

Per cent

On Swedish municipal and county council finances

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Annex

Diagram 29 • Level of charge-financing in county council tax-financed activities 2006 Total Other Transport and infrastructure Education and culture Other health care Dental care Specialist mental health care

For county councils fees and charges account for a smaller share of total revenue. In 2006 county councils collected sek 5.9 billion in fees and charges. The level of county council fees and charges is affected by the level of company formation in medical and dental care. Fees and charges finance 2.8 per cent of county council activities, a small increase on previous years (diagram 29).

Dental care is the activity with the highest level of charge-financing, 32 per cent. The dental care reform proposed by the Government from 1 July 2008 will reduce charge-financing of dental care.

Specialist physical health care Primary care

0

5

10

15

20

25

30

35

Per cent

Diagram 30 • Specific government grants to municipalities 2006, ca SEK 20.7 billion Preschool and school age child care 28% Compulsory school 7% Upper secondary school 3% Municipal adult education 9% Other education 3% Care of elderly and disabled persons 4% Individual and family care 2% Refugee reception 10% Labour market measures 20% Other activities 14%

Diagram 31 • Specific government grants to county councils 2006, ca SEK 6.1 billion

Primary care 13% Specialist physical care 23% Specialist mental care 4% Dental care 3% Other health care 38% Education and culture etc 18%

Breakdown of specific government grants The transition from a number of specific government grants to a general government grant in 1993 excluded a number of grants to municipalities. They were primarily grants regarded as compensation for services carried out for the State. For the county councils the main part of the former specific government grants consisted of compensation to the authorities responsible for health care. The compensation was general in character and not subject to detailed regulation. As a result the transition for the county councils was not as substantial. The government grants to county councils that were abolished were for special schools for the intellectually disabled and transport services for disabled people.

The refugee grant, labour market grants and compensation for municipal adult education account for 40 per cent of specific grants (diagram 30). The compensation paid by the State for the loss of charge revenue in child care due to the maximum charge (28 per cent) is also included.

In the case of the county councils, government grants to the activity designated as other health care account for by far the largest share (38 per cent). These government grants are for research and development (diagram 31).

There are relatively few specific grants for core municipal activities and they only account for a small share of total revenue.

There is a drastic change for 2006, largely because of higher grants for labour market measures and refugee reception. For county councils the level of specific government grants has been relatively constant over the past three years.

*Includes 6 per cent compensation in procurement of services.

14

the Economy Report. November 2007

Annex

On Swedish municipal and county council finances

15

The Economy Report. On Swedish Municipal and County Council Finances is a series published twice yearly by the Swedish Association of Local Authorities and Regions. In it we deal with the present economic situation and developments in municipalities and county councils. This issue covers the period until 2011.

Net income in 2007 appears to be in line with healthy finances in both municipalities and county councils. But this is partly due to a strong economy with the largest increase in employment in modern times. When a tighter labour market leads to a decline in employment in a couple of years, net income will weaken despite a relatively favourable demographic situation. Net income will also be affected by the fact that government grants will not be adjusted upwards after 2008.

In another few years population trends will result in greater demands on elderly care and health care, as well as poorer conditions for the growth of the tax base. This will present a major challenge for the financing of local government welfare services.

The Economy Report. On Swedish Municipal and County Council Finances – November 2007 can be downloaded from our website at: www.skl.se.

ISBN 978-91-7164-326-1 ISSN 1653-0853

Swedish Association of Local Authorities and Regions SE-118 82 Stockholm Visitors Hornsgatan 20 Tel +46 8 452 70 00 Fax +46 8 452 70 50 info@skl.se, www.skl.se