7164-697-2

The Economy Report.

ON SWEDISH MUNICIPAL AND COUNTY COUNCIL FINANCES – OCTOBER 2012

Information concerning the content of the report: Jessica Bylund tel +46 8 452 77 18 Annika Wallenskog tel +46 8 452 77 46 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 70 00 | Fax +46 8 452 70 50 www.skl.se Š Sveriges Kommuner och Landsting 1st edition, November 2012 Graphic form & production Elisabet Jonsson Translation Ian MacArthur Cover illustration Jan Olsson Form & Illustration AB Diagrams Hükan Hellstrand Printers ABA Kopiering AB, Stockholm Fonts Chronicle and Whitney Paper Color Copy 120 gr ISBN 978-91-7164-697-2 [Swedish edition: 978-91-7164-696-5, 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 next few years. It is published twice yearly by the Swedish Association of Local Authorities and Regions (salar).

In 2012 non-recurring revenue is expected to contribute to very good net income for our sector. This revenue will provide a welcome breathing space for the municipalities and county councils that are struggling to bring their finances into balance. But thereafter the situation seems much tougher, even though we foresee strong tax base growth and include higher government grants in 2014–2016 in our calculations. In municipalities and county councils tax increases totalling sek 0.40 compared with today will be required to avoid the worsening of net income for the sector.

This is an abridged version of the report. It contains the Summary (supplemented with some tables and diagrams from the main report), some sections dealing with municipalities and the county councils as well as the Annex. It has been written by staff at the salar Section for Economic Analysis and has not been considered at political level within the Association. The people who can reply to questions are given on the inside cover page. Other salar staff have also contributed facts and valuable comments. The translation is by Ian MacArthur, following slight revisions by Jessica Bylund, Elisabet Jonsson and Anna Kleen. We are very grateful to the municipalities and county councils that have contributed basic data to our report.

Stockholm, October 2012 Annika Wallenskog Section for Economic Analysis

The Economy Report. October 2012 On Swedish Municipal and County Council Finances 1

Contents 3 3 7 9 11 12

Summary The Chief Economist’s conclusions Municipalities: Municipalities have problems with relatively low solvency Challenges in the future County councils: County councils with problems often have weak solvency Demography increases the costs of cancer care

17

Annex

2 The Economy Report. October 2012 On Swedish Municipal and County Council Finances

Summary The Swedish economy, which has until now succeeded so well in withstanding the debt crisis, is now entering a period of slowdown. However, real tax bases in the local government sector will do well. Net income in municipalities and county councils will reach the record level of sek 18 billion this year, largely thanks to non-recurring revenue items. In 2013 net income will fall back to sek 9 billion and it is expected to remain at that level until 2016, given successive rises in government grants and an increase of sek 0.40 in local government taxes compared with their present level.

The Chief Economist’s conclusions In recent years a ”perfect storm” has developed in the Eurozone in the wake of rapid debt growth, the bursting of housing market bubbles, banks in crisis and a fiscal quagmire. Even in many other countries outside the emu, including the uk and us, the aftermath of the financial crisis has resulted in an explosion of both private and public debt. Despite large numbers of crisis meetings and a range of measures in the Eurozone intended to restore confidence in indebted countries, we still do not see an end to the crisis.

With the exception of the us, which has its own fast lane by virtue of its size alone, deeply indebted countries must now engage in austerity and tax increases in an attempt to restore balance. Experience says that debt reduction and budget restructuring are painful and often protracted processes resulting in weak and “uneven” economic development. For the hardest hit countries in southern Europe the demands for austerity are particularly onerous since the fast track of currency weakening is closed – as long as they remain emu members.

The Economy Report. October 2012 On Swedish Municipal and County Council Finances 3

Summary

Even if there are strong belts, such as Germany and certain northern European states, the major imbalances and demands for austerity point overall to weak economic development on our side of the Atlantic in the coming years. Indeed, we have already been able to note that growth has been slowing even in countries whose finances are in order. We expect large parts of Europe to experience lower growth in 2012 and only a weak increase in 2013. Export-weighted growth is put at 1.2 and 1.9 per cent for these two years.

The us has, until now, certainly been spared the hard judgment of the markets despite a two-figure budget deficit and a three figure public debt ratio. At the same time, however, us households do not have the financial muscle to fulfil their traditional role as the engine of the world economy. Unemployment remains high and most people who lost their jobs during the crisis still do not have employment. While property prices have stabilised, they have done so at levels far below those that prevailed before the bottom fell out of the market. Without jobs and mortgaged above their chimneypots, it will be difficult for households to consume the us out of its downswing. Relatively modest gdp growth of just over 2 per cent is the most likely outcome.

So far us industry has coped fairly well by selling to rapidly growing emerging economies. Unfortunately we are now seeing signs of a slowdown in formerly rapidly growing economies in Latin America and in Asia. Even China, which has experienced a formidable growth miracle in recent decades, is now showing signs of weakness, even though this so far involves a slowdown to growth figures that other countries can only dream of. Instead of growth of around 10 per cent as in recent years we now expect something more like 7–9 per cent.

Slowdown also starting in Sweden Up to now the Swedish economy has resisted the slowdown among our trading partners. This far in 2012 the economy has grown by 1.3 per cent compared with 2011, which is much better than the Eurozone, for example, which shows a weak gdp decline so far this year. Thanks to the moderate growth in the economy the situation in the labour market has also been relatively stable with further employment growth, even though unemployment has tended to rise slightly recently.

However, lately there have been ever clearer signs of a weakening of the Swedish economy, in terms of both business tendency surveys and hard economic data. There are many indications that late 2012 and early 2013 will be much weaker, and we do not expect any clear recovery until the end of next year. We expect gdp to increase by 1 per cent this year and 1.8 per cent in 2013. Low growth rates for several quarters to come also suggest stagnant employment and a moderate rise in unemployment in late 2012 and early 2013.

The fact that the Swedish economy is also slowing down is further evidence of our strong international dependence. With an export share of gdp of almost 50 per cent, most of which is input and investment goods for industrialised countries, particularly in Europe, the backwash of the international economy is also inexorably reaching Sweden. Over and above a weak global eco-

4 The Economy Report. October 2012 On Swedish Municipal and County Council Finances

Summary

nomy, there are also worrying signs in the form of the relatively strong krona that risks eroding Swedish competitiveness in the longer term. However, it should be borne in mind that the krona is not distinctly stronger than the levels that most commentators have viewed as reasonable ever since the krona started floating.

At the same time there are prospects of the Swedish economy coping relatively well despite a weak international economy, because our own house is in fairly good order. Sweden’s public finances are among the strongest in the western world even though it will be difficult to achieve the surplus target for public finances during the present business cycle. Thus, if necessary, fiscal policy can be realigned in a more expansive direction without risking the credibility of our public finances.

It is certainly true that households in Sweden, as is the case in many other countries, are highly indebted and therefore vulnerable to, for example rising interest rates and/or falling property prices. However, the expected weakness of the labour market and the general lack of inflationary tendencies are strong indications that the Riksbank (Swedish central bank) will not choose to increase interest rates in the foreseeable future – on the contrary we expect a further reduction of the repo rate – at the same time as the weak development of the international economy is indicating that market interest rates will remain low. Moreover, there is quite literally saved capital that households can draw on in the form of a high savings ratio.

Swedish local government sector: A rock in the stormy global sea?

The real tax base increases by 1.8 per cent and 1.5 per cent in 2012 and 2013, which is much stronger than the historical average of about 1 per cent. In contrast, the increase in nominal terms is comparatively modest: 3.9 and 3.4 per cent. This weak growth is explained by low price and wage increases.

After a record year in 2012 net income will decline in 2013 This year, as in 2010, the sector is moving towards a record level of net income of sek 18 billion. This time the explanation is, once again, temporary revenue. In the autumn municipalities and county councils will receive a repayment of insurance premiums paid in 2007 and 2008 to afa Försäkring (the Swedish Labour Market Insurance Company), which will give additional revenue of sek 11 billion. In 2013 net income will fall back to sek 9 billion, well under the 2 per cent of taxes and government grants regarded as the benchmark for healthy finances. While the municipalities will be given a temporary respite from savings in upper secondary schooling – they will get back sek 895 million of government grants previously withdrawn – there are no other new government grants that reinforce net income.

One considerable risk not taken into account in the forecast of net income for 2013 is that the discount rate for the sector’s pensions may have to be reduced further, which will then mean that the pension liability will have to be revalued. For comparison, it can be mentioned that the interest rate cut in 2011 led to a book deterioration of sek 7 billion in net income.

The Economy Report. October 2012 On Swedish Municipal and County Council Finances 5

Summary

Financial pressure on municipalities and county councils despite a strong tax base from 2014 Despite growth of about 1½ per cent in the real tax base in the future, we expect net income to remain at about the level of 1 per cent of taxes and government grants during the whole period until and including 2016. This is because costs will rise at an even faster rate than the tax base. However, this level of net income presupposes that government grants rise on average by 2 per cent per year over and above price and wage increases in the sector. We make this assumption even though increases in government grants must be preceded by new decisions of the Riksdag (Swedish Parliament). We have also assumed that local government taxes will increase by a total of sek 0.40 compared with their present level. It is primarily the county councils that must raise taxes in order to achieve a surplus corresponding to 1 per cent of taxes and government grants, while the municipalities are almost able to achieve this with the aid of the higher government grants we include in our calculations.

Net income of sek 8–9 billion in the local government sector gives the impression of finances that are in good order, but it means that a third of the municipalities and almost half the county councils are expected to show deficits.

Without upward adjustment of government grants and despite tax increases of sek 0.40, net income for the sector falls gradually to minus sek 10 billion in 2016.

There are several reasons why local government finances will be under pressure in the future. One is that the cost pressure from changes in the size and structure of the population will increase significantly in coming years. In the 2000s cost increases from demographic change have been around 0.5 per cent per year for municipalities and just under 1 per cent for county councils.

In the final years of the period covered by our calculation, which includes Diagram 1 • Net income in municipalities and county councils SEK billion

20

20

15

15

Net income equal to 2 % 10 SEK billion

Net income in 2012 will reach a record level thanks to the repayment of earlier premiums from AFA Försäkring (the Swedish Labour Market Insurance Company). In 2013 net income will fall back to a level closer to around 1 per cent of taxes and government grants. According to our main calculation, net income will remain in that vicinity for the rest of the period, but this presupposes a successive increase in government grants to a level that is SEK 18 billion higher in 2016 than it is today. Without the upward adjustment of government grants the deficit will grow and be around minus SEK 10 billion in 2016 despite tax increases of SEK 0.40 included in the calculation.

Net income

10

5

5

0

0

-5

-5

Excl. adjusted government grants -10

-10 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: Swedish Association of Local Authorities and Regions.

6 The Economy Report. October 2012 On Swedish Municipal and County Council Finances

Summary

2016, costs increases related to demographic pressure will rise to just over 1 per cent per year for municipalities and 1.2 per cent per year for county councils. The rate of increase has not been this fast since the early 1990s.

Over and above population changes we expect costs to rise at the same rate as in the 2000s, which is, in constant prices, 0.7 per cent per year for municipalities and more than 1 per cent for county councils. The reason is greater demand for welfare services and an ever higher level of ambition regarding local government tasks. The report includes examples of how the costs of cancer care, support and assistance for people with disabilities, preschool services and public transport have risen.

A further strain on the finances of municipalities and county councils is that investment activity has increased and will remain at a high level. This is due both to the fact that the infrastructure and many of the properties (schools for example) built in the 1970s and 1980s are now beginning to be worn out, and that healthcare is now being run in a different way than in the past. A new type of hospital, different from what we have today, is required to make healthcare more effective. The objective of increasing public transport ridership also requires a higher level of investment. These increased investments then lead, in turn, to an increase in the loan burden on the sector.

Municipal finances Municipalities have problems with relatively low solvency Aggregate net income for the municipalities has been strong in recent years.

However, there are a number of municipalities that have concerns about balancing their finances. Out of all 290 municipalities, 18 have reported negative net income on average for the period 2009–2011. Diagram 9 shows net inDiagram 9 • Municipalities in deficit in 2009–2011 and debt ratio for the municipality and group SEK per inhabitant and per cent

2,000

50

1,000

25

0

0

-1,000

-25

-2,000

-50

-3,000 -4,000

Average net income 2009–2011

-75

Net assets ratio, municipality, 2011

-100 -125

Fä rg e Hä land rn a ös an d Yd Br re äc St ke or De for ge s r Vä fors ste Ud rvi de k va ll Rä a Da ttvik nd er yd M a Bo lå lln äs Be La ng xå tsf o Va rs ns br o Sv Tie en rp lju ng Al a lm un ici Eda pa lit ie s

-5,000

Net assets ratio, per cent

Net income SEK/inhabitant

Net assets ratio, group, 2011

Many municipalities with a deficit on average in recent years also have a relatively weak financial position compared with the country as a whole. The net assets ratio shows the municipality’s long-term preparedness. When comparing municipalities, the net assets ratio including municipal companies can be a more relevant measure since several municipalities have internal banks that handle group borrowing.

Source: Statistics Sweden.

The Economy Report. October 2012 On Swedish Municipal and County Council Finances 7

Summary

come for these municipalities along with their solvency (net assets ratio*), including their contingent liability for their pension undertaking, which is a measure of their long-term financial position. If a municipality has a negative net assets ratio, this means that its liabilities exceed its assets. Out of the municipalities that had, on average, a deficit in 2009–2011, thirteen also have a negative net assets ratio for their municipality. If municipal companies are included and the consolidated group is studied instead, nine municipalities have debts that exceed their assets. The net assets ratio reflects the historical development of net income. The diagram below shows that most of the municipalities that had a deficit in 2009–2011 also previously had finances that had developed weakly.

Possibility of balancing revenue in recession periods

In connection with the Budget Bill for 2013 the Government also presented a bill on local government balancing funds. The Riksdag is expected to adopt amended legislation this autumn so that the new legislation will be applicable as of 1 January 2013.

The purpose of the new regulations is to improve the possibilities open to municipalities and county councils to balance out their revenue over time so that they are better able to address the effects of cyclical variations. In brief the proposal means that, under certain conditions, municipalities and county councils will be able to build up local government balancing funds as part of their balance requirement report and their net assets . These reserves will make it possible to set aside part of a surplus in good times and to then use these funds to cover a deficit that may arise as a result of a recession.

The sum allocated to a local government balancing fund may correspond to the lower of either net income for the year or net income for the year after balance requirement adjustments that exceeds 1 per cent of tax revenue, general government grants and local government financial equalisation. If the local authority's net assets are negative, including its contingent liability for pension obligations, the threshold for when funds may be set aside is 2 per cent.

The municipalities and county councils that choose to make use of local government balancing funds have to adopt local guidelines for the management of these reserves. It will also be possible to make allocations from surpluses built up in the annual accounts for 2010, 2011 and 2012. However, decisions on such surpluses must be taken in 2013.

Many municipalities are able to make retroactive provisions

Under the Government’s proposal many municipalities will be able to make retroactive allocations to the local government balancing funds from 2010– 2012. This means that many municipalities will already be able to have a reserve in 2013. The largest surpluses are in the municipality group of large cities, which can, on average, set aside sek 1,717 per inhabitant. Sparsely populated municipalities and tourism and visitor industry municipalities have the lowest share with reserves from 2010 and 2011; in this group 65 per cent *Net assets ratio = (assets–liabilities)/liabilities.

8 The Economy Report. October 2012 On Swedish Municipal and County Council Finances

Summary

Diagram 10 • Allocation to a local government balancing fund from 2010 and 2011 SEK per inhabitant and per cent 2,000

100

Share able to make allocation 80

1,200

60

Average allocation

Per cent

SEK/inhabitant

1,600

800

40

400

20

0

Su

bu

rb

La rg e cit a m nm ie et s ro un po ici lit pa an lit in To du u ar ies ea , st ris r m s Su y m a bu un nd rb ici vis an p it m aliti or lar unic es Co ge ip m cit alit m y a ies ut er re , as m un ici pa lit M ie s m anu un fa c ici tu Sp pa rin ar lit g es ie s M mu ly p un ni opu cip la ici p a t po aliti litie ed e M pula s in s un t ici ed r den pa eg se io ly po litie ns pu s lat in s ed pa re res M gi ly et on ro s po lit an cit Al ie w lm s ei un gh ic te ip d al av iti er es ag , e

0

Most municipalities have surpluses from 2010 and 2011 that are large enough to permit allocations to a local government balancing fund. The average possible allocation for all municipalities is SEK 1,079 per inhabitant and 76 per cent of municipalities are in a position to set aside funds. Out of the 18 municipalities reporting a deficit on average for 2009–2011 (diagram 9) six are in a position to set aside funds from 2010 and 2011.

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

of municipalities have that possibility. In all, 219 municipalities are able to set aside a total of more than sek 10 billion from 2010 and 2011. A few more municipalities will probably be able to set aside funds from net income in 2012.

Challenges in the future Even though real tax revenue will rise relatively rapidly in years to come, there is no lack of challenges for municipalities. Greater needs on account of population changes, the development of cost for the care of disabled persons and income support (municipal social assistance) are some of the areas that Finance Directors identify as most uncertain in the coming years.

New population forecast shows that demographic needs have been underestimated

In May Statistics Sweden published a new population forecast. According to the new forecast the population will rise much more than has previously been stated. The changes mainly relate to an assumption about increased immigration, but higher fertility and longer life expectancy also play a role. For the municipalities the new population forecast shows that in the future demographic needs will rise more than previously estimated. In the 2000s demographic needs have corresponded to cost increases of about 0.5 per cent per year. With the new population forecast these needs rise by more than 1 per cent per year from 2015. This makes higher demands on the ability of the municipalities to adapt their services to changing needs (diagram 15 on page 10).

The new tax base forecast also results in a larger tax base. However, this effect is much less than the effect on costs.

The Economy Report. October 2012 On Swedish Municipal and County Council Finances 9

Summary

Diagram 15 • Volume changes in various municipal services Index 2011 = 100

120

120 Compulsory school

115

Preschool etc Elderly care Total Disability care Other services

Index 2011 = 100

110

Demographic needs will rise sharply in coming years. The new population forecast from Statistics Sweden primarily entails more children and older people.

Sharp falls in age groups in upper secondary school will require an adaptation of this service. In the next few years demographic needs will increase most in compulsory school and preschool.

105

115 110 105

100

100

95

95

90

90

85

85

Upper secondary school

80

80

75

75 2011

2012

2013

2014

2015

2016

2017

Source: Swedish Association of Local Authorities and Regions.

.

Income support – the national forecast is not always reflected at municipal level

The municipalities’ aggregate payments for income support covary to a large extent with the national level of unemployment (diagram 16). Our forecast of income support (municipal social assistance) is made using our assessment of the Swedish economy and our forecast for unemployment at national level.

Our assessment is that unemployment will rise next year and then fall to 6.5 per cent in 2016.

Diagram 16 • Income support in municipalities and unemployment at national level SEK billion and thousands of persons

10.5

425

10.3

400

10.0

SEK billion

9.5

350

9.3

Number unemployed

9.0 8.8

The level of income support (excluding refugee compensation) is largely explained by the level of unemployment. A rise in unemployment almost leads to a rise in income support.

Income support

8.5

325 300 275

8.3 8.0

250 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

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

10 The Economy Report. October 2012 On Swedish Municipal and County Council Finances

Thousands

375

9.8

Summary

Diagram 17 • Jobseekers – income support

Diagram 18 • Net income – income support

Per cent and SEK per inhabitant

SEK/inhabitant 8,000

Net income, SEK/inhabitant

Jobseekers, per cent of labour force

16

12

8

4

0

Diagram 17 In 2011 there is a correlation for many municipalities between high unemployment and high payments of income support, but there is a considerable spread, There are, for example, municipalities with a relatively high level of income support payments that do not, however, have a corresponding high level of unemployment. This applies to Malmö, Eskilstuna and Södertälje, for example.

4,000

0

-4,000 0

1,000

2,000

3,000

Income support excl. refugees, SEK/inhabitant

0

1,000

2,000

3,000

Income support excl. refugees, SEK/inhabitant

Source: Swedish Association of Local Authorities and Regions.

Diagram 18 There was no strong correlation in 2011 between income support and a municipality’s net income measured in SEK per inhabitant.

The correlation between unemployment and income support applies primarily at national level. In an analysis of unemployment and income support paid per municipality the correlation is not as clear; the picture is different for different municipalities (diagram 17).

Nor is there a strong correlation between income support paid and a municipality’s net income measured in sek per inhabitant (diagram 18). None of the municipalities that had the highest payments in sek per inhabitant for income support report a deficit for 2011. One explanation of this is the far-reaching equalization of income and costs for municipalities, which compensates for structural differences.

County council finances County councils with problems often have weak solvency The financial crisis has had a severe impact on the public sector and therefore also on healthcare in many countries. Swedish county councils have coped much better. They have been able to expand their services without draining their finances. Despite this seven county councils show deficits when we add up net income for the past three years. So, do these seven county councils have a poorer financial standing overall compared with the other county councils and are they thereby in a worse position to meet future challenges?

Solvency (net assets ratio) including contingent liabilities for pension commitments is one measure of a county council’s financial standing. If a county council has a negative net assets ratio, this means that its liabilities exceed its assets.

There is a relatively clear correlation between net income in recent years and financial standing as measured by the net assets ratio (diagram 23). Our analysis shows that all county councils have a negative net assets ratio when we include their contingent liability, but county councils with poorer net income often have a lower net assets ratio. Dalarna is the county with the lowest

The Economy Report. October 2012 On Swedish Municipal and County Council Finances 11

Summary

net assets ratio. Dalarna has also been struggling with deficits for a long time.

Blekinge’s and Halland’s financial problems have been of relatively short duration and they have a much higher net assets ratio than indicated by their net income in recent years. Apart from Halland, Östergötland and Jönköping stand out as having the best net assets ratio. This could be explained by the fact that both use a net income figure that includes the whole of their pension liability in the governance. But it could also be a result of them being unusually well run county councils with good financial management.

Diagram 23 • County council net income 2009–2011 and net assets ratio including pension liability 2011 0 4 -50 2

0

-100

-2 -150

Net assets ratio, per cent

Net assets ratio

Average net income 2009–2011 -4 Bl ek in g Da e lar n Jä a Vä mt ste lan rb d V: o a G tte öt n ala V n Vä ärm d ste la r n nd or r la n Ha d lla nd Sk ån Vä Ö e stm reb an ro l Gä and vl No ebo rrb rg ot te Up n ps Sö ala rm St land oc kh ol m Ka K r lm on ar ob Jö erg n Ö köp ste in rg g öt lan d

County councils with deficits in the past three years also have a relatively weak financial standing. The exception is Blekinge, whose financial problems have been of relatively short duration.

Net income, per cent of taxes and government grants

Per cent of taxes and grants and per cent

Source: Statistics Sweden.

Negative net assets ratio hampers use of local government balancing funds by county councils

New rules expected to be in force from 2013 will make it possible to set aside part of a surplus in good times and to then use these funds to cover a deficit that may arise as a result of a recession. Because of the county councils’ negative net assets ratio including their pension liability, the scope for allocating funds to local government balancing funds is limited. Read more about this proposal in the "Municipal finances" chapter.

Next year it will also be possible to make retroactive allocations of surpluses reported in the annual accounts for 2010 until 2012. Our calculations show that the scope from 2010 and 2011 is about sek 1 billion (table 17). This all comes from 2010. In 2011 no county council attained a surplus of the size required to be able to set aside funds.

Demography increases the costs of cancer care According to an international survey, cancer is the disease we are most afraid to get. To a great extent this picture of cancer is shaped by the history of the disease. Cancer care has made enormous progress and the risk of dying of can-

12 The Economy Report. October 2012 On Swedish Municipal and County Council Finances

Summary

Table 17 • Possible allocation to local government balancing funds from 2010 and 2011 SEK million

Stockholm Uppsala Sörmland Östergötland Jönköping Kronoberg Kalmar Blekinge Skåne Halland

186 0 0 264 217 18 118 0 0 23

Västra Götaland Värmland Örebro Västmanland Dalarna Gävleborg Västernorrland Jämtland Västerbotten Norrbotten All county councils

0 0 2 0 0 16 55 2 0 66 969

More than half the county councils are able to make an allocation of funds to their local government balancing fund from 2010 and 2011.

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

cer has been reduced considerably. Partly as a result of this progress the costs of cancer care are also growing at the same time as a greater number of older people is leading to a rising number of patients. This has raised questions about the future development of costs for cancer care and how to address it.

It is hard even to estimate the cost of cancer care. In part this is because cancer patients are cared for in several different parts of healthcare services and it is difficult to link cost data specifically to patients with a cancer diagnosis. The drg (diagnosis-related groups) system that forms the basis for describing healthcare is linked to what part of the body is affected by a disease and cancer can affect all parts of the body. One outdated and very uncertain estimate is that cancer care accounts for about 7 per cent of total healthcare costs in Sweden. This is in line with corresponding estimates from other countries. Social costs in the form of production loss during sick leave and the value of lost years due to an early death should also be added to the direct healthcare cost. Cost-benefit calculations show that the actual healthcare cost accounts for about half of the total cost of cancer.

The cost of cancer care has pr0bably risen more rapidly than healthcare costs on average. Both the number of patients and the cost per patient have risen. A continued rise is forecast in the future.

Just under 30,000 men and just more than 25,000 women are given a cancer diagnosis each year. The most common forms are prostate cancer for men (33 per cent of cases) and breast cancer for women (30 per cent of cases). The great majority survive their disease; the five-year survival rate is 68–69 per cent and the ten-year rate is 58 per cent. But around 22,000 people die of cancer each year.

Fifty years ago around 20,000 people got cancer each year. That yearly figure had doubled by 1990 and since then it has increased by a further 50 per cent. One important explanation of this trend is demography. Cancer is a disease that is strongly concentrated to high age. So as the population gets older, the number of cancer cases increases. Diagram 26 shows the age-specific incidence of cancer for men and women.

The Economy Report. October 2012 On Swedish Municipal and County Council Finances 13

Summary

Data about age-specific incidence can be used to calculate the purely demographic factor. Diagram 27 shows how demography affects the number of cancer cases assuming the age-specific incidence rates for 2010.

26 • Incidence of cancer in different age groups 27 • Patients receiving a cancer diagnosis Number of cases per 100,000 individuals

Diagram 26 The risk of getting cancer increases with rising age.

80

Men

3

2

1

Women

60

Men

demography

40

demography 20

Actual

Women

19 70 19 80 19 90 20 00 20 12 20 20 20 30 20 40 20 50

0 0–4 5–9 10–14 15–19 20–24 25–29 30–34 35–39 40–44 45–49 50–54 55–59 60–64 65–69 70–74 75–79 80–84 85+

0

Number of patients, thousands

Actual Number of cases, thousands

Diagram 27 Demographic calculation of patients receiving a cancer diagnosis using 2010 incidence rates. This simple calculation shows that at present and in the coming decade the demographic factor will be relatively important for the number of cancer patients, contributing about 1.5–1.8 per cent per year at constant incidence. The projection after 2011 of actual numbers with the assumption of the same growth over and above demography as in the historical trend gives a contribution of a further 1 per cent per year.

Number

4

Source: Swedish Board of Health and Welfare and Swedish Association of Local Authorities and Regions.

As is seen in the diagram, the actual number of cases has increased more than is explained by demography; by about 1 percentage point more per year. This is associated with an increase in the age-adjusted incidence. From 1970 to 2010 the age-adjusted incidence rose from 0.5 per cent to 0.65 per cent for men and from 0.4 per cent to o.5 per cent for women. Paradoxically, progress made by healthcare in other areas, such as coronary and circulatory diseases, has contributed. More people survive these diseases and therefore run a greater risk of getting cancer later in life. But diagnostics also play a role; more cases of cancer are detected. Thus if the age-adjusted incidence continues to rise the number of cases will increase by 2.5–2.8 per cent per year, corresponding to a doubling in 25 years.

The number of deaths from cancer has remained stable at around 20,000 for a long time. Given that incidence has increased at the same time, this is a manifestation of the fact that survival had increased. More people are being cured and more people are living longer with a cancer diagnosis. The five-year survival rate, which was under 50 per cent in 1970, has increased on a trend basis to almost 70 per cent today. A higher survival rate can be explained by better diagnostics meaning that the disease is discovered more quickly, but above all by the improvement in treatment methods. Yet this has also resulted in rising costs. Calculations done for particular forms of cancer show that the cost per patient has doubled in a fifteen-year period. The Lancet Oncology Commission points to several different factors that have contributed to increased costs: • More patients are receiving relatively expensive treatments.

• There is an ever increasing number of specific treatment methods, for example the number of cancer medicines has increased sharply.

14 The Economy Report. October 2012 On Swedish Municipal and County Council Finances

Summary

• The "life cycles" of cancer therapies are tending to become shorter, i.e. new and more effective methods are appearing.

• There is a tendency for over-use. Extensive and expensive treatments are often delivered in the final days of the patient's life. This raises difficult ethical issues, in which economics does not and should not have a place.

Many concerns have been linked to cancer medicines. Extremely expensive medicines with a relatively small effect for the patient would risk being a threat to the economics of healthcare. This is despite the fact that the cost of medication for cancer is still a limited part of the total cost of cancer care. Today the cost of cancer medicines is estimated to account for about 10 per cent of the total cost of cancer care.

The trend in cancer medicines is going in the direction of trying to tailor treatments to patients. Many of the new cancer treatments are therefore aimed at small patient groups. This trend means that the cost per patient treated is high since the research and development costs are largely the same as for medicines aimed at larger patient groups. But since they are generally only prescribed to a few patients, they are not so expensive in total that they cannot be handled in the county council budget. However, they can have major impacts on the budget level of a specific clinic. This requires, of course, that the county councils manage their internal budgets effectively and that, when necessary, these budgets can be adapted quickly to rapid increases in the costs for medicines at specific specialist clinics. However, many of the new cancer medicines often do not provide a cure and only extend the patient's life by a few months. In view of this, the costs can be regarded as high and health economic considerations – and priorities – assume ever increasing importance.

Intensive work is under way in the context of the national medicines strategy and the national cancer strategy on developing a process for the joint introduction of new cancer medicines in healthcare.

Another consideration, alongside the trend towards tailored treatments, is that many existing cancer medicines have been available for some time and have been or will be subject to 'generic competition" on the expiry of their patents. Generic competition often results in a sharp reduction in the cost of the medicine concerned. The cost increases for cancer medicines may therefore decline.

The Economy Report. October 2012 On Swedish Municipal and County Council Finances 15

Summary

16 The Economy Report. October 2012 On Swedish Municipal and County Council Finances

ANNE

X

This annex presents some key indicators and the overall income statements of

municipalities and of county councils, as well as an aggregate income statement for the sector to give an overall picture.

For diagrams showing the distribution of costs and revenue for municipalities and county councils separately, tables presenting overviews of central government grants and other data that we usually present in the Annex to the Economy Report, we refer to our website, where we are now building up a new area called Sektorn i siffror (The sector in figures). Go to www.skl.se, choose Vi arbetar med, Ekonomi, Sektorn i siffror.

An aggregate picture of municipalities and county councils Table 23 • Key indicators for municipalities and county councils, 2011–2016 Per cent and thousands of people

Outcome 2011 Average tax rate, %

Forecast 2012 2013

2014

Calculation 2015 2016

31.55

31.60

31.70

31.73

31.85

32.00

municipalities, incl Gotland county councils*, excl Gotland

20.73 10.88

20.59 11.07

20.59 11.17

20.59 11.20

20.59 11.32

20.62 11.44

No of employees**, thousands

1,059

1,060

1,070

1,084

1,099

1,115

Municipalities

801

802

811

822

833

846

County councils

259

258

259

262

266

269

Volume change, %

1.6

2.0

1.4

1.8

1.9

2.0

Municipalities County councils***

1.4 1.9

1.1 2.1

1.3 1.5

1.5 2.3

1.7 2.3

1.8 2.4

Note: For the average tax rate the calculations are based on an unchanged tax rate for the municipalities from 2012 to 2015 inclusive and a tax rate increase of SEK 0.03 for 2016. For the county councils a tax rate increase is included. *The tax base of Gotland is not included, which is why the totals do not add up. **Thousands; average number of people in employment according to the National Accounts. ***Adjusted for effect of tax shift in 2012.

Sources: Statistics Sweden and The Swedish Association of Local Authorities and Regions.

The Economy Report. October 2012 On Swedish Municipal and County Council Finances 17

Annex

Table 24 • Aggregate income statement for the sector, 2011–2016 Miljarder kronor

Outcome 2011 Income of activities* Expenses of activities Depreciation Net expenses of activities Tax revenue Gen gov grants and equalisation Net financial income** Net income before extraordinary items Share of taxes and grants, %

Forecast 2012 2013

2014

Calculation 2015 2016

154 –779 –24 –650

166 –805 –26 –664

163 –833 –27 –697

169 –864 –28 –723

176 –903 –28 –755

185 –948 –28 –792

540 123 –6

562 120 1

581 123 2

603 126 1

632 131 0

664 136 0

7

18

9

7

8

8

1.0

2.7

1.3

1.0

1.0

1.0

Note: Consolidation has taken place by purchases between sectors. *The non-recurring effect of a probable repayment of AFA premiums of SEK 11 billion is included in Income of activities for 2012. **The one-time effect of the lowered interest rate for pensions liabilities for 2011 of SEK –7.7 billion is included in Net financial income.

18 The Economy Report. October 2012 On Swedish Municipal and County Council Finances

Annex

Table 25 • Income statement for the municipalities, 2011–2016 SEK billion

Outcome 2011 Income of activities* Expenses of activities Depreciation Net expenses of activities Tax revenue Gen gov grants and equalisation Net financial income** Net income before extraordinary items Share of taxes and grants, %

Forecast 2012 2013

2014

Calculation 2015 2016

115 –520 –17 –422

125 –534 –18 –428

120 –551 –19 –450

124 –571 –19 –466

129 –595 –19 –485

135 –624 –19 –508

355 76 1

366 73 3

377 76 3

391 77 2

408 80 2

428 83 2

9

15

6

5

5

5

2.2

3.4

1.3

1.0

1.0

1.0

*The non-recurring effect of a probable repayment of AFA premiums of SEK 8 billion is included in Income of activities for 2012. **The one-time effect of the lowered interest rate for pensions liabilities of SEK –2.0 billion is included in Net financial income.

Table 26 • Income statement for the county councils, 2011–2016 SEK billion

Outcome 2011 Income of activities* Expenses of activities Depreciation Net expenses of activities

Forecast 2012 2013

2014

Calculation 2015 2016

41 –261 –7 –228

44 –273 –8 –237

45 –284 –8 –247

47 –296 –8 –257

49 –311 –9 –270

52 –327 –9 –284

Tax revenue Gen gov grants and equalisation Net financial income** Net income before extraordinary items

185 47 –7

196 46 –2

204 48 –1

212 49 –1

223 51 –2

236 53 –3

–2

3

3

3

3

3

Share of taxes and grants, %

–1.1

1.4

1.2

1.0

1.0

1.0

*The non-recurring effect of a probable repayment of AFA premiums of SEK 3 billion is included in Income of activities for 2012. **The one-time effect of the lowered interest rate for pensions liabilities of SEK –5.7 billion is included in Net financial income.

Source: The Swedish Association of Local Authorities and Regions.

The Economy Report. October 2012 On Swedish Municipal and County Council Finances 19

Annex

20 The Economy Report. October 2012 On Swedish Municipal and County Council Finances

The Economy Report. October 2012 On Swedish Municipal and County Council Finances is a series published twice yearly by the Swedish Association of Local Authorities and Regions (salar). In it we deal with the present economic situation and developments in municipalities and county councils. The calculations in this issue extend to 2016.

In 2012 non-recurring revenue is expected to contribute to very good net income for municipalities and county councils. This non-recurring revenue of more than sek 11 billion provides a welcome breathing space for the municipalities and county councils that are struggling to bring their finances into balance.

Thereafter the picture looks much tougher. Costs will rise on account of greater demographic pressure, increased investments and other factors. Strong tax base growth and higher government grants will not be enough to handle the economy. In municipalities and county councils tax increases totalling sek 0.40 compared with today will be required to avoid the worsening of net income for the sector.

The report is not for sale, but it can be downloaded from the website of Sveriges Kommuner och Landsting: www.skl.se. Choose In English and then Publication and reports.

Download at www.skl.se/In English, Publications and reports.

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