The financial relationship between the state and the municipalities in Finland by Krista Kolehmainen 1 Introduction At the moment there are 336 municipalities in Finland, of which 108 are considered as cities. Most of these municipalities have a Finnish majority, but there are also some with a Swedish majority and some that are considered as bilingual municipalities. Therefore the citizens are entitled to both Finnish and Swedish language service when dealing with different authorities. There are some services that every municipality is obligated to organize for its inhabitants. Examples are: Basic education, health care, children’s day care, care of the elderly etc. Due to the obligation to organize these services, municipalities have the right to take different taxes from their inhabitants. The state also supports the municipality financially, in order to ensure that the statutory services are carried out. If the municipality has a good economy it can also offer leisure services, such as sport activities and libraries, to the inhabitants. The municipalities in Finland have certain autonomy and are therefore in charge of their own economy and other matters which are internal regarding the municipality. Decisions are made by the municipal council and government. The state (the Finance Ministry) supervises the municipalities’ actions and economy in general and ensures that the autonomy of the municipalities is taken into account when preparing new laws regarding the municipalities. The state also provides the municipalities with a financial support, in order to ensure that the municipality fulfils its statutory obligations. 2 The financial relationship between the state and municipality 2.1 Financing of the municipalities The municipalities in Finland finance their outcome mostly with taxes, financial support from the state as well as with different service payments and sale incomes. The different taxes are the most important income, and taxes make approximately half of the income of a municipality. The citizens in Finland pay a municipality tax in an average of 18,30 % of their incomes. The municipality taxes can be divided into three categories, which are municipal taxes, property taxes and corporation taxes. Every municipality receives a financial support of the state. This support is less than a fifth of the municipality’s income. The financial support from the state is mainly meant for ensuring the large-scale statutory services of the municipality, for example basic education. The main purpose of the financial support of the state is to even out the economic differences between the municipalities as well as to ensure equal services across the whole country. A municipality that temporarily is in serious financial difficulties may, upon application and case-to-case consideration, receive a higher financial support of the state in order to manage to carry out their obligations.

Fig. 1: Finland’s Finance Minister Jutta Urpilainen (photo: flickr user Håkan Dahlström)

The third income-type of the municipality are payments and sale-incomes. These incomes are the lowest and makes about a fourth of the total income of a municipality. For example, of the outcomes of social- and health care in a municipality, less than a tenth is covered with payments. Another example is the basic education in Finland, which is free for everyone and therefore the municipality do not get any incomes from it. 2.2 Additional financial support from the state As stated above, the state supports the municipality financially to some extent, but there are certain rules on how this financial support is received. The municipality receives a financial support from the state depending on the costs of, among other things, basic education, social- and health care and different culture activities. The amount is counted by adding costs regarding the basic services in the municipality in question and then by reducing the self-financing part of the total sum. The received amount is the financial support that every municipality gets from the state. This is the raw calculation system, but also other factors, such as language, location, amount of inhabitants etc., affect the final amount of financial support. The municipality may receive an additional financial support of the state, but it is possible only when the municipality is going through financial difficulties on a long-term basis and fulfils some special requirements and application. In case a municipality has serious economical problems, the state may grant additional financial support on a case-to-case basis. This is due to the fact that a municipality is obligated to offer certain public services for the inhabitants, which costs a lot of money to the municipality. In order to receive this additional financial support from the state, the municipality must have low statistics in their economic for two years in a row. In this case the municipality and state must together make a clarification and come up with a solution to improve the situation and ensure the statutory service for the inhabitants. The clarification is made by an evaluation group, which is named by the municipality together with the Finance Ministry. The Finance Ministry then makes their decision about additional support based on the clarification. 2.3 Other financial aspects between the state and municipalities The Finance Ministry might also grant municipalities’ collaborative financial support on a case-to-case basis if the municipality is going through some large-scale changes, for example renewal of service structures or developing services. To receive this financial support, the municipality must apply for it and the support can be granted on the year of application and the following year. This financial support can be granted only if the municipality has made a final decision about the collaboration measures. The Finance Ministry decides the amount and time of the possible payment.

Municipalities in Finnland

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100

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300

400

500

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700

1917

1927

1937

1947

1957

1967

1977

1987

1997

2004

2005

2006

2007

208

2009

2010

2011

3 Other aspects on the municipality system in Finland Because of the large amount of municipalities in Finland, some of the smaller ones are not able to fulfill their statutory obligations. Therefore some municipalities align themselves in joint municipals, which mean that they can share some of the services. Hospitals or upper secondary schools are in many cases a co-operation between two or more municipalities. This measure is taken to ensure a good level on the service and to give the inhabitants of the municipalities a service that in other cases could not be provided due to financial aspects. In some cases the municipalities still have difficulties to fulfill their statutory obligations and in these cases the government might interfere, even though the municipality has certain autonomy. Finnish Prime Minister Jyrki Katainen has told Helsingin Sanomat, that the government is ready to consider some forced mergers if the municipalities are not able to fulfill their statutory obligations regarding the basic service. Katainen says that if some municipality are going to ignore their statutory obligations, the government

simply cannot allow that, and therefore these forces mergers might be considered.

There are also discussions in Finland about the amount of required municipalities and whether the amount of municipalities should be decreased significantly. During the last 5-6 years the amount of municipalities has decreased from 431 (in year 2006) to 336 (today). During the years 2007-2011 there has been 57 municipal mergers and the total amount of municipalities have decreased with 105. As it has been stated, the reasons to all these municipal mergers are mainly development aspects, in order to keep the municipality strong and able to function on the wanted service level. Large municipalities often have a better economy and therefore better service. The drift for better service and cost efficiency are one of the main reasons to the municipal mergers in Finland.

Fig. 2: Finnish Prime Minister Jyrki Katainen; (photo: flickr user European People's Party – EPP)

References:

� Article in Helsingin Sanomat about municipal mergers: http://www.hs.fi/politiikka/Katainen+Ylelle+Kuntien+pakkoliitokset+mahdollisia/a1305555378822

� Finnish official municipality website: http://www.kunnat.net/fi/kunnat/toiminta/kuntatalous/Sivut/default.aspx

� Finnish municipality law: � http://www.finlex.fi/fi/laki/ajantasa/1995/19950365?search[type]=pika&search[pika]=ku

ntalaki � Law about the state’s financial support for the municipalities: � http://www.finlex.fi/fi/laki/ajantasa/2009/20091704?search[type]=pika&search[pika]=va

ltionosuus � Photo Jutta Urpilainen:

http://www.flickr.com/photos/dahlstroms/4681824323/ � Photo Jyrki Katainen: � http://www.flickr.com/photos/eppofficial/5497264476/sizes/s/in/photostream/

Krista Kolehmainen is a 23 year old student from Finland. She is studying political science in Helsinki University and at the moment participates in a 6 month internship program in Berlin with Friedrich-Naumann-Foundation for Freedom, FDP party headquarters and the FDP group in the German Parliament. Potsdam, Friday, February 17, 2012