Municipal economy Municipal finances will turmoil in the coming years: See on the counter how tax revenues and government funding will change in your municipality

Some of the aging municipalities will be relieved of their burden with the social reform. Medium-sized cities will be under pressure to raise taxes in the coming years.

Municipalities expects in the next few years to jump into the unknown as they no longer provide social and health care. The change will halve municipal budgets and reverse the revenue structure of many municipalities.

Growing cities in particular are concerned, among other things, about their ability to invest, as they become increasingly dependent on government funding. Its stability is not trusted in cities.

The largest tasks of the municipalities will be education, early childhood education and education. These tasks will take the blow if the municipality has to adjust its spending in the future. The means of balancing the economy are more limited when the budget is half of the former.

The purpose is that social and health care, ie sote, will move with the rescue service from the beginning of 2023 to new welfare areas, which will be established in Finland 21. The discussion on the reform is nearing completion in Parliament.

The municipalities that will benefit most from the transfer are those where the need and demand for social services will grow strongly in the next few years, but whose income base is weak, for example because the municipality has a large number of low-income residents.

“When the sote costs are transferred jointly with all tax money, it eases the burden on these municipalities,” says the Executive Director of the Association of Finnish Municipalities. Timo Reina.

As a result of the war, local governments are leaving an item of expenditure that has often been unpredictable in addition to growing. Many expensive patients in the same year have now been able to shake the finances of a small municipality badly.

Expenditure on education and civilization is much easier to predict.

Read more: Municipalities are facing a historic change: How the end of the war will affect the economy, property and tasks

From the municipalities eliminates sote costs, but at the same time leaves a similar amount of revenue. Municipal revenues are transferred to the state, which finances the activities of welfare areas.

The transfer of funding will be carried out by deducting municipal tax from municipalities, the share of municipalities in corporate tax revenue and state contributions for basic services.

State contributions refer to funding paid by the state to municipalities. Transferable tax revenues are over € 13 billion and transferable government contributions are over € 7 billion.

In practice, this is done by reducing the municipal tax rate for all municipalities by one blow by the same amount, regardless of how much the municipality has spent on war and rescue. According to current information, the cut is 12.39 percentage points, but the figure is still to be specified.

For example, Helsinki’s municipal tax rate would fall from the current 18 percent to 5.61 percent.

Correspondingly, the state’s income tax and the state’s share of corporate tax revenue will be increased.

In the municipality’s account bag, this transfer of income from municipalities to the state is not visible, but the level of income tax is intended to remain unchanged and no one should tighten or even lighten their taxation. The promise only applies at the time of transfer.

Is a different matter of what happens in the years after the transfer, as municipalities will continue to be able to decide their own tax rates.

By the Ministry of Finance based on the pressure calculation all municipalities will be under pressure to raise the tax rate at the end of the current framework period for public finances, ie 2025.

The highest pressure, ie more than two percentage points, is in municipalities with a population of 20,000–40,000. In the largest cities with more than 100,000 inhabitants, the pressure to raise the municipal tax would be 1.4 percentage points.

One in tax pressure is Iisalmi, with a population of just over 20,000. Mayor Jarmo Ronkainen according to the sote transfer will negatively affect the city’s economy based on preliminary calculations.

“We belong to the losers. The situation is also divisive within the province. ”

In Iisalmi, there is concern about the concentration of social services in the Pohjois-Savo welfare area.

Similarly, the city hopes that investments in basic education could continue. According to Ronkainen, the hourly frame, ie the number of hours students are taught, is higher in Iisalmi than in many similar municipalities.

In the municipalities a big change occurs when the relationship between government contributions and tax revenues changes. Indeed, many municipalities accustomed to good tax revenues find themselves dependent on state funding.

The level of state contributions is a political decision, and if there is a need for savings, governments have, at least in recent years, found savings in municipal money.

The Sote transfer will erode the income structure, especially in the Helsinki metropolitan area. One change is the city of Kauniainen with 10,000 inhabitants.

Mayor Christoffer Masarin according to the city, the role of state contributions in the city’s economy has now been minimal. In the future, tax revenues will fall from the current level and state contributions will become almost equal.

Masar does not trust the permanence of state contributions if, for example, future welfare regions start to exceed their budgets.

“And then the government thinks about where that money will be torn, because after all, patients and the elderly cannot be left to be thrown away. Then one might think that they could easily be swept away by the state contributions of the rich cities of the south. ”

According to Masari, the Ministry of Finance has not understood that the investments of the municipalities in the metropolitan area are more than just war.

“They are schools, kindergartens, the city track and other infrastructure. In the future, big investments will have to be made with a much smaller financial base. ”

Mayor of Kauniainen Christoffer Masar.

Government limited the effect of the change so that the sote transfer in the year of entry into force must not affect the balance of the municipality’s economy.

After that, a transitional period of five years begins, after which the change in the balance may not permanently exceed EUR +60 or EUR -60 per inhabitant. That means a return of about 0.6 percentage points in municipal tax.

Initially, the government was allowing a sharper change in either direction, but after municipal protests, this was eased.

Even if the municipality’s sote spending leaves, the reform will not save municipalities that were already in low oxygen before the reform. Next, they may no longer survive the organization of teaching if the number of children drops too much.

Read more: Municipal tax increases, outsourcing of services or cuts? This is how the parties are divided on economic issues

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