7164 684 2

The Economy Report.ON SWEDISH MUNICIPAL AND COUNTY COUNCIL FINANCES – MAY 2011

Information concerning the content of the report:Annika Wallenskog tel +46 8 452 7746Bo Legerius tel +46 8 452 77 34

Swedish Association of Local Authorities and RegionsDepartment of Economy and Governance, Section for Economic AnalysisSE-118 82 Stockholm | Visitors Hornsgatan 20

Phone +46 8 452 70 00 | Fax +46 8 452 70 50

www.skl.se

© Sveriges Kommuner och Landsting1st edition, July 2011

Graphic form & production Elisabet JonssonTranslation Ian MacArthur, Elisabet JonssonCover illustration Jan Olsson Form & Illustration ABPrinters ???, StockholmFonts Chronicle and WhitneyPaper Xerox Colotech 120 gr ???

ISBN 978-91-7164-684-2

(Swedish edition: 978-91-7164-670-5, ISSN: 1653-0853)

The Economy Report. May 2011 On Swedish Municipal and County Council Finances 1

Foreword

The Economy Report illustrates the financial situation and conditions of coun-ty councils and municipalities and the development of the Swedish economyover the next few years. It is published twice yearly by the Swedish Associa-tion of Local Authorities and Regions (salar).

The calculations in this edition were closed on 19 April. They look forwardto 2015. Despite the financial crisis, the levels of net income for the sector inboth 2009 and 2010 are among the best for many years, mainly as a result oftemporary factors. The prospects are deteriorating ahead of 2011; one of themain causes is the phasing out of the cyclical support from central govern-ment in 2011 and 2012. Nevertheless the forecast for 2011 shows a surplus ofmore than sek 15 billion in the sector; in 2012 we expect a surplus of morethan sek 8 billion. For the years after 2012 we report a calculation showinghow net income in the sector will develop if services grow in line with thehistorical trend and if central government grants grow in line with the taxbase.

This is an abridged version of the report. It contains the Summary (sup-plemented with some tables and diagrams from the main report) and theAnnex. It has been written by staff at the salar Section for Economic Ana-lysis and has not been considered at political level within the Association. Thepeo p le who can reply to questions are given on the inside cover page. Othersalar staff have also contributed facts and valuable comments. The trans -lation is by Ian MacArthur, following slight revisions by Elisabet Jonsson andAnna Kleen. We are very grateful to the municipalities and county councilsthat have contributed basic data to our report.

Stockholm, May 2011

Annika WallenskogSection for Economic Analysis

Contents

3 The Chief Economist’s conclusions5 Strong Swedish recovery...5 ...leads to good finances for the municipal and county council sector7 The challenge of the future8 Municipal employment not just in-house9 Changing welfare9 Profits for private companies?10 Rise in business acquisitions11 Gains for citizens?12 Gains for municipalities?13 So what are the reasons why private sector services run at a profit?

15 Annex

2 The Economy Report. May 2011 On Swedish Municipal and County Council Finances

The Chief Economist’s conclusionsEven though the Swedish economy was on its way out of a deepdownturn, 2009 and 2010 were among the best years ever formunicipalities and county councils in terms of net income. Themain explanation is the sharp increase in government grants andrestrained cost growth. But this pleasure will be short-lived. Thecalculations for coming years suggest limited financial scope.

After the Swedish economy had shrunk by 5 per cent in 2009,we were able to register gdp growth of 5.5 per cent last year.2011 has also opened with very strong economic data and for-ward-looking indicators such as industry and household baro-meters are pointing to continued good growth in the economy.While it is not realistic to expect equally strong growth figures in


Table 3 • Balance of resources, 2009–2012Percentage change

2009 2010 2011* 2012*

Household consumption –0.4 3.5 3.6 4.2General government consumption 1.7 2.6 1.1 0.8Central government 1.2 4.7 0.8 0.0Local authorities 1.9 1.9 1.2 1.1Gross fixed capital formation –16.3 6.3 10.0 11.0Changes in stocks** –1.5 2.1 –0.2 0.3Exports –13.4 10.7 11.2 5.5Imports –13.7 12.7 9.9 8.7GDP –5.3 5.5 4.8 3.5

*Refers to data adjusted for calendar effects. **Contribution to GDP growth, percentage points.Sources: Statistics Sweden and Swedish Association of Local Authorities and Regions.

Growth will remain high in 2011. The deve-lopment of both exports and investmentsis expected to remain very strong.

the coming years, we do expect the economy to grow by almost 5per cent in 2011 and by about 3 per cent per year in subsequentyears. This means that the economy will grow at a rate that willgenerate employment growth strong enough to press un em -ployment down to less than 6 per cent in 2015.

Almost three years after the financial crisis entered its acute phase and drewthe world economy down into its steepest economic decline since the de-pression of the 1930s, it is now increasingly clear that the global economy hasentered a sustained recovery. So far most of the energy for the recovery hascome from emerging economies such as China and India. Since these countri-es were not so strongly integrated into the international financial system,they were not hit as hard by the deep freeze on capital markets and have,instead, continued to be driven forward by a strong “catch-up force”.

In recent months the traditional engine of the world economy, US consu-mers, now seems to have begun to build up steam, even though the US reco-very is much weaker than usual.


The Chief Economist’s conclusions

Diagram 8 • GDP and hours worked, seasonally adjusted figures, 2008–2012Index, first quarter 2008 = 100

92

94

96

98

100

102

104

106

108

110 Hours worked

GDP

2012:32012:12011:32011:12010:32010:12009:32009:12008:32008:1

Inde

xThe quickest phase in the cyclical recove-ry has passed. Only part of the productivi-ty loss will be been regained.

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

Table 2 • International GDP growth, 2009–2012Percentage change

2009 2010 2011 2012

US –2.6 2.8 3.2 3.1EU –4.2 1.9 2 1.8China 9.2 10.3 9.2 9.0World –0.5 5.0 4.5 4.5Export-weighted GDP* –3.3 2.7 2.9 2.8Sweden –5.3 5.5 4.8 3.5

* GDP growth in a number of countries weighted by their importance as recipients of Swedishexports.Sources: National Institute of Economic Research and Swedish Association of Local Authorities and Regions.

The prospects for Swedish exports are re-latively good in the next few years, asGDP growth will be almost 3 per cent inour export market. However, world growthwill be higher.

Even though there are still risks, such as the debt crisis in Europe and geo-political unrest in North Africa, most signs nevertheless point to a continua-tion of the healing process in the world economy. Several economies in thenorthern part of Europe, including Germany, Norway, the Netherlands andFinland, are growing at a relatively good pace. This is good news for us sincethey are some of Sweden’s most important trading partners. So far the pro-blem children have been parts of southern Europe and the UK, which are suf-fering from high public indebtedness and will probably be forced to live withfiscal restraint and weak growth over the next few years.

Strong Swedish recovery…In the same way as Sweden was one of the OECD countries to fall quickest anddeepest in connection with the financial crisis, we are now one of the countri-es where the recovery has been most rapid. Apart from emerging economieslike China, it has, on the whole, been export-intensive economies focused oninvestment and input goods and with relatively good government financesthat have taken the lead in the recovery.

…leads to good finances for the municipal and county council sectorIn connection with the sharp downturn in the Swedish economy at the end of2008, bleak future perspectives were depicted for the finances of the munici-pal and county council sector. SALAR’s own forecasts showed that if no actionwas taken, the sector would report deficits in both 2009 and 2010 on accountof weak employment and tax base growth.However, things turned out com-pletely different in reality. Thanks to substantial temporary cyclical support,a number of other effects of a temporary nature, such as the repayment ofcharges from the Swedish Labour Market Insurance Company (AFA För -säkring AB), and the fact that the labour market did not at all develop as we-akly as we and many others had feared, 2009–2010 were instead to be some ofthe very strongest years recorded for the sector in terms of net income.



Diagram 13 • Real growth of the tax base and total revenue, showingrevenue growth as of 2013both including and excluding the upward adjustment of government grantsIndex 2002 = 100

95

100

105

110

115

120 Total revenue with un-changed government grants

Total revenue

Tax base

20152014201320122011201020092008200720062005200420032002

Inde

x

Even though real tax base growth is goodin 2011–2012, total revenue only increasesweakly. This is due to the phase-out of thetemporary cyclical support.

Sources: Swedish Tax Agency and Swedish Association of Local Authorities and Regions.

Cost increases in the sector were also relatively modest in 2009–2010; the mu-nicipalities showed slightly more restraint in 2009. In the county councils,where the braking distance was slightly longer, it can be noted that the effectsof the action programmes implemented were chiefly seen in 2010.

Paradoxically, we cannot count on equally good conditions in the futureeven though we are looking forward to a couple of really good years for theSwedish economy as a whole. In 2011 and 2012 the government cyclical sup-port is being phased out, so that, overall, revenue will only rise marginally de-spite a strong rise in the tax base. In subsequent years we expect moderatereal increases in revenue despite relatively strong increases in tax revenue; inpart this is because further into the future an increasing share of tax revenuecomes from pay rises, which also results in higher costs for municipalities andcounty councils. A comparison with the period before 2010 shows that part ofthe increase in tax revenue then was due to tax increases.

In 2011 net income for the sector is calculated as SEK 15.4 million, a verygood level that is more than two per cent of taxes and government grants, whi-ch is viewed as the threshold for healthy finances. However, we expect net in-come to already decrease in 2012, falling below the level for healthy finances.For the period 2013 to 2015 we have carried out a calculation based on costgrowth in line with the historical trend. Our assessment is that in the longterm the sector will be unable to hold back cost increases.



Diagram 1 • Tax base growth (lines) and contribution from certain components (bars)Per cent and percentage points

-2

-1

0

1

2

3

4

5 Other, pp

Employment, pp

Hourly wage, pp

Excl. regulartoryeffects, %

Total, %

201520142013201220112010

Per c

ent

Tax base growth will be stable at just over4 per cent per year in 2011–2015, but itscomposition will change. During the peri-od pay rises will gradually assume increa-sing importance for the increase in the taxbase.

Source: Swedish Association of Local Authorities and Regions.

Table 17 • The cost volume of municipalities divided up into demographic needs and other factorsPercentage change on the previous year

Volume growth Average Outcome Prel. Forecast Calculation2002–2004 2005–2008 2009 2010 2011 2012 2013–2015

Demographic needs 0.4 0.5 0.6 0.6 0.5 0.5 0.5Other factors/Trend 0.3 1.1 0.4 0.7 0.6 0.5 1.1Total volume change 0.7 1.6 1.0 1.3* 1.1 1.0 1.6

*The volume increase in 2010 is excluding items affecting comparability.Source: Swedish Association of Local Authorities and Regions.

If no action is taken, net income will weaken gradually until 2015 despite theassumption that, in the years included in the calculation, general governmentgrants will rise in line with the tax base. It is primarily the county councils’ fi-nances that will develop weakly and will already be in deficit in 2014. This isbecause the county councils essentially have weaker finances than the muni-cipalities, but it is also a consequence of the greater impact of rising demo-graphic pressure on county councils than on municipalities.

The challenge of the futureEven if we do not count on the strong financial trend of recent years continu-ing at the same pace, the tax base will still rise as a result of a relatively strongrecovery on the labour market.

It is natural to breathe out a little after coming out of a crisis with yourheart in your mouth. At the same time, we must realise that a longed-for eco-nomic upturn does not mean that the long-term difficulties have been over-come. It is important to recall that the good tax base and labour marketgrowth in 2011–2015 are linked to an economic recovery and do not representthe normal state of the Swedish economy. In the longer term the demograp-hic situation means that we cannot expect any growth in the number of hours



Needs due to demographic factors increa-se strongly until 2015. In 2010 volume ofcosts increased by 1.0 per cent, which cor-responds to the level of demographicneeds. However, the comparison is affec-ted by costs for the new influenza in 2009

as well as temporary items in 2010. Costsalso rise by 1 per cent in 2011. Here againthe comparison is affected by the tem-porary items in the previous year. In 2012

costs rise by 1.6 per cent, which meansthat costs are again rising more than de-mographic needs but less than the histori-cal trend.

Table 24 • Cost increase divided up into various components in 2002–2015Contribution in percentage points, constant prices

Outcome Forecast Calculation*02–04 05–08 2009 2010 2011 2012 2013–2015

Demographic needs 0.7 0.9 1.1 1.0 1.0 0.9 0.9Other factors/Trend 0.8 1.5 1.5 0.0 0.1 0.6 1.2Total volume change 1.5 2.4 2.6 1.0 1.0 1.6 2.1

*Assuming trend.Source: Swedish Association of Local Authorities and Regions.

Table 1 • Aggregate income statement for the sector, 2010–2015SEK billion current prices, unless otherwise stated

Outcome Forecast Calculation2010 2011 2012 2013 2014 2015

Income of activities 149 151 157 163 169 176Expenses of activities –755 –777 –806 –842 –881 –922Depreciation –24 –24 –25 –25 –26 –27Net expenses of activities –629 –650 –674 –705 –738 –774

Tax revenue 521 539 560 585 610 635Gen gov grants & equalisation 123 123 120 125 129 133Net financial income 4 2 2 2 2 1Net income before extra-ordinary items 19 15 9 7 2 –4

Share of taxes and grants, % 3.0 2.3 1.3 1.0 0.3 –0.6Source: Swedish Association of Local Authorities and Regions.

In our calculation, net income in the sec-tor decreases gradually from a historicallyhigh level. The development of net incomeshown is not realistic and requires an ad-justment. More years with substantialsurpluses are required to achieve an ave-rage level of net income that correspondsto healthy finances over a business cycle.

worked. There is even a risk of a weak fall in the average number of hours wor-ked in the coming twenty-five years. Such a development would mean that themunicipal and county council sector would no longer be able to rely on risingtax revenues driven by employment growth. We would, instead, be dependenton strong productivity growth in the sector to be able to fulfil our welfare rolein the longer term.

But here strong productivity growth means that it must be higher than inthe past, otherwise it will not produce any additional effect. Without this, the-re is a risk of a growing financial gap in coming decades, and then more fun-damental changes in the welfare system may be necessary.

One dilemma in the welfare sector is that the resources released by pro-ductivity growth are immediately reassigned to new services. One exampledescribed in the county council chapter is childbirth care. There care timesafter a birth without complications have been reduced from a week to a fewhours. The resources released are now being used instead in neonatal careand to look after mothers and children directly after complicated births.

Many solutions have been proposed as ways of remedying the long-termproblem. Some recommend a higher retirement age and other measures to in-crease the number of hours worked. Others build on self-financing of welfa-re services or improving the efficiency of the sector.

Some commentators take the view that efficiency in the production of wel-fare services would be higher if the services were being run on a competitivemarket. More and more municipalities and county councils are using privateorganisers to operate services, either through procurement or as a result ofpatient choice in healthcare or customer choice in social care and schools, forexample. In municipal services the number of hours produced by other pro-viders increased from 7 per cent in 2002 to 12 per cent in 2010. In healthcarea tenth of all hours worked are provided by private providers. The reasonsvary. The main aim of the choice reforms is primarily to increase choice for ci-tizens and to make services compete in terms of quality. This may suggest thatthe problem of its long-term financing is not yet a reality for the sector, whi-ch is still, to a great extent, giving higher quality priority over lower costs.

Local government employment not just in-house

The number of hours worked in municipal in-house services has largely re-mained at the same level since 2002, apart from the rise and decline in bonusjobs (diagram 9). At the same time, municipally financed services are increa-singly being provided by private actors. The share of hours provided by pri-vate actors increased from 7 per cent in 2002 to almost 12 per cent in 2010. Weexpect the total number of municipally financed hours to have increased byjust under 6 per cent between 2002 and 2012.

In county councils the link between a higher volume of services and hoursworked is not as strong as in municipalities. Nor has there been the same in-crease in the share of services provided by private providers there (diagram10). This share is largely unchanged at around 10 per cent. We expect thenumber of hours worked in county council-financed services to increase by



around 4 per cent between 2002 and 2012, which therefore means a weak dec-rease from 2010.

Changing welfareOne issue, which we also consider in the municipal and county council chap-ters, is the major change taking place in the sector with more and more servi-ces being produced by other providers. In the following this change is consi-dered from another perspective.

Profits for private companies?Several discussions are in progress about the size of the profits made by pri-vate companies in healthcare, school and social care services and what the re-asons are for such profits. This chapter will look at that issue.

Profits can be measured as the return on capital invested or as the opera-ting margin (the profit for the year before tax and interest expenses). Profitsfor companies in the healthcare, school and social care sectors, measured



Diagram 9 • Municipally financed hours worked and in-house hoursIndex, 1998 = 100 and annual percentage change

Inde

x

-4

-3-2

-1

0

1

2

3

4

56

7

8

Municipalities, total

Municipalities, in house(right)

Per c

ent

92

94

96

98

100

102

104

106

108

110

112

114

116 Municipalities, total

Municipalities, in house(left)

201220112010200920082007200620052004200320022001200019991998

A growing share of municipally financedemployment is among private providers.The number of hours worked has increa-sed gradually ever since 1998.

Sources: Statistics Sweden, National Institute of Economic Research and Swedish Association of Local Authorities and Regions.

Diagram 10 • County council financed hours worked and in-house hoursIndex, 1998 = 100 and annual percentage change

Inde

x

-4

-3-2

-1

0

1

2

3

4

56

7

8

County councils, total

County councils, in house(right)

Per c

ent

92

94

96

98

100

102

104

106

108

110

112

114

116 County councils, total

County councils, in house(left)

201220112010200920082007200620052004200320022001200019991998

In county councils the share of hours worked in private providers is not in -creasing. Overall, the change in employ-ment during the period is marginal.

Sources: Statistics Sweden, National Institute of Economic Research and Swedish Association of Local Authorities and Regions.

both as return on total capital and as their operating margin, were slightly hig-her than in the business sector as a whole in 2007 and 2008 (table 10).1

In theoretical terms, the level of payment received depends on the risk thatthe capital invested will be lost. The greater the risk in a sector, the higher thereturn expected. The risk in local government sectors ought reasonably to belower than for the business sector on average. However, companies in the he-althcare, school and social care sectors have succeeded in obtaining a returnthat is slightly higher than the average in the business sector. But this isnothing to be surprised about. The profit level is usually high in new markets,especially when developments involve leaving a monopoly situation. Thebuyers are inexperienced, no clear market prices have been established, andso on. More and more companies are quickly entering these sectors. Thehours provided in welfare services are increasingly being provided by otherproviders. Since 2002 their share of municipal services has increased from 7to almost 12 per cent, and in the healthcare area a tenth of all hours workedare produced by non-county council providers. Since the introduction of pa-tient choice in primary healthcare at the start of 2010, the number of compa-nies has increased by 239, or 23 per cent. Almost all of this increase can be at-tributed to private healthcare providers. In all, about two thirds of the priva-te healthcare clinics are run by small enterprises, i.e. companies with lessthan 50 employees. Three large companies own about one third of the priva-tely run healthcare clinics.

Rise in business acquisitionsCurrent profits do not say everything about the possibilities of earning mo-ney. Another aspect is building up healthcare. If companies invest a lot andtherefore have high depreciation costs, their value and therefore future pro-fits can increase on a sale; however, the profits during the period when thecompany is being built up will be lower. As in the rest of the business sector,there are methods of reducing the profits reported. One method is sharehol-der loans at high interest rates. Instead of the owners providing a shareholdercontribution with dividend requirements, this funding is designed as a loanand the interest rate can be set at a chosen level. Even non-profit associationsor foundations can have various methods of withdrawing money from their



Table 10 • Profit and operating margin for private companies in healthcare, schools and socialcare in 2007 and 2008Per cent

Sector 2008 2007Return on Operating Return on Operating

total capital margin total capital margin

Education 12.3 6.7 14.4 7.0Healthcare 12.1 10.9 17.2 11.2Social care 11.0 6.9 12.8 7.9Total for the sector 11.9 8.6 16.0 9.2Whole business sector 9.0 6.4 9.8 8.0

Source: Statistics Sweden.

1. A review of the annual accounts of 16 randomly selected companies in the same sectors in 2009 showsthat they had an operating margin of 7.4 per cent.

business. One of the foundations we have looked at has had staff employed ina staffing agency, which is a limited company, and has rented its staff from thelimited company.

This makes it difficult to see what is a true and fair profit. Another difficul-ty in analysing profit margins is that there have been a large number of busi-ness acquisitions and reconstructions in the sector in recent years. Several ofthe large healthcare and school companies are now owned by private equitycompanies. A factor that also makes it difficult to assess profits is that manycompanies also operate in other segments, where only part of their revenuecomes from municipalities and county councils, making it difficult to analy-se profits solely for the parts of the companies that operate local government-financed services in the healthcare, school and social care sectors.

The conditions that private companies operate under depend on how theprice of a contract has been set. In the case of procurement under the PublicProcurement Act the price is often a result of the tenders submitted and theweight that the contracting entity has assigned to the price aspect. However,many of the procurements carried out in recent years have been based on apre-determined price and the suppliers have then had to compete on quality.

If the Act on Systems of Choice in the Public Sector is applied, the level ofcompensation is set in different ways so that the results are different. In thevast majority of cases municipalities or county councils have started fromtheir historical costs, without any efficiency gains in the service. This meansthat the profit from any efficiency gain goes to the provider. In many munici-palities and county councils this has been done with open eyes. The objecti-ve has not been to rationalise the service but to increase choice for citizens.The rationalisation potential has been seen as a carrot to attract new provi-ders. A review made of the payments being made by different municipalitiesto different service providers shows that there are considerable differences.Broadly speaking, the payment in one municipality can be twice as high as thepayment in another for almost the same service.

Gains for citizens?The results of various interview surveys suggest that quality is largely un-changed or has improved since choice systems have been introduced. The qu-ality improvement applies primarily to the perceived quality, for examplehow people are treated.

In general it can be said that staffing levels in many of the services produ-ced by independent organisers are lower than in corresponding municipalservices. Historically there have been more children per yearly employee inindependent preschools but this measure has evened out and was the samefor both municipal and independent providers in 2009. In the school area itcan be noted that independent organisers have a lower proportion of trainedteachers. Despite this, a slightly higher proportion of parents in independentschools were satisfied with the service, and grades in schools run by indepen-dent organisers of schools are slightly higher. However, greater competitionbetween schools seems to have led to some grade inflation.2 This tendency isparticularly clear in upper secondary schools.



2. Docent Jonas Vlachos in a report written for the Swedish Competition Authority in 2011.

Greater choice, but do people want to change?

One idea of the systems of child care vouchers and school vouchers and theAct on Systems of Choice in the Public Sector has been that anyone who is notsatisfied with quality and service provided will be able to change to anotherpreschool, school, elderly care home or home care company. This will elimi-nate the organisers that do not deliver good enough quality from the market.However, the ‘cost’ of changing, in the form of loss of continuity for childrenor older people, may turn out to make people stay put where they are. The qu-ality may not be bad enough for them to subject their child or their old parentto a change. Also many people choose their preschool, school or health cent-re on the nearness principle, this means that they may choose not to changebecause the alternative is too far away. So it is important that municipalitiesdo not just rely on market forces but also conduct active supervision and lis-ten to the views of users.

Having many suppliers leads to greater competition and greater choice forconsumers. However, having many suppliers also means that it is more dif-ficult for the municipality/county council to carry out checks and monitor theservice.

Overall, it can be noted that there is nothing to suggest that users are losingout in the reforms. Considering that slightly more think that they are satisfi-ed with their service, the outcome is more likely to be that users have gainedsomething.

Gains for municipalities?So what is the outcome like for municipalities? Studies show that customerchoice models in home care services have not driven up costs. The scope forefficiency gains in market testing depends on how well the public service wasbeing run to begin with. In the case of services that have not previously beensubjected to competitive tendering, work on formulating the conditions forthe procurement has in many cases led to insights that have been able to forma basis for a review of the service (service level, etc.). Municipalities that pro-duced all their services in-house before customer choice models were intro-duced also tend to get lower costs per home care hour produced.

Research shows that the initial procurements of home care services usingthe Public Procurement Act have led to lower costs. However, in subsequentrounds of procurement of these services the tenders from different providershave moved closer to one another.

When the Act on Systems of Choice in the Public Sector has been appliedor school vouchers introduced, the primary aim has not been to reduce costsbut to increase choice, which means that there has not always been pressureon payments. So what happens to in-house provision? Out of 30 municipali-ties polled that had introduced services under the Act on Systems of Choicein the Public Sector in 2010, sixteen expected their in-house service to reporta deficit, seven expected it to break even and seven expected it to report asurplus.

In preschools, studies show that municipal costs for preschool servicesfrom independent providers are lower than for in-house services. However,



this may be due to the children’s length of stay in the preschool or to an ex-pected cost on the basis of a standard cost or other factors.

In patient choice in healthcare the purpose of introducing compulsory cho-ice in primary care has been to strengthen choice for patients, stimulate di-versity and shift power from the county councils to patients. In general, pay-ment levels have not been a major issue. This means that many county coun-cils have not expected lower costs for primary care as a result of the intro-duction of patient choice. It is more the case that they have increased the re-sources for primary care in the hope that minor complaints will be treatedmore frequently there and that this will relieve pressure on emergency me-dical care. However, one long-term risk is that this may lead to an over-con-sumption of healthcare.

So what are the reasons why private services run at a profit?

Take-over of a service

• The private company may have been given favourable terms for the take-over of production resources, i.e. the profit does not reflect the fact thatthe private company has been able to take over premises and other re-sources at a price that does not match up to the full value of the resources.

Payment levels

• The payment made for the contract, the price, has been based on the costsof past, less efficient in-house provision, i.e. the profit reflects an excessi-ve price that the municipality/county council has to pay when it does nothave the cost picture under control and/or does not succeed in rationali-sing in-house services. The fact that the price of the same 'product’ variesso much between different municipalities suggests that in many cases thepayment has been based on the individual municipality’s own costs.

• In many cases the level of payment is higher for private than for munici-pal organisers. This is because the standardised VAT allowance that ispaid as compensation for the fact that the private organisers are not liablefor VAT may be too high. Under the Ordinance on Independent Schoolsand Certain Private Services in the School Area, municipalities must payindependent schools 6 per cent VAT compensation over and above theschool voucher payment. In other services it is voluntary for the munici-palities to compensate organisers for the loss of the right to deduct inputVAT, but many municipalities and county councils still choose to pay 6per cent.3 As an assignment from the Government, the Swedish Agencyfor Public Management has looked into this with the assistance of PWC.They have concluded that 6 per cent seems to be too high a level of com-pensation and that the true additional cost for the private organisers is 1to 2 percentage points lower.

Systematic advantages

• The private company may have systematic cost advantages that are linkedto pay agreements, staff overhead costs, insurance policies, legislation,



3. Report, Swedish Agency for Public Management, April 2011.

the possibility of deciding to admit a certain number of pupils and thepossibility of focusing on a certain segment or area, i.e. the profit reflectsthe private company's competitive advantages.

Efficiency differences

• Private companies can run their business more efficiently than municipalin-house services succeed in doing, i.e. the profit reflects the fact that theprivate company is good at finding efficient production solutions.

• Many of the private companies are relatively newly started and have beenable to build up their business from scratch. This has enabled them togear their staff structure to current needs.

• Many units run by municipalities and county councils feel that they donot have the same freedom as private providers. They are forced to helpfinance various IT systems that they have not chosen themselves, theymust use the Act of Systems of Choice in the Public Sector or rely on theframework agreements procured by the municipality for goods and servi-ces and they must take over redundant staff from other services instead ofrecruiting their own staff. This is profitable for the municipality or coun-ty council as a whole, but for that small unit (a school, health centre or theelderly care home) it can be more expensive than if they had been able todecide on their own.

• The drivers are completely different in municipalities and county coun-cils. Making a profit has no intrinsic value in a municipality or countycouncil. Most units aim to break even. If they have money left at the endof the year, it is often used to buy consumables for coming years. If someunits (schools, health centres, elderly care homes) run deficits, this canimpact on the whole service and the overall result for local authority pro-duction is affected. However, it is important at the same time to note thatthe local government sector as a whole has been in surplus in every yearsince 2004.



This annex presents some key indicators and the overall income statements ofmunicipalities and of county councils, as well as an aggregate income state-ment for the sector to give an overall picture.

For diagrams showing the distribution of costs and revenue for municipa-lities and county councils separately, tables presenting overviews of centralgovernment grants and other data that we usually present in the Annex to theEconomy Report, we refer to our website, where we are now building up a newarea called Sektorn i siffror (The sector in figures). Go to www.skl.se, chooseVi arbetar med, Ekonomi, Sektorn i siffror.

An aggregate picture of municipalities and county councils


ANNEX

Table 26 • Key indicators for municipalities and county councils, 2010–2015Per cent and thousands of people

2010 2011 2012 2013 2014 2015

Average tax rate, % 31.56 31.55 31.55 31.55 31.55 31.55

municipalities, incl Gotland 20.74 20.73 20.73 20.73 20.73 20.73county councils*, excl Gotland 10.87 10.88 10.91 10.91 10.91 10.91

No of employees**, thousands 1,048 1,052 1,055 1,065 1,074 1,085

Municipalities 790 796 800 808 816 826County councils 258 256 256 257 258 259

*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.

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


Annex

Table 27 • Income statement for the municipalities, 2010–2015SEK billion



Tax revenue 343 354 368 384 400 417Gen gov grants and equalisation 76 76 74 77 80 83Net financial income 4 3 3 3 3 3Net income before extra-ordinary items 15 11 7 6 4 0

Share of taxes and grants, % 3.5 2.5 1.5 1.4 0.8 0.0

Table 28 • Income statement for the county councils, 2010–2015SEK billion



Tax revenue 179 185 193 201 210 218Gen gov grants and equalisation 47 47 46 48 49 51Net financial income 0 –1 –1 –1 –1 –2Net income before extra-ordinary items 5 5 2 1 –2 –5

Share of taxes and grants, % 2.1 2.0 0.7 0.3 –0.6 –1.7

Source: The Swedish Association of Local Authorities and Regions.

The Economy Report. May 2011

On Swedish Municipal and County council finances

is a series published twice yearly by the Swedish Association ofLocal Authorities and Regions (salar). In it we deal with the pre-sent economic situ ation and developments in municipalities andcounty councils. The calculations in this issue extend to 2015.

The local government sector has shown historically good net in-come for both 2009 and 2010. A surplus, in line with healthy fi-nances, is also expected in 2011, even though cyclical supportfrom central government is gradually being phased out now. Inthe coming years net income is expected to weaken, even thoughtax revennue will remain high. The main reason for this is that, inthe long term, it is difficult to hold back cost increases.

The report can be downloaded at www.skl.se/publikationer.

ISBN 978-91-7164-684-2

Mail SE-118 82 StockholmVisitors Hornsgatan 20

Phone +46-8-452 70 00

www.skl.se

7164 684 2

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