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Risk of incorrect financial compensation to municipalities for central government reforms

Deficient application of the municipal financing principle means that municipalities risk incorrect financial compensation when central government reforms are implemented. The Swedish National Audit Office audit shows that this may ultimately force municipalities to reorder priorities in their activities.

Kommunalhus vid torg i småstadsmiljö.

Audit background

Given Sweden’s far-reaching municipal autonomy, relations between central and local government need to be good. An important central government policy instrument for maintaining this relation is economic regulation, such as the municipal financing principle. The intention of these regulations is to clarify the distinction between central and local government responsibilities, and to create a level playing field for municipalities.

The municipal financing principle has been applied since 1993 and means that the central government may not impose new responsibilities on municipalities and county councils without providing them with adequate funding. That is to say, reforms determined by the central government shall be neither underfunded nor overfunded. The principle is applied by means of allocating the reform’s estimated cost or saving to the municipalities and county councils, respectively. on the basis of population size.

The Ministry of Finance has the main responsibility for implementation, whereas the sectoral ministries are responsible for drawing up data for decision-making and for negotiations with the Swedish Association of Local Authorities and Regions (SALAR). On average about four new reforms are regulated annually, and since the regulation of each individual reform remains over time, these are cumulatively significant amounts. Consequently, the principle is fundamental for implementing reforms determined by the central government in the municipalities without impairing the financial relationship between the central and local governments. In addition, compliance with the principle is important for the legitimacy of central government reforms and to ensure that the underlying information for decision-making data is accurate.

Press contact: Olle Castelius, phone: +46 8-5171 40 04.

Presskontakt: , telefon: 08-5171 42 06.

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Updated: 31 May 2018

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