According to the Government’s policy outlines, municipalities will not in the future have significant responsibility for health and social services funding; responsibility for funding will be transferred to the central government. Taxation and the system of central government transfers to municipalities for basic public services will be reformed accordingly. The aim is also to simplify the current multisource financing system of health and social services.
Taxation will be reformed
The intention is that the municipalities’ revenue will be correspondingly lowered to reflect the transfer of duties from the municipalities to the counties. Municipal income tax and corporate tax revenue will be reduced. According to current estimates, the municipal income tax percentages in all municipalities will be lowered by 12.3 percentage points. Correspondingly, central government taxation will be increased, because the central government will finance the duties of the counties.
The reform will be implemented in accordance with the Government’s policy outlines, in such a way that taxation on labour will not be increased and the overall tax rate will not rise.
Act on the Financing of the Counties will regulate central government funding to the counties
The Act on the Financing of the Counties will lay down provisions on central government funding to the counties. The counties’ different financing needs and other differences will be taken into account in determining central government funding. This will ensure each county has sufficient capacity to organise services for its residents. The counties will decide independently on the use of their financing.
As the provider of financing, however, the central government will steer the counties’ financial management. For the counties, the intention is to create a financial steering model so that the counties discharge their duties successfully and so that the costs of health and social services can be curbed in accordance with objectives.
The counties will not have a right to levy taxes when the reform enters into force. Their income will therefore come from central government and from client and user fees. The counties will not have any other important sources of income.
System of central government transfers will be reformed
The transfer of health and social services and many other municipal duties to the counties at the beginning of 2021 will significantly affect the municipalities in general, but particularly the finances of individual municipalities. The costs of the duties to be transferred to the counties vary significantly between different municipalities, and the same applies to the costs that will remain the responsibility of municipalities after the reform. The differences between municipalities in terms of municipal income tax revenue, corporation tax revenue and central government transfers are also considerable in some cases.
To mitigate the impact of the changes in municipal duties and the differences between municipalities that arise in connection with the reform, the system of central government transfers to municipalities for basic public services will be reformed. The task of the new system will be to secure for the municipalities adequate funding for the duties that remain their responsibility and, during the first stage, to equalise the large-scale effects of the reform. Despite the equalisation measures, every effort will be made to ensure that the basic system and the calculation factors involved operate as intended. Due to the magnitude of the change, the reform of the system of central government transfers will have to be carried out in several stages.
Multisource financing system will be made simpler
Currently, financing of health and social services comes from various sources and is then channelled to services via many different funding providers. The current system fails to treat people equally and hampers equitable access to services. A Government bill on simplification of multisource financing will be completed at the end of the year.
- Terhi Järvikare, Director-General, Ministry of Finance, tel. +358 295 530113
- Panu Pykönen, Ministerial Counsellor, Ministry of Finance, tel. +358 295 530225
- Jouko Narikka, Budget Counsellor, Ministry of Finance, tel. +358 295 539 917
- Virpi Vuorinen, Budget Counsellor, Ministry of Finance, tel. +358 295 530 557
- Jani Pitkäniemi, Director General, Ministry of Finance, tel. +358 295 530 494