EUROPE

FINLAND

UNITARY COUNTRY

BASIC SOCIO-ECONOMIC INDICATORS

INCOME GROUP: HIGH INCOME

LOCAL CURRENCY: EURO (EUR)

POPULATION AND GEOGRAPHY

  • Area: 338 420 km2 (2018)
  • Population: 5.531 million inhabitants (2020), an increase of 0.2% per year (2015-2020)
  • Density: 16 inhabitants / km2
  • Urban population: 85.5% of national population (2020)
  • Urban population growth: 0.2% (2020 vs 2019)
  • Capital city: Helsinki (11.8% of national population, 2020)

ECONOMIC DATA

  • GDP: 279.3 billion (current PPP international dollars), i.e. 50 506 dollars per inhabitant (2020)
  • Real GDP growth: -2.8% (2020 vs 2019)
  • Unemployment rate: 7.5% (2021)
  • Foreign direct investment, net inflows (FDI): -2 (BoP, current USD millions, 2021)
  • Gross Fixed Capital Formation (GFCF): 24.2% of GDP (2020)
  • HDI: 0.938 (very high), rank 11 (2019)

MAIN FEATURES OF THE MULTI-LEVEL GOVERNANCE FRAMEWORK

Finland is a parliamentary republic under the 1999 Constitution and the 2012 constitutional amendments. It is led by the president of the republic as the head of state and by a prime minister as head of the government. It has a unicameral Parliament (Eduskunta), which is formed by 200 representatives, who are elected for a four-year term.

Finland is a unitary state organised on a decentralised basis. Local democracy has been developing since 1917 through regulatory advances and the introduction of universal direct suffrage at the municipal level. The Finnish Constitution safeguards the municipal self-government and its autonomy. An important legal basis for municipalities is also the Local Government Act, which sets the rules by which municipalities must operate and organise their administration. The 1995 Local Government Act was revised in 2015.

Municipalities are governed by a municipal council, elected by local residents every four years. There is also a municipal board, which is an executive body whose members are elected by the municipal council. The composition of the municipal board is based on the political makeup of the council: the parties represented in the council get seats on the municipal board according to their share of council seats. The municipal board is responsible for municipal administration and financial management. It prepares matters to be decided by the council, executes the decisions and ensures their legality. Municipal boards hold a powerful administrative position, because the most important matters prepared for the council are politically agreed in advance by the board. The municipal manager is a civil servant who works under the municipal board as the head of municipal administration, financial management and other functions. Municipality managers hold their position either for a fixed term or the positions are permanent. The choices of municipal managers do not necessarily take place close to local elections. The situation is, however, slightly different for larger cities. Cities can be managed either by municipal managers as in other municipalities, or they can be mayors. The mayors in larger cities are often de facto politicians who have risen the ranks from city councils or national politics to this position elected by local councils. Only six municipalities in Finland currently have mayors.

After more than ten years of preparation, a self-governing county level with 21 counties was established in Finland starting in 2022. The reform was accepted in Parliament in 2021 and the first county councils were elected in January 2022. The counties will be fully operational as of 1 January 2023.

TERRITORIAL ORGANISATION

MUNICIPAL LEVEL INTERMEDIATE LEVEL REGIONAL LEVEL TOTAL NUMBER OF SNGs (2022)
309 municipalities

(Kuntaa)
21 wellbeing services counties
+ the autonomous county of Åland

(Hyvinvointialuetta)
(Maakunta)
Average municipal size:
17 851
309 22 331

OVERALL DESCRIPTION: Until the end of 2021, municipalities formed Finland´s single tier-subnational government. Since 2022, the two-tiered subnational system of Finland comprises 21 counties and 1 autonomous region (Åland Islands) at the regional level, and 309 municipalities at the local level.

The deconcentrated central government administration comprise six Regional State Administrative Agencies (AVI) and fifteen Centers for Economic Development, Transport and the Environment (ELY). The AVI´s act as governmental enforcement authorities in regions, and they monitor the delivery of health care, social services and schools, among others. AVI’s also handle complaints from citizens. The ELY’s are responsible for promoting regional development with advisory, financing and development services for businesses and with EU’s structural fund projects. ELY´s also promote rural affairs, fisheries, road maintenance, labour market, immigration matters and environmental protection, among others.

REGIONAL LEVEL: The 2022 regional reform created 21 regions, called "wellbeing services counties". The counties will be responsible for all health and social services as well as the rescue services in their area. The City of Helsinki (the capital city) is however not part of any county, and the City of Helsinki continues to organise its own health, social and rescue services.

The counties may either provide services themselves or purchase them from private service providers. The public sector remains the organiser and primary provider of services, but private sector actors and the third sector will supplement public health and social services. The first county elections took place on 23 January 2022. Starting in 2025, the county elections will be held in conjunction with the municipal elections.

The autonomous province of Åland is a special case among Finnish subnational governments. Åland has its own parliament and government and it is divided into 16 municipalities. The population of Åland in 2021 was 30 300 inhabitants. Åland is an autonomous, demilitarised, Swedish-speaking region of Finland. Åland consists of more than 6,700 islands, but the current population lives on only 60 islands. Over 40 per cent of the inhabitants live in the only town, Mariehamn, which is one of its16 municipalities.

MUNICIPAL LEVEL: Finland has undergone several municipal reforms over the past decades. The main reforms include the PARAS reform in 2005-07, which promoted municipal mergers and inter-municipal cooperation. Because of the reforms and by voluntary mergers, the number of municipalities has steadily decreased from 475 in 1976 to the current number of 309 municipalities. In 2020, the average municipal size was almost 18 000 inhabitants and the median size was around 6 000 inhabitants. About 45% of municipalities have fewer than 5 000 inhabitants and 15% have fewer than 2 000 inhabitants. There are 9 cities exceeding 100 000 inhabitants, including Helsinki, Vantaa and Espoo in the Helsinki metropolitan area, as well as other cities such as Tampere, Turku and Oulu.

HORIZONTAL COOPERATION: Inter-municipal cooperation has been a common way to arrange public services in Finland, in particular in case of the smallest municipalities. Voluntary cooperation is arranged in various services such as basic health, education, infrastructure, and public transport. While most inter-municipal cooperation is voluntary, cooperation is mandatory in regional development and regional land use planning, where municipalities must form joint authorities (called “regional councils”, or “maakuntaliitto”). The members in the Regional Assembly and Board are politicians elected by the member municipalities for a mandate of four years. There are currently 19 regional councils in Finland (18 in mainland Finland and the autonomous region of Åland). The staff at the regional council office assist the Regional Assembly and Board, and the regional council director runs the office. The regional councils are primarily funded by member municipalities, with additional funding from the Finnish government and the European Union in the form of technical assistance.

Whereas in the past, hospital services were arranged through inter-municipal cooperation, the management of hospital districts has since 2022 been transferred to wellbeing service counties at regional level.


Subnational government responsibilities

Finnish municipalities provide a wide range of services to their residents. Most municipal tasks are statutory, and municipalities are assigned tasks only by first enacting a law. The statutory tasks of municipalities belong to the so called “specific branch” of municipal activity. Municipalities can also decide to take tasks based on local needs and demand. This is the so called “general branch” of the municipal activity and it is in the core of Finnish municipal self-government. There is no detailed legal criteria on the municipalities´ right to take voluntary tasks, but the municipality may not take over the central government’s tasks.

The regional reform, which will be implemented in 2022-2023, will transfer the health, social and rescue services from municipalities to the 21 wellbeing services counties. However, municipalities will remain important service providers in education, local infrastructure, economic affairs and environmental protection, among others. The City of Helsinki (the capital city), however, is not part of any county, and will continue to organise its own health, social and rescue services. Unlike the municipalities, counties do not have general competence (branch), and therefore they cannot take new tasks without the approval of the central government.

Being an autonomous region, Åland is solely responsible for both regional level and municipal services in its area. The Åland Parliament has the right to pass legislation on local and regional level services such as education, health and medical care, the environment, promotion of industry, internal transport, among others. For affairs that are of national importance, such as foreign affairs, the court system, most areas of civil and criminal law, customs and state taxation, Finnish state law applies in Åland.

Main responsibility sectors and sub-sectors

SECTORS AND SUB-SECTORS Regional level Municipal level Åland Islands
1. General public services (administration) General administration General municipal administration; Public buildings and facilities Ǻland civil service; Taxation; Statistics; Internal administration
2. Public order and safety Fire and rescue services Public order and security; Civil protection; Some aspects of criminal law
3. Economic affairs / transports Public transportation; Economic development and employment Agriculture; Fisheries; Communications (postal services, broadcast); Transport networks; Trade; Promotion of employment
4. Environment protection Environmental protection; Waste management; Sewerage Environment; Prevention of cruelty to animals and veterinary care
5. Housing and community amenities Land use planning; Local infrastructure including streets; Energy; Water management; Harbours Land use planning
6. Health Primary and specialised healthcare; Dental services Promotion of health and wellbeing Public health
7. Culture & Recreation Culture; Sports; Library services Culture; Sports
8. Education Pre-school; primary and secondary education; vocational training; Adult education; Child day-care Education; Apprenticeships
9. Social Welfare Social welfare; Services for the elderly; Services for disabled Social welfare; Youth work


Subnational government finance

Scope of fiscal data: Municipalities, joint municipal authorities and quasi-corporations which are legally part of the municipality under which they are operating. In addition, it comprises the Åland Government and its Pension fund, the Association of Finnish Local and Regional Authorities (Kuntaliitto), the KT Local Government Employers) and the Municipal Guarantee Board). SNA 2008 Availability of fiscal data:
High
Quality/reliability of fiscal data:
High

GENERAL INTRODUCTION: The Finnish Constitution secures the municipalities’ right to make financial decisions, for example the right to levy taxes. The Local Government Act sets the rules for the administration and finances of municipalities, inter-municipal bodies and municipal companies (Chapter 13 on “local government finances”). It also states that the Ministry of Finance is responsible for monitoring the activities and finances of municipalities and for ensuring that municipal self-governing status is taken into account whenever legislation concerning local government is drafted. The law also provides for a “negotiation process” between the central and local governments, the latter being represented by the Association of Finnish Local and Regional Authorities. As part of this negotiation process, the law establishes the need to prepare each year a Programme for local government finances, which is part of the preparatory work for the General Government Fiscal Plan and the central government’s budget proposal. This programme must include an assessment of whether municipalities have adequate funding with which to perform their duties (the so called “financing principle”), an assessment of changes in the municipalities’ operating environment and demand for services, and in the functions of local government, and shall provide an estimate of the trend in local government finances.

The Local Government Act also provides for the establishment of an “Advisory Committee on Local Government Finances and Administration”, which operates in conjunction with the Ministry of Finance. Its tasks are to monitor and assess trends in local government finances, and ensure that the programme for local government finances is taken into account in the drafting of legislation and decisions concerning local government.

Following the 2022-23 regional reform, the adequacy of funding for the counties to perform their functions as a whole and in each county is assessed in the fiscal plan according to the “financing principle”. The fiscal plan guides ministries as they prepare legislation and guidance concerning the counties. The main revenue source for counties will be central government grants, but counties will have also the right to collect user fees within limits set by the central government. The government has in principle agreed to start the preparations for assigning taxing powers for the counties, but the timing of the financing reform is still unknown.

Subnational government expenditure by economic classification

2020 Dollars PPP / inhabitant % GDP % general government % subnational government
Total expenditure 11 678 23.0% 40.1% 100.0%
Inc. current expenditure 10 261 20.2% 38.6% 87.9%
Compensation of employees 4 812 9.5% 73.4% 41.2%
Intermediate consumption 3 918 7.7% 68.1% 33.6%
Social expenditure 1 134 2.2% 9.8% 9.7%
Subsidies and current transfers 378 0.7% 16.1% 3.2%
Financial charges 17 0.0% 5.0% 0.2%
Others 3 0.0% 5.7% 0.0%
Incl. capital expenditure 1 417 2.8% 55.8% 12.1%
Capital transfers 4 0.0% 3.0% 0.0%
Direct investment (or GFCF) 1 413 2.8% 58.5% 12.1%

% of general government expenditure

  • Total expenditure
  • Compensation of employees
  • Current social expenditure
  • Direct investment
  • 40.1%
  • 73.4%
  • caché
  • 9.8%
  • caché
  • caché
  • caché
  • caché
  • 58.5%
  • 0%
  • 20%
  • 40%
  • 60%
  • 80% 100%

SNG expenditure by economic classification as a % of GDP

  • Compensation of employees
  • Intermediate consumption
  • Current social expenditure
  • Subsidies and other current transfers
  • Financial charges + other current expenditures
  • Capital expenditure
  • 25% 20%
  • 15%
  • 10%
  • 5%
  • 0%
  • caché
  • 9.5%
  • 7.7%
  • 2.2%
  • 2.8%

% of general government expenditure

  • Total expenditure
  • Compensation of employees
  • Current social expenditure
  • Direct investment
  • 40.1%
  • 73.4%
  • caché
  • 9.8%
  • caché
  • caché
  • caché
  • caché
  • 58.5%
  • 0%
  • 20%
  • 40%
  • 60%
  • 80% 100%

SNG expenditure by economic classification as a % of GDP

  • Compensation of employees
  • Intermediate consumption
  • Current social expenditure
  • Subsidies and other current transfers
  • Financial charges + other current expenditures
  • Capital expenditure
  • 25% 20%
  • 15%
  • 10%
  • 5%
  • 0%
  • caché
  • 9.5%
  • 7.7%
  • 2.2%
  • 2.8%

EXPENDITURE: In international comparison, Finland is considered one the most decentralised countries in the world. As of today, all main social, healthcare and education services are performed by municipalities or by joint municipal authorities. Hence, the overall economic importance of the municipal sector is considerable. Municipality spending as a share of GDP and general government is among the highest in the OECD, well above the OECD average where subnational expenditure amounted to 17.1% of GDP and 36.6% of total public spending in 2020. Finland is surpassed only by some federal countries (Canada and Belgium) and by two Nordic unitary countries (Denmark and Sweden). Municipalities employ roughly 20% of the total Finnish workforce. Overall, subnational staff expenditure amounted to 73% of public staff expenditure in 2020, which is also amongst the highest of the OECD members, along with Denmark, Sweden and Japan, as with most federal countries. Staff expenditure represents above 40% of subnational government spending (versus 34.4% in the OECD).

DIRECT INVESTMENT: Municipal share in public investment is slightly above the OECD average (54.6% in 2020). Municipalities are responsible for important investment projects related to education, hospitals, municipal infrastructure, roads and other transport networks.

The implementation and financing of municipal investments can also be carried out with public-private partnerships (PPPs), although this is not very common. One of the obstacles is that municipalities will almost always get cheaper financing than any company. Therefore, the benefits from PPP´s must come from a different aspect, such as more efficient implementation of the project, or risk sharing. Brand new models are the so called “alliance models”, which no longer have a separate subscriber, and the subscriber and the producer operate in the same alliance by common agreement. Rental and leasing in municipalities have also become more common.

Subnational government expenditure by functional classification

2020 Dollars PPP / inhabitant % GDP % general government % subnational government
Total expenditure by economic function 11324 22.0% - 100.0%
1. General public services 2046 4.0% 40.2% 18.1%
2. Defence 0 0.0% 0.0% 0.0%
3. Security and public order 112 0.2% 18.4% 1.0%
4. Economic affairs/transports 742 1.4% 33.0% 6.6%
5. Environmental protection 33 0.1% 32.4% 0.3%
6. Housing and community amenities 95 0.2% 58.1% 0.8%
7. Health 3037 5.9% 61.0% 26.8%
8. Recreation, culture and religion 490 1.0% 60.5% 4.3%
9. Education 1893 3.7% 52.4% 16.7%
10. Social protection 2875 5.6% 17.9% 25.4%

SNG expenditure by functional classification as a % of GDP

  • General public service
  • Defence
  • Public order and safety
  • Economic affairs / Transport
  • Environmental protection
  • Housing and community amenities
  • Health
  • Recreation, culture and religion
  • Education
  • Social protection
  • 25% 20%
  • 15%
  • 10%
  • 5%
  • 0%
  • 4%
  • 6%
  • 3.7%
  • 5.7%

SNG expenditure by functional classification as a % of SNG expenditure

  • General public service: 18,06%
  • Defence: -
  • Public order and safety: 0,99%
  • Economic affairs / Transport: 6,55%
  • Environmental protection: 0,3%
  • Housing and community amenities: 0,84%
  • Health: 26,82%
  • Recreation, culture and religion: 4,33%
  • Education: 16,72%
  • Social protection: 25,39%

SNG expenditure by functional classification as a % of GDP

  • General public service
  • Defence
  • Public order and safety
  • Economic affairs / Transport
  • Environmental protection
  • Housing and community amenities
  • Health
  • Recreation, culture and religion
  • Education
  • Social protection
  • 25% 20%
  • 15%
  • 10%
  • 5%
  • 0%
  • 4%
  • 6%
  • 3.7%
  • 5.7%

SNG expenditure by functional classification as a % of SNG expenditure

  • General public service: 18,06%
  • Defence: 0%
  • Public order and safety: 0,99%
  • Economic affairs / Transport: 6,55%
  • Environmental protection: 0,3%
  • Housing and community amenities: 0,84%
  • Health: 26,82%
  • Recreation, culture and religion: 4,33%
  • Education: 16,72%
  • Social protection: 25,39%

Local governments in Finland carry out important public services. Compared with the rest of the OECD countries, Finland stands out with high spending shares in health, social services and education. For instance, in healthcare the municipalities and joint municipal authorities are in charge of primary and secondary healthcare and dental care. As for social services, the municipal sector is responsible for child day care, services for the aged and the disabled. In education, municipalities provide pre-school and primary education and secondary education. Since these service categories are labour intensive, municipal staff spending is high.

Subnational government revenue by category

2020 Dollars PPP / inhabitant % GDP % general government % subnational government
Total revenue 11 688 23.0% 44.4% 100.0%
Tax revenue 5 281 10.4% 34.2% 45.2%
Grants and subsidies 3 875 7.6% - 33.2%
Tariffs and fees 2 265 4.5% - 19.4%
Income from assets 267 0.5% - 2.3%
Other revenues 0 0.0% - 0.0%

% of revenue by category

  • 75% 60%
  • 45%
  • 30%
  • 15%
  • 0%
  • 45.2%
  • 33.2%
  • 19.4%
  • 2.3%
  • -
  • Tax revenue
  • Grants and subsidies
  • Tariffs and fees
  • Property income
  • Other revenues

SNG revenue by category as a % of GDP

  • Tax revenue
  • Grants and subsidies
  • Tariffs and fees
  • Property income
  • Other revenues
  • 25% 20%
  • 15%
  • 10%
  • 5%
  • 0%
  • 10.4%
  • 7.6%
  • 4.5%

% of revenue by category

  • 75% 60%
  • 45%
  • 30%
  • 15%
  • 0%
  • 45.2%
  • 33.2%
  • 19.4%
  • 2.3%
  • 0%
  • Tax revenue
  • Grants and subsidies
  • Tariffs and fees
  • Property income
  • Other revenues

SNG revenue by category as a % of GDP

  • Tax revenue
  • Grants and subsidies
  • Tariffs and fees
  • Property income
  • Other revenues
  • 25% 20%
  • 15%
  • 10%
  • 5%
  • 0%
  • 10.4%
  • 7.6%
  • 4.5%

OVERALL DESCRIPTION: Own-source revenues (taxes, tariffs and fees, property income) account for nearly 70% of subnational revenue, and 15% of GDP, giving municipalities considerable autonomy over their revenue. The share of taxes in subnational revenue is at the same level of the OECD on average (42.4% in 2020). However, as a share of GDP, it is above the OECD average (7.2%). Tariffs and fees represent almost a fifth of subnational revenue, which is also above the OECD average (13.3%) while the share of grants and subsidies is below the OECD average (41.2%).

In the coming years, the regional reform is going to completely change the subnational government revenue structure, because the counties will be financed mainly with central government grants.

TAX REVENUE: Most municipal taxes are own-sourced, except the corporate income tax (CIT), which is shared with the central government. The CIT share redistributed to municipalities is regularly readjusted to adapt to the municipal sector economy. In 2020, it accounted for 8.7% of subnational tax revenue. Authorities have long discussed replacing corporate tax revenue with increased grants as a source of municipal revenue. However, municipalities have strongly opposed such proposals. Opposition is particularly fierce in areas such as the Helsinki region where corporate income tax has been an important revenue source.

The main source of own tax revenue is the municipal income tax (83% of subnational tax revenue and 8.7% of GDP in 2020). The central government determines the municipal income tax base, but municipalities have full control over the rate. Municipal income tax is a flat rate tax, although central government policy for tax allowances for persons with low incomes has made the local tax a progressive tax. The revenue losses of these allowances are compensated to municipalities through the grant system.

Municipalities also levy property taxes, which consist of five taxes: the general real estate tax, the tax for permanent residential buildings, the tax for other residential buildings, the tax for power stations and tax for nuclear power stations (the most important being the general real estate tax and the tax for permanent residential buildings). Recurrent property taxes amounted to 8.0% of subnational tax revenue and 0.8% of GDP in 2020. In addition, municipalities can put a special tax on unbuilt land. This tax is voluntary except in the 14 municipalities of the Helsinki metropolitan region, where the municipalities are obliged to apply it. Municipalities are the sole receivers of property tax revenues. The central tax authority collects property taxes, but each municipality decides its own property tax rates within upper and lower limits set by the central government.

GRANTS AND SUBSIDIES: Central transfers to municipalities are formula based and the system consists of revenue equalisation and cost equalisation. Revenue equalisation is based on tax capacity and not actual tax revenue. Furthermore, revenue equalisation equalises transfers, not actual tax revenues. Cost equalisation takes into account differences in service needs and other factors affecting the cost of service provision (population, geographic remoteness, number of pupils, age-specific cost coefficients for services, etc.). Equalisation transfers are non-earmarked block grants, i.e. municipalities are free to allocate the total amount of grants as they wish. The transfer system can be a significant source of income for some municipalities with high service cost factors and low revenue bases (for those municipalities, grants can account for more than 50% of all their revenues).

OTHER REVENUE: The majority of other revenue come from tariffs and fees (19.4% of subnational government revenue). User fees from healthcare, charges for utilities (water supply, waste disposal, power) and public transport form the main sources for this income, while basic education is free.

The remaining part is made up of property income - assets sales and rents, a percentage in line with the OECD average (2% of subnational government revenue in 2020).

Subnational government fiscal rules and debt

2020 Dollars PPP / inh. % GDP % general government debt % SNG debt % SNG financial debt
Total outstanding debt (consolidated?) 7 717 15.2% 18.5% 100.0% -
Financial debt 5 630 11.1% 14.8% 73.0% 100.0%
Currency and deposits 0 - - 0.0% 0.0%
Bonds / debt securities 625 - - 8.1% 11.1%
Loans 5 006 - - 64.9% 88.9%
Insurance pensions 0 - - 0.0% -
Other accounts payable 2 087 - - 27.0% -

SNG debt by category as a % of total SNG debt

  • Currency and deposits: -
  • Bonds/Debt securities: 8,09%
  • Loans: 64,86%
  • Insurance pensions: -
  • Other accounts payable: 27,04%

SNG debt by level of government as a % of GDP and as a % of general government debt

  • 25% 20%
  • 15%
  • 10%
  • 5%
  • 0%
  • 15.2%
  • 18.5%
  • % of GDP
  • % of GG Debt

SNG debt by category as a % of total SNG debt

  • Currency and deposits: 0%
  • Bonds/Debt securities: 8,09%
  • Loans: 64,86%
  • Insurance pensions: 0%
  • Other accounts payable: 27,04%

SNG debt by level of government as a % of GDP and as a % of general government debt

  • 25% 20%
  • 15%
  • 10%
  • 5%
  • 0%
  • 15.2%
  • 18.5%
  • % of GDP
  • % of GG Debt

FISCAL RULES: Local budgets in Finland must be balanced over a four-year planning period. Moreover, an amendment to the Municipal Act in 2015 reinforced the macro-steering of the local finance system. An objective was set for local government deficits, and a spending limit was introduced on central government measures affecting local finances. According to the Local Government Act, each municipality must have a local authority to arrange audits and assessments of the administration and finances. Local councillors elect members of the audit committee. For the audit of the administration and finances, the local council shall appoint an authorised public accountant.

DEBT: Municipalities are free to borrow through bonds and loans to finance any type of operation. Local debt is below the OECD average (27.9% of GDP and 20.2% of public debt in 2020) but on par with the average for OECD unitary countries (14.5% of GDP and 10.5% of public debt). In 2020, local debt was made up of financial debt (73%) and other accounts payable (27%). Financial debt (“Maastricht debt”) accounted for 11.1% of GDP and 14.8% of public financial deb. It included loans (88.9%) and bonds (11.1%).

Most municipal loans are granted by MuniFin (Municipality Finance Plc), which is one of Finland’s largest credit institutions. The company is owned by Finnish municipalities, the public sector pension fund Keva and the Republic of Finland. MuniFin’s customers are Finnish municipalities, municipal federations, municipally controlled entities and non-profit housing organisations. Lending is used for environmentally and socially responsible investment targets such as public transportation, hospitals and healthcare centres, schools and day care centres, and homes for people with special needs. MuniFin is an active Finnish bond issuer in international capital markets and the first Finnish green and social bond issuer. The funding is exclusively guaranteed by the Municipal Guarantee Board.

MuniFin has offered green finance for the environmentally friendly projects of its customers since the beginning of 2016. Green finance is offered to selected projects that promote the transition to low-carbon and climate resilient growth. These projects seek to mitigate or adapt to climate change. Green finance projects are selected using MuniFin’s Green Bonds Framework and finally approved by the Green Evaluation Team, which consists of two or more members from environmental functions of MuniFin’s customers or other environmental public sector entities or organisations. Every project is analysed independently and only approved if there is a high likelihood of achieving long-term positive environmental effects. MuniFin has issued six green bonds in EUR, USD, AUD and GBP. MuniFin aims to issue one benchmark sized green bond per year.



The impact of the COVID-19 crisis on subnational government organisation and finance

TERRITORIAL MANAGEMENT OF THE CRISIS: While the Ministry of Social Affairs and Health and the Prime Minister’s Office are responsible for COVID-19 policy at the national level, subnational governments have played a key role in implementation. Municipalities and joint municipal authorities are responsible for health and social services in Finland, and these services have been responsible for treating COVID-19 patients, testing, tracking and contacting the potentially infected, and maintaining overall health services preparedness. Therefore, the role of hospital districts, which are the joint municipal authorities responsible for specialist health care, have been critical. In each municipality, the leading doctors have been in charge of managing the measures in municipalities.

At the central government level, the six Regional State Administrative Agencies (AVI) have been responsible for coordinating measures in their area. In fact, according to the Communicable Diseases Act, the AVI´s make independent decisions on hygiene regulations and restrictions on the number of people at gatherings, depending on the situation in their regions.

EMERGENCY MEASURES TO COPE WITH THE CRISIS AT THE DIFFERENT LEVELS OF GOVERNMENT: In Finland, the central government agencies (ELY centers, Business Finland, State Treasury, Finnish Industry Investment Ltd, Finnvera) are responsible for providing support to private companies of all sizes during the COVID-19 crisis. The forms of support include: a) direct grants; b) equity investments; c) loans for research, development and innovation; d) guarantees for loans granted by private banks. In the beginning of the crisis, however, municipalities were also involved in delivering direct support to the local entrepreneurs. Between April 2020 and September 2020 the self-employed could apply for a lump sum aid amounting to EUR 2000 from their municipality. Municipalities received full compensation from the Ministry of Employment and the Economy. Overall, municipalities granted EUR 94 million in aid, which was about 38% of the funding earmarked for the aid. From October 2020, the aid paid to self-employed was combined into the aid paid to other companies and the aid became granted by the State Treasury.

During the first months of the crisis, many municipalities also tried to help their local SMEs and self-employed by deferring municipal fee collection, easing regulations and permits required from businesses, temporarily lowering rents and advancing payments to service providers. For example, the City of Helsinki decided to suspend the rents of commercial and other business premises leased from the City up to three months.

IMPACTS OF THE CRISIS ON SUBNATIONAL GOVERNMENT FINANCE: Overall, COVID-19 caused less problems to municipal finances in 2020 than was expected, partially because the overall economy picked up relatively quickly after the slump in the beginning of the year. According to Statistics Finland, the increase in municipal tax revenue was 4.0%, mainly because of an increase in the municipal income tax revenue. Another reason behind the positive development has been state support to municipalities, which has covered handsomely the costs caused by the crisis. Transfers from central government increased by 27.3% in 2020, while the municipal operating expenses increased by 1.4%. Municipal expenditure growth was limited by closures of municipal operations during the spring and autumn of 2020, due to the pandemic. Municipalities' net investments increased by 21.4% from the previous year. Municipal debt increased by 3.3%. According to preliminary data, in January-September 2021, municipal revenues have continued to develop favourably. On the other hand, grants from the central government have decreased from 2020.

Since the beginning of the crisis, the central government committed to cover all additional costs caused by the COVID-19 crisis to municipalities and hospital districts. The financial compensation to municipalities has been based on formulas, which take into account the extra costs and revenue losses experienced by municipalities, the age structure of the municipal population and the share of tax revenues of all municipal revenues. A minor part of aid has been based on discretionary grant, which municipalities must apply. Furthermore, a small general grant with same per capita amount was paid to all municipalities. The government has compensated directly to hospital districts the extra care costs caused by COVID-19 treatments. This has eased the fiscal burden of individual municipalities because hospital districts are normally fully financed by municipalities. In addition, the municipal share of corporate income tax revenue was increased temporarily, which helped especially the biggest cities.

ECONOMIC AND SOCIAL STIMULUS PLANS: The swift government response, through various legal and financial instruments, has mitigated the shocks caused by COVID-19, making Finland one of the OECD countries with the smallest reduction in GDP. This was achieved by, on the one hand, targeted confinement measures that limited the uncertainty among businesses and consumers, and on the other hand, rescue packages and financial support from government prevented mass bankruptcies and saved jobs and incomes.

Since the beginning of the crisis the government has recapitalised state-owned companies (like Finnair which is 56% state-owned). The central government has also decided on several supplementary budgets to combat the negative effects to economy. On May 18, 2021, parliament approved the EU's proposed financing of its Recovery and Resilience Facility (RRF). According to the plan, Finland is expected to receive roughly EUR 2.1 billion over 2021-2026 (amount to be updated by end 2022). However, Finland's contribution to the financing of the recovery facility is approximately EUR 6.6 billion, and this financing share, plus interest, must be paid in 2028–2058. The distribution of the RRF funds is frontloaded to support the recovery from the pandemic. The European Commission has assessed that 50% of the RRF funding will support the green transition and 27% will support digital transformation projects.

Bibliography


Socio-economic indicators

Source Institution/Author Link
Statistics Finland Statistics Finland
World development indicators World Bank
World population prospects United Nations
Demographic and Social Statistics United Nations
Unemployment rate by sex and age ILOSTAT
Human Development Index (HDI) United Nations Development programme; Human Development Reports

Socio-economic indicators

Source Institution/Author
Statistics Finland Statistics Finland
Link: https://www.stat.fi/index_en.html
World development indicators World Bank
Link: https://data.worldbank.org/indicator/
World population prospects United Nations
Link: https://population.un.org/wpp/
Demographic and Social Statistics United Nations
Link: https://unstats.un.org/unsd/demographic-social/index.cshtml
Unemployment rate by sex and age ILOSTAT
Link: https://ilostat.ilo.org/data/
Human Development Index (HDI) United Nations Development programme; Human Development Reports
Link: http://hdr.undp.org/en/content/human-development-index-hdi

Fiscal data

Source Institution/Author Link
OECD (2020) Subnational governments in OECD countries OECD
OECD Revenue Statistics Finland OECD
OECD National Accounts Statistics OECD
Eurostat Eurostat
Statistics Finland Statistics Finland

Fiscal data

Source Institution/Author
OECD (2020) Subnational governments in OECD countries OECD
Link: https://stats.oecd.org/
OECD Revenue Statistics Finland OECD
Link: https://stats.oecd.org/
OECD National Accounts Statistics OECD
Link: https://stats.oecd.org/
Eurostat Eurostat
Link: https://ec.europa.eu/eurostat/web/government-finance-statistics
Statistics Finland Statistics Finland
Link: https://www.stat.fi/index_en.html

Other sources of information

Source Institution/Author Year Link
In 2020, a discretionary increase in the state share was granted to 66 municipalities Government of Finland 2020
Finnish Municipalities and Regions Association of Finnish Municipalities 2020
The Government decided on the division of the province Government of Finland 2020
Decentralisation and Regionalisation in Portugal OECD 2020
COVID, local governments in Finland European Public Service Union 2020
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Regional government, health and social services reform Government of Finland 2018
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Local and regional democracy in Finland Congress of Local and Regional Authorities 2017
Division of Powers European Committee of Regions 2016
Local Public Finances and Municipal Reform in Finland, OECD Economics Department Working Papers, No. 1121 André, C. and C. García 2014
Public services at the local level - The Finnish way. VATT Policy Reports 2. Moisio et al. 2010

Other sources of information

Source Institution/Author Year
In 2020, a discretionary increase in the state share was granted to 66 municipalities Government of Finland 2020
Link: https://valtioneuvosto.fi/-/10623/vuoden-2020-harkinnanvaraista-valtionosuuden-korotusta-myonnettiin-66-kunnalle
Finnish Municipalities and Regions Association of Finnish Municipalities 2020
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The Government decided on the division of the province Government of Finland 2020
Link: https://valtioneuvosto.fi/-/10623/valtioneuvosto-paatti-maakuntajaosta
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Link: https://www.oecd.org/publications/decentralisation-and-regionalisation-in-portugal-fea62108-en.html
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Link: https://www.epsu.org/de/search?f%5B0%5D=country%3A128&f%5B1%5D=policies%3A360&f%5B2%5D=policies%3A169
National Convergence and Reform Programmes European Commission 2020
Link: https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-economic-governance-monitoring-prevention-correction/european-semester/european-semester-timeline/national-reform-programmes-and-stability-or-convergence-programmes/2020-european_en
Regional government, health and social services reform Government of Finland 2018
Link: https://soteuudistus.fi/en/-/1271139/sosiaali-ja-terveydenhuollon-ja-pelastustoimen-jarjestamisen-uudistusta-koske-vat-hallituksen-lakiluonnokset-lausuntokierrokselle
Multi-level governance reforms: Overview of OECD country experiences OECD 2017
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Local and regional democracy in Finland Congress of Local and Regional Authorities 2017
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Division of Powers European Committee of Regions 2016
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Local Public Finances and Municipal Reform in Finland, OECD Economics Department Working Papers, No. 1121 André, C. and C. García 2014
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