SWEDEN

As a constitutional monarchy with a parliamentary democracy, Sweden has a unicameral Parliament (Riksdag), the members of which are elected for four-year terms. A prime minister leads the government and the head of state is the monarch. According to the legal framework, Sweden is a unitary and decentralised state and the Constitution recognises local self-government and guarantees subnational government autonomy.

The foundation for subnational governments in Sweden was laid out in 1862 through a set of local government ordinances on municipalities and regions. In the 1960s and 1970s, the municipalities and regions were assigned important tasks and they were granted strong financial autonomy. This has continued in recent decades. As a result, Sweden is now among the most decentralised countries in the world. In the 1950s and 1970s, some radical merger reforms were carried out, which reduced the number of municipalities near to the current level.

The legal framework revolves around the Local and Regional Authorities Act (LRA), which was modified by the Local Government Act in 1991. The Local Government Act defines the framework for running the municipalities and it sets rules for inter-municipal cooperation. Municipalities are led by municipal councils, which are elected every four years (last in September 2018) in general elections held at the same time as the parliamentary elections. The municipal council can decide the size of the council within the guidelines set in the Local Government Act. Municipal councils elect members of the executive committee and other committees. The executive committee directs and coordinates the municipal administration and finances and supervises the work of the other committees. Until the regional reform, effective since 2019, Sweden’s regional governance structure had been asymmetric.

TERRITORIAL ORGANISATION
MUNICIPAL LEVEL	INTERMEDIATE LEVEL	REGIONAL LEVEL	TOTAL NUMBER OF SNGs (2021)
290 municipalities (Kommuner)	-	20 regions (Regioner)	310
Average municipal size: 35 825 inh.
290	-	20	310*

*Note: since the territory of Gotland has only one municipality, that municipality has the responsibilities both as a municipality and a region.

OVERALL DESCRIPTION: Sweden has a two-tier system of subnational government, composed of regions (formerly called county councils) and municipalities. The Swedish multi-level governance system has been described as an “hourglass”, meaning that the middle tier of government, i.e. the regional level, is less influential and of less importance compared to the highest tier (the central government) and the lowest tier (the municipalities). However, this situation is currently evolving, as the result of a trend to rebalance the system and reinforce the role of regions in recent decades. This has been achieved, notably, by transferring more decision-making power to regions from the central government, especially in regional development issues. County refers to the geographical division at the regional level.

REGIONAL LEVEL: While the main role of regions is to organise health and social services, their role has recently been extended to regional development. There has been a gradual and experimental regionalisation process in Sweden since 1996, when two regions (Skåne and Västra-Götaland) were allowed to take more tasks from the central government, especially concerning regional development. Since 2011 and until 2018 this arrangement was extended to 11 more regions. In the rest of the country, the responsibility for regional development was organised by six indirectly-elected County Cooperation Bodies, one municipality (Gotland Island) and one County Administrative Board. In 2017, a government inquiry on Sweden’s regional structure led to a new proposal to extend the responsibility of regional development to regions in all parts of the country. The bill was accepted in 2018 and the reform took effect at the beginning of 2019. In 2017, there was a failed attempt to reduce the number of regions to six. Swedish regions differ a great deal in their characteristics: land area varies from 2 947 km2 to 98 249 km2, and population from 60 124 to 2.39 million inhabitants.

MUNICIPAL LEVEL: A number of municipal merger reforms have been carried out during the earlier decades. Municipal mergers started on a voluntary basis but were made compulsory in order to accelerate the process. In 1974, the number was cut from 464 to 278. This number nudged higher to its current 290 as a result of some municipal break-ups. Today, the average municipal size is around 36 000 inhabitants and the median size is 16 000 inhabitants. Swedish municipalities vary significantly in land area and population size as well as tax base and age structure. In terms of land area, the smallest municipality is 9 km2, whereas the largest municipality has an area of 19 155 km2. Municipal populations vary between 2 387 inhabitants and 975 551 inhabitants. In 2020, 52% of municipalities had between 5 000 to 20 000 inhabitants and 42% more than 20 000 inhabitants.

HORIZONTAL COOPERATION: Municipal mergers have not been on Sweden’s policy agenda since the major boundary reforms of the 1960s and 1970s; instead, inter-municipal cooperation has always been prioritised. Voluntary inter-municipal cooperation provides an alternative with which to organise public services, in particular for the smallest and poorest municipalities. Municipalities can, for example, cooperate through contracts, they can establish a “common committee” to run joint services in health care or education, or establish a “municipal federation” (kommunalförbund), which is the most common form of cooperation. In fact, there are around 90 entities active in rescue services, schools, water supply and sewerage. These inter-municipal cooperative organisations are legal entities, whose tasks and obligations are formally agreed upon by their members. The cooperative organisations are usually run by boards, whose members are nominated by the member municipalities. Over the years, inter-municipal collaboration among Swedish municipalities has increased steadily. The municipalities can also own and cooperate together within limited companies (see below).

STATE TERRITORIAL ADMINISTRATION: The central government has its own administration at the regional level, the County Administrative Boards (CABs), which are led by County Governors appointed by the central government. CABs are responsible for ensuring that decisions from the parliament and the government are implemented in the county. The CABs are responsible for coordinating central government activities in the counties, including the 240 central government agencies that operate more or less independently (within the limits of their mandate). In addition to a coordinating function, the CABs are responsible for safeguarding the rule of law in the regions. CAB´s have service responsibilities too, including tasks such as managing EU funding and monitoring (e.g. compliance with laws and regulations in specific sectors) regions and municipalities.

The responsibilities of subnational governments are laid down in the 1991 Local Government Act, which was amended in 2004. Subnational government tasks can be divided into compulsory services that they must provide by law, and voluntary services that they themselves decide to provide. The provision of compulsory services is often quite tightly regulated by law, whereas subnational governments are relatively free to decide upon the voluntary services provided. In most cases, subnational governments are also free to decide how services are provided – either through own production or by outsourcing (inter-municipal cooperation or purchasing the service from a private company).

Municipalities are responsible for social protection, education and vocational training, planning and building issues, health care (prevention), environmental protection, utilities (waste, water and sewerage), local roads and public transport, leisure and culture, housing, rescue services, etc. Regions’ responsibilities include health care (primary care, hospitals, ambulatory care, dental care, medical services) and regional public transport. As previously mentioned, regions have been responsible for regional development since 2019.

Swedish local governments are also part or majority owners of about 1 839 limited companies. These local public enterprises are usually established in order to provide housing services, transport, property management, energy, and communication services. From a legal standpoint, these companies are treated as any other private company, with the difference being that the shares are owned by local governments.

Main responsibility sectors and sub-sectors
SECTORS AND SUB-SECTORS	Regional level	Municipal level
1. General public services (administration)	General administration	General administration
2. Public order and safety		Emergency and rescue services
3. Economic affairs / transports	Public transport (via a regional public transport authority) Regional development; Tourism (optional)	Public transport (shared with regional public transport authority); Economic development. Road maintenance. Employment (optional); Industrial and commercial services (optional)
4. Environment protection		Environmental protection; Refuse and waste management; Sewerage
5. Housing and community amenities		Planning and building issues; Housing (optional); Energy (optional); Water supply
6. Health	Healthcare and medical services; Primary care; Hospitals; Ambulatory care; Dental care	Preventive health care
7. Culture & Recreation	Cultural institutions	Leisure; Culture (optional); Public libraries (compulsory)
8. Education		Pre-school; Primary and secondary education; Vocational training
9. Social Welfare		Care for the family; Child; Elderly; Disabled

Scope of fiscal data: municipalities, municipal associations, regions, and local government owned and controlled market corporations.

SNA 2008

Availability of fiscal data: High

Quality/reliability of fiscal data: High

GENERAL INTRODUCTION: In Sweden, the central government has the ultimate responsibility for ensuring that municipalities and regions have adequate resources for local service provision. Sweden’s method to accomplish this is the “financing principle”: if the central government decides to delegate a new task to subnational governments, the central government must increase grants or provide other revenues to the subnational governments in question in order to finance the new service. If, however, an existing subnational task is centralised or abandoned, the subnational grants may be reduced. The financing principle is applied only to those central government decisions that affect subnational service costs directly. Indirect effects, such as an increase in input prices (e.g. wages, rents), that may be decided or affected by the central government, are not automatically compensated. The financing principle is an important factor for the functioning of Swedish subnational government, and has been in use since 1993. While the principle is not legally binding, it is agreed upon by all political parties and routinely used by the government. The principle is applied only to new tasks, since grants only currently account for almost 40% of subnational revenue.

Subnational government expenditure by economic classification
	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total expenditure	14052	25.6%	48.7%	100.0%
Inc. current expenditure	12666	23.1%	48.9%	90.1%
Compensation of employees	5431	9.9%	75.8%	38.7%
Intermediate consumption	3126	5.7%	69.9%	22.2%
Social expenditure	2216	4.0%	24.4%	15.8%
Subsidies and current transfers	610	1.1%	18.5%	4.3%
Financial charges	66	0.1%	26.1%	0.5%
Others	1216	2.2%	75.4%	8.7%
Incl. capital expenditure	1387	2.5%	46.8%	9.9%
Capital transfers	97	0.2%	35.2%	0.7%
Direct investment (or GFCF)	1290	2.3%	48.0%	9.2%

EXPENDITURE: Subnational governments are responsible for a large range of public services and benefits in key areas, making Sweden one of the most decentralised unitary countries in the OECD. Subnational governments account for about 48.7% of general government expenditure and 25.6% of GDP (the OECD averages are 36.6% of public expenditure and 17.1% of GDP), which demonstrates their fiscal importance. Subnational government share of general government staff expenditure is high (75.8%). Staff expenditure forms about 39% of subnational government expenditure. These high shares reflect the fact that regions and municipalities are responsible for wages of teachers, social and health employees (versus the OECD average: 61.2% of public expenditure and 34.4% of subnational expenditure). Following the Nordic tradition of a strong welfare system, the social expenditure is also greater than the OECD unitary countries’ average.

DIRECT INVESTMENT: The share of Swedish subnational investment in public investment is lower than the OECD average – 46.8% compared to 54.6% in the OECD in 2020 – due in part to the fact that, traditionally, most of the investment is carried out by the central level, and subnational government investment occurs in a few large cities and regions. As a share of total expenditure, investment accounted for 9.2% while the OECD average was 11.3% in 2020. As a share of GDP, subnational government investment amounted to 2.3%, which is higher than in the OECD on average (1.9%). Furthermore, the Infrastructure Bill for 2018-2029 plans to increase infrastructure investment by 20%.

In 2020, about 51 percent of municipal investments were in housing and property, and energy 9%, water/sewerage 13%, infrastructure 20%, other municipal investments 6%. Housing investments refer to newly produced homes, as well as measures to upgrade existing homes. Property investments refer to investments in non-residential properties. Examples of other municipal investments are homes for the elderly, preschools and schools, as well as sports and bathing facilities. Investments in infrastructure include streets, roads, parks, water and sewage treatment plants and associated main pipes as well as ports and airports. At the regional level, the main investments were in property 40%, infrastructure and public transport 36%, healthcare equipment 11%, other equipment 9%.

Subnational government expenditure by functional classification
	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total expenditure by economic function	13833	25.0%	-	100.0%
1. General public services	1484	2.7%	21.6%	10.7%
2. Defence	6	0.01%	0.8%	0.04%
3. Security and public order	100	0.2%	13.8%	0.7%
4. Economic affairs/transports	900	1.6%	35.0%	6.5%
5. Environmental protection	198	0.4%	71.2%	1.4%
6. Housing and community amenities	321	0.6%	79.6%	2.3%
7. Health	3736	6.8%	83.4%	27.0%
8. Recreation, culture and religion	493	0.9%	63.3%	3.6%
9. Education	3052	5.5%	74.3%	22.1%
10. Social protection	3543	6.4%	28.3%	25.6%

Health care and social protection form the largest subnational government spending categories. Together these accounted for almost 53% of subnational expenditure, followed by education and general public services. For regions, the main category of spending is health care. For the municipalities, social protection and education are the main services. Compared with regions, municipalities are responsible for a much wider range of services and therefore manage budgets of about twice the size of regions. For example, municipalities are responsible for housing and community amenities, recreation and culture as well as economic affairs and transports (jointly with the transport companies organised by regions).

Subnational government revenue by category
	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total revenue	14193	25.8%	52.0%	100.0%
Tax revenue	7153	13.0%	32.6%	50.4%
Grants and subsidies	5505	10.0%	-	38.8%
Tariffs and fees	1229	2.2%	-	8.7%
Income from assets	170	0.3%	-	1.2%
Other revenues	136	0.2%	-	1.0%

OVERALL DESCRIPTION: Sweden’s subnational governments have among the largest shares of public revenue across the OECD countries, measured both as share of GDP and as percentage of public revenue (25.8% and 52.0%). More than half of subnational government revenue comes from tax revenues, compared with the OECD average of 42.4% in 2020. Grants and subsidies account for slightly above one-third of subnational government revenue. Local taxes represent 13.0% of the GDP and 32.6% of general government revenue. Municipalities and regions have very similar revenue structures.

TAX REVENUE: In Sweden, subnational government tax revenue is almost entirely formed by the local income tax (PIT). Income tax is levied on salaries, wages, pensions, and payments from health insurance and unemployment benefits; it represented 100% of subnational government tax revenue in 2020, 50.4% of subnational government revenue and 13.0% of GDP. Municipalities and regions are free to set the income tax rates but the central government controls the tax base. The real estate fee (it is not called a property tax but a real estate fee) is a central government tax as the central government sets the fee and defines the base. Subnational governments get a share of the real estate fee revenue.

GRANTS AND SUBSIDIES: The Swedish welfare state is built on the promise that citizens have equal access to public services regardless of their place of residence. This is a considerable challenge for subnational governments because the conditions for service provision and the revenue bases vary considerably between municipalities and regions. In order to ensure equitable service levels in all parts of the country, the fiscal equalisation system has a major role. An important grant reform was implemented in the early 1990s, which replaced the matching grant system with general grants. In addition to the general grant system, the central government also uses earmarked grants for specific purposes. Another, larger reform took place in 2014, and in 2020 the cost equalisation system was changed by introducing three new sub-models into the cost equalisation system. The government decided in April 2022 to set up a parliamentary committee reviewing the whole fiscal equalisation system. The committee shall deliver its final report in May 2024.

The general grant system for municipalities and regions in Sweden consists of income equalisation grants (89%) and cost equalisation grants (11%). There is also a minor grant, called the structural grant, which aims to strengthen municipalities with a small population, with a decreased population and/or with a problematic labour market. In addition to the general grant system, specific grants are used for various purposes and services.

Overall, the fiscal equalisation system, both horizontal and vertical, take differences between tax bases and service costs into account. Transfers from the central government include compensation for mandatory tasks based on an ex-ante assessment, and allocated on a per capita basis as a lump sum through general or earmarked grants.

In international comparison, Sweden’s subnational governments stand out as relatively self-reliant (as was mentioned above, own revenues form about 62% of revenues). While the share of transfers has grown during recent years, the relatively low share of grant revenue as part of total subnational revenue implies that the vertical fiscal imbalance (i.e. asymmetry between subnational revenues and spending responsibilities) in Sweden is low.

OTHER REVENUE: Other Swedish subnational government revenue consists mainly of charges and fees (8.7% of subnational governments´ revenue) for local services provided such as child, elderly and health care. Municipalities and regions are allowed to set fees but ceilings on maximum charges have been introduced for some services. The role of user fees as subnational government revenue remains below the OECD average of 13.3%. Revenues from assets represented 1.2% of subnational government revenue in 2020 (versus 2% OECD average). Since 2013, subnational governments are also able to build rainy day funds in order to reduce the cyclicality of their revenue.

Subnational government fiscal rules and debt
	Dollars PPP / inh.	% GDP	% general government debt	% SNG debt	% SNG financial debt
Total outstanding debt (consolidated?)	10589	19.3%	30.7%	100.0%	-
Financial debt	7145	13.0%	31.3%	67.5%	100.0%
Currency and deposits	0	-	-	0.0%	0.0%
Bonds / debt securities	2577	-	-	24.3%	36.1%
Loans	4568	-	-	43.1%	63.9%
Insurance pensions	1634	-	-	15.4%	-
Other accounts payable	1810	-	-	17.1%	-

FISCAL RULES: To strengthen the budget process at local level, a balanced budget requirement for the local government sector has been in place since 2000. This requirement means that every municipality and region must plan their budget to achieve balance. The balance requirement specifies the lowest acceptable level of net surplus or deficit. If the financial result is negative at the end of the year - for instance because of some unexpected costs - the municipality must balance the budget within three years. Some exceptions to this can be made in case of ‘extraordinary circumstances’. While there are no legal sanctions if a municipality breaks the rule, in general municipalities follow this rule.

Since 1992, local governments have been required to exercise good financial management in their activities. They are to adopt guidelines for good financial management. This rule is part of a wider fiscal policy framework, which was reinforced in June 2016 following a cross-party agreement to ensure the long-term sustainability and transparency of fiscal policy.

DEBT: Subnational governments have the legal right to make autonomous decisions on their borrowing, without scrutiny or approval by the central government. There is no direct volume limit restricting subnational government borrowing. Borrowing is nevertheless indirectly limited because all costs associated with the debt must be included in the balanced budget. In Sweden, subnational government outstanding debt as a percentage of GDP is lower than the OECD average (19.3% vs 27.9%) but the share in total public debt is higher (30.7% vs 20.2%). subnational government debt comprises financial debt (67.5%), other accounts payable (17.1%) and insurance pensions. Financial debt comprises both loans (43.1% of outstanding financial debt) and bonds (24.3%).

Kommuninvest i Sverige AB, a credit association fully owned by regions and municipalities, are their main lender (market share of about 56% in 2019). It was founded in 1992 because many municipalities had difficulty obtaining financing for their investments and had to pay high interest rates for their loans. As of late 2021, Kommuninvest Cooperative Society, which owns the Kommuninvest i Sverige AB, has a total of 290 members, of which there are 278 municipalities and 12 regions.

The sustainability aspect of municipal investments is currently taken into account with green bonds. To date, only nine cities have issued such bonds but taken together these municipalities represent 17% of the Swedish population. Kommuninvest has also issued green bonds to raise financing from international financial markets. Kommuninvest has so far financed about 500 subnational government investments with the Green Bonds Programme.

TERRITORIAL MANAGEMENT OF THE CRISIS: According to the “principle of responsibility”, the party responsible for a particular activity under normal circumstances is also responsible for that activity in a crisis situation. In this framework, at the national level, the Public Health Agency of Sweden coordinates communicable disease control and provides daily updates regarding the situation in Sweden. The National Board of Health and Welfare supports and coordinates the health and medical care preparedness of the various regions. The Government has issued several instructions on limiting the spread of SARS-CoV-2 to the National Board of Health and Welfare and the Public Health Agency of Sweden. The Government has committed to ensuring that the expert agencies and the health and medical care system have the resources necessary to limit the spread of the virus. At the subnational government level, according to the “principle of responsibility”, regions and municipalities are responsible for COVID-19 measures in services that they provide. Many municipalities and regions have activated their Crisis Management Boards, which are defined by law in case of emergencies. Municipal and regional councils nominate the members of their Crisis Management Boards. During the COVID-19, the purpose of the Crisis Management Boards has been to speed up decision-making in municipalities and regions.

The Swedish constitution guarantees the independence of public agencies and gives extensive powers to local governments in designing policy measures regarding public health issues. From this perspective, the role of the central government is limited. However, on 10 January 2021, a temporary COVID-19 law was applied in Sweden. According to the law, the government and authorities can decide on restrictions and measures to prevent the spread of infection. In order to remain prepared if the infection situation deteriorates, the temporary COVID-19 Act and the Restrictions Regulation was extended until March 31 2022.

The County Administrative Boards (CABs) are responsible for monitoring the situation and ensuring that restrictions based on the temporary COVID-19 law are enforced and obeyed in regions. In case of non-compliance, the CABs can decide on a penalty payment.

EMERGENCY MEASURES TO COPE WITH THE CRISIS AT THE DIFFERENT LEVELS OF GOVERNMENT: In 2020, SEK 21 billion was paid to cover the additional costs incurred by municipalities and regions as a result of COVID-19. In June 2020, SKR and the central government signed an agreement on increased testing for COVID-19 and infection tracking. A total of SEK 8.8 billion was set aside in 2020 within the framework of the agreement.

In the budget proposal for 2021, the government announced SEK 4 billion in support to the regions to manage deferred care and COVID-19-related care. An additional SEK 2 billion was added in the spring amending budget. The funds are distributed according to population. Furthermore, the government decided to pay SEK 400 million in 2021 to the regions responsible for carrying out the vaccinations, as a compensation for vaccines and vaccinations.

While the central government agencies have the main responsibility to support business during the COVID-19 crisis, the municipal and regional governments have taken some voluntary steps to mitigate the consequences for companies. The measures taken by subnational governments include deferring, reducing or waiving collection of fees, shortening payment times to local suppliers, and deferring or reducing rents. In 2021, municipalities, regions and their companies were able to apply for compensation from the central government if they, due to the coronavirus, temporarily reduced the rent for tenants.

IMPACTS OF THE CRISIS ON SUBNATIONAL GOVERNMENT FINANCE: While in 2020 COVID-19 negatively affected subnational government tax bases and increased their health care costs, the strong financial support from central government to municipalities and regions more than compensated for the losses. As a result, the municipalities and regions ran record surpluses in 2020. In total, the surplus was over SEK 50 billion. Central government grants and equalisation increased by about SEK 40 billion from the previous year. Another reason behind the budget surplus in 2020 is that in many subnational governments the total expenditure has grown slower than expected, for instance because the demand for other than COVID-19 related health care was lower than normal. Some municipalities have also experienced lower costs for travel, and child and elderly care costs.

In 2020, the municipal income tax base increased by 2.1%, which represents a continued slowdown compared to 2018 and 2019. Thanks to central government support to sick pay costs, increased benefit levels in the unemployment insurance fund and a temporary abolition of the health insurance day, the subnational government tax base was not significantly weakened. The macroeconomy is forecasted to pick up in 2021 and 2022, resulting in an increase in the subnational government income tax base by more than 4% per year.

ECONOMIC AND SOCIAL STIMULUS PLANS: During the crisis, the government has used a number of measures to stimulate the economy and to support those who have been most affected. Examples of measures to support business include loans to SMEs, grants to businesses and capital injections to the airline SAS and other state-owned companies. Measures to support vulnerable groups include additional funding for cultural and sports sectors, support for education and training, expanded active labour market policies, reduction in employers’ social security contributions, and supplementary housing allowances to families with children. Measures to ensure the functioning of critical public infrastructure include infrastructure investment, extra support to regional public transport and aid to regional airports.