How Finland copes with an ageing population: adjusting structures and equalising the financial capabilities of local governments

Figures & data

Table 1. Municipal autonomous taxation powers

	Municipal income tax	Municipal property tax
Subjects	Salaries, pensions, many social benefits, but not incomes from capital	Residential and business buildings and land except forests and farmlands
Tax rates	Municipalities have the right to decide the tax rate without limitations	Municipalities have the right to set the tax rates within the ranges defined for different property classes
Share (%) of municipal total revenues in 2018	41.8%	4.0%

Figure 1. The development of total municipal debt and municipal average income tax rate, 2000–2019

Table 2. Proposed and implemented regionalisation reforms as a response to the ageing society and related developments

	Vanhanen’s cabinet	Katainen’s & Stubb’s cabinet	Sipilä’s cabinet	Marin’s cabinet
Name of the reform	Municipal and Service Structure Reform	Social and Health Care Reform	Regional Government, Health and Social Services Reform	Health and Social Services Reform
Published in	2006	2014	2017	2020
Highlighted impacts of ageing	Demand for nursing and caring will grow, municipal expenditures will increase, difficulties recruiting new social and health care workers will increase, needs for childcare and education services will decrease	Service demand will increase especially in social and health care sectors, municipalities have to hire more employees, expenditures on social and health care will grow, municipalities will raise taxes and incur debts	Remarkable expenditure pressures of local authorities, especially in social and health care, difficulties recruiting new social and health care workers	Increased demand for nursing and health services, remarkable expenditure pressures of local authorities, difficulties recruiting new social and health care workers
Main identified societal risks	Unstable economic preconditions, loss of regional vitality, rapid growth of the unit costs of public services	While population is ageing and service needs are growing, the municipal-based system of public welfare services is a risk itself, regional equality between citizens, customer and patient safety may be jeopardised	Equal access to municipal services is at risk	Unsatisfied service needs, regionally unequal service supply
Primary aims	To provide a sufficient structural basis in the future for the provision of municipal services, improve productivity, limit the growth of municipal expenditures, improve the steering of local public services	To guarantee equal social and health care services for the population	To improve productivity, save on public expenditures, limit the growth of social and health care expenditures	To decrease the differences in public welfare and health, guarantee equal and high-quality social and health care services for the population, improve security, improve availability and accessibility of services, guarantee availability of skilled labour, limit the growth of service expenditures
Major reorganisations	Regionalisation of municipal services through inter-municipal collaboration: subsidised and voluntary municipal mergers, compulsory inter-municipal collaboration to guarantee a sufficient population base (20,000 inhabitants in primary health care and closely related social services, 50,000 inhabitants in vocational education)	Regionalisation of municipal services through inter-municipal collaboration: creation of five inter-municipal joint bodies and catchment areas responsible for the organisation of public social and health care	Regionalisation of municipal services through new regional governments: 18 new state-funded regional governments with regional elections and limited self-government responsible for social and health care, fire and rescue services, regional planning and some other public services; regional citizens would have freedom of choice between many public and private social and health services	Regionalisation of municipal services through new regional governments: 21 new state-funded regional governments, City of Helsinki as a region and joint municipal authority of the Helsinki University Central Hospital; new regions would have regional elections and limited self-government responsible for social and health care and fire and rescue services
Implementation	Number of municipalities fell by 95 due to mergers implemented in 2006–2011 and new collaborative arrangements (i.e. catchment areas) introduced	Reform proposal failed in parliament in 2015	Reform proposal failed in parliament in 2019	To be seen

Table 3. Development of the number of municipalities, average population size of municipalities, voter turnout in municipal elections, share of urban municipalities, and number of joint municipal authorities between 1972 and 2017 (Statistics Finland 2020; The association of finnish local and regional authorities 2020)

Year	Number of municipalities	Average population size of municipalities	Voter turnout (%) in municipal elections	Share (%) of urban local governments of all municipalities	Number of joint municipal authorities
1972	512	9, 089	75.6	10.2	321
1976	475	9, 960	78.5	13.3	384
1980	464	10, 318	78.1	18.1	403
1984	461	10, 616	74.0	18.2	381
1988	461	10, 747	70.5	20.4	422
1992	460	10, 989	70.9	20.4	286
1996	455	11, 280	61.3	22.4	250
2000	452	11, 463	55.9	23.7	231
2004	444	11, 794	58.6	25.0	217
2008	415	12, 834	61.2	27.2	164
2012	336	16, 151	58.3	32.1	130
2017	311	17, 727	58.8	34.4	118

Table 4. Municipalities classified by the size of the old people’s group and some averages of financial variables of year 2019. (Source: Statistics Finland and the association of Finnish regional and local authorities, elaborated by the authors)

Municipality				Accrued	Debts of
Percentage of people	Number of inhabitants	Number of inhabitants	Income tax rate	surplus/deficit	the group
Share (%) 65 years and older:	31.12.2013	31.12.2018	%	€/inhabitant	€/inhabitant
34–43 (Group 1)	3,663	3,354	20.88	1 876	4 503
28–33 (Group 2)	7,311	6,908	21.03	1 204	5 113
21.8–27 (Group 3)	11,565	11,221	20.90	1 120	4 967
9-9–21.7 (Group 4)	48,447	50,893	20.24	1 190	5 286

Table 5. Municipalities classified by the size of the old people’s group and some averages of current costs per inhabitant of year 2019. (Source: Statistics Finland and the association of Finnish regional and local authorities, elaborated by the authors)

Municipalities	Percentage of people	Current net costs	Social and health care net costs	Elderly care	Special hospital health care
N	Share (%) 65 years and older:	€ per inhabitant	€ per inhabitant	€ per inhabitant	€ per inhabitant
56	34–43	7 344	4 816	938	1 538
82	28–33	6 620	4 123	712	1 393
96	21.8–27	6 168	3 616	565	1 316
60	9.9–21.7	5 482	3 002	380	1 170

Table 6. Municipalities classified by the size of the old people’s share and some averages of demographic variables of year 2019. (Source: Statistics Finland and the association of Finnish regional and local authorities, elaborated by the authors)

Municipality		People of age	People of age	Dependency ratio:	Population change
Percentage of people	Municipalities	65	75	Ratio of non-working group	2014–2018
Share (%) 65 years and older	Number	%	%	per working-aged group	%
34–43	56	36.9	16.8	90.8	−8.13
28–33	82	30.9	13.9	81.0	−6.01
21.8–27	96	27.8	12.2	76.2	−4.24
9.9–21.7	60	18.5	7.5	63.3	2.80

Table 7. Municipalities classified by the size of the old people’s group, tax income and grant income of year 2019. (Source: Statistics Finland and the association of Finnish regional and local authorities, elaborated by the authors)

Municipality	Tax income	Grant income	Tax and grant income	Share (%) of	Share (%) of
Old people share (%) by group	€/inhabitant	€/inhabitant	Total	Children (0–6 years old)	Old people (65 or older)
Group 1 (34–43%)	3 384	3 869	7 252	4.3	36.9
Group 2 (28–33%)	3 375	3 075	6 450	5.8	30.9
Group 3 (21.8–27%)	3 612	2 389	6 001	7.0	25.2
Group 4 (9.9–21.7%)	3 854	1 513	5 367	8.7	18.5

Table 8. Correlations between grant income per inhabitant and other variables

		Inhabitants 2018	Population change	Surplus per inhabitant	Debts per inhabitant	Income tax rate	Share of children	Share of old people	Share of people with foreign language	Population density
Grant income per inhabitant	Pearson correlation	−.377*	−.301*	0.074	−0.008	.366*	−.431*	.700*	−.464*	−.378*
	Sig. (2-tailed)	0.000	0.000	0.208	0.887	0.000	0.000	0,000	0,000	0,000
	N	294	294	294	294	294	294	294	294	294

*Correlation is significant at the 0.01 level (2-tailed).

Table 9. Regression model (ordinary least squares) of the dependent variable of combined tax and grant income per inhabitant. Data for variables were collected from the 2019 municipal statistics of the association of Finnish local authorities

	UnStd		Std.			Collinearity
Variables	B	Std. Error	Beta	t	Sig.	Tolerance	VIF
(Constant)	2110.659	1126.474		1.874	.062
Percentage population change (2014–2018)	−12.198	11.461	−.070	−1.064	.288	.339	2.949
Accrued surplus per inhabitant	.133	.029	.212	4.529	.000	.659	1.517
Debts per inhabitant	.061	.023	.107	2.590	.010	.851	1.176
Income tax rate (%)	76.447	52.572	.078	1.454	.147	.507	1.971
Share of old people	82.596	8.063	.621	10.244	.000	.394	2.538
Share of inhabitants with foreign language	−47.145	16.476	−.143	−2.861	.005	.576	1.736
Population density	.212	.183	.060	1.157	.248	.542	1.845

Number of observations: 294

Dependent Variable: Combined tax and grant income per inhabitant

Durbin–Watson 1.847

Adjusted R Square 0.576

Table 10. Accrued surplus per inhabitant in municipalities explained with a regression analysis (OLS). Data for variables collected from the 2019 municipal statistics of the association of Finnish local authorities

	UnStd		Std.			Collinearity
Variables	B	Std. Error	Beta	t	Sig.	Tolerance	VIF
Constant	13,919.550	2107.803		6.604	.000
Percentage population change (2014–2018)	−4.527	23.016	−.016	−.197	.844	.339	2.948
Debts per inhabitant	−.069	.047	−.077	−1.480	.140	.857	1.167
Income tax rate (%)	−673.012	97.821	−.429	−6.880	.000	.591	1.692
Share of old people	56.158	15.850	.265	3.543	.000	.411	2.431
Share of inhabitants with foreign language	−55.988	32.924	−.107	−1.701	.090	.582	1.719
Population density	1.668	.354	.295	4.710	.000	.584	1.713

Number of observations: 294

Dependent Variable: Accrued surplus per inhabitant

Adjusted R Square 0.327

Durbin–Watson 2.015

Statistics Finland. 2020. Statistical databases, Accessed 6 March 2020. https://www.stat.fi/index_en.html

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The Association of Finnish Local and Regional Authorities. 2020. Suomen kaupungit ja kunnat. Kaupunkien ja kuntien lukumäärät ja väestötiedot. Accessed 9 September 2020. https://www.kuntaliitto.fi/tilastot-ja-julkaisut/kaupunkien-ja-kuntien-lukumaarat-ja-vaestotiedot

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