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The Economy Report.ON SWEDISH MUNICIPAL AND COUNTY COUNCIL FINANCES– APRIL 2012

Information concerning the content of the report:Annika Wallenskog tel +46 8 452 7746Bo Legerius tel +46 8 452 77 34

Swedish Association of Local Authorities and RegionsDepartment of Economy and Governance, Section for Economic AnalysisSE-118 82 Stockholm | Visitors Hornsgatan 20

Phone +46 8 452 70 00 | Fax +46 8 452 70 50

www.skl.se

© Sveriges Kommuner och Landsting1st edition, May 2012

Graphic form & production Elisabet JonssonTranslation Ian MacArthurCover illustration Jan Olsson Form & Illustration ABDiagrams Håkan HellstrandPrinters ABA Kopiering AB, StockholmFonts Chronicle and WhitneyPaper Color Copy 120 gr

ISBN 978-91-7164-694-1

[Swedish edition: 978-91-7164-692-7, ISSN: 1653-0853]

The Economy Report. April 2012 On Swedish Municipal and County Council Finances 1

Foreword

The Economy Report illustrates the financial situation and conditions of coun-ty councils and municipalities and the development of the Swedish economyover the next few years. It is published twice yearly by the Swedish Associa-tion of Local Authorities and Regions (salar).

The financial situation of municipalities and county councils weakened in2011, mainly because their pension liabilities had to be revalued on account oflow interest rates. In 2012 non-recurring revenue items are expected to con-tribute to very good net income. In later years net income will weaken despi-te strong tax base growth.

This is an abridged version of the report. It contains the Summary (sup-plemented with some tables and diagrams from the main report), som sec-tions dealing with municipalities and the county councils as well as the An-nex. It has been written by staff at the salar Section for Economic Analysisand has not been considered at political level within the Association. The peo -p le who can reply to questions are given on the inside cover page. Other sa-lar staff have also contributed facts and valuable comments. The trans lationis by Ian MacArthur, following slight revisions by Elisabet Jons son, Anna Kle-en and Bo Legerius,. We are very grateful to the municipalities and countycouncils that have contributed basic data to our report.

Stockholm, April 2012

Annika WallenskogSection for Economic Analysis

Contents

3 Summary3 The Chief Economist’s conclusions11 Municipalities: Prospects and challenges looking ahead14 County councils: Trends in healthcare

17 Annex

2 The Economy Report. April 2012 On Swedish Municipal and County Council Finances

SummaryAfter the economic downturn in late 2011 and early 2012 the situ-ation for the Swedish economy has now started to brighten. Thiswill work through to municipal and county council tax revenuein coming years. Despite strong tax base growth, an increase ingovernment grants or local government taxes or extensive actionwill be required to avoid deficits from 2015 onwards.

The Chief Economist’s conclusions

Concern about the situation in indebted emu countries, especially Greecebut also other countries around the Mediterranean, created a great deal ofturbulence in financial markets in autumn and winter 2011. The result was ri-sing interest rates in the crisis countries and falls on stock exchanges acrossthe world. The concern and uncertainty about the ability of the politicalsystem to master these problems also led to an abrupt dampening of econo-mic activity, not just in the crisis countries but also in many other countries,both in and outside the euro zone.

However, recent signals indicate that the worst is over and that the bottomwas reached in the winter. The are many indications that the situation is nowstabilising and that we will see a gradual increase in economic activity in thecourse of 2012–2013. At the same time, it should be remembered that severalcountries in the euro zone are facing severe fiscal restraint. This means thatweak economic growth must be expected in many European countries in thecoming years. Nor are the prospects for a strong recovery in the United Sta-tes, the world’s largest economy, particularly good. Household indebtednessis very high at the same time as the property market is still characterised by asubstantial oversupply of unsold homes. This does not suggest that us hous-eholds will be able to assume their traditional role as the primus motor of theworld economy. The us also has major problems in its public finances with


double digit budget deficits and substantial national debt that politiciansmust address sooner or later.

There are many indications that the world economy will continue to face adifficult situation, when both households and states have to wind down largeparts of the debts they have incurred in the credit expansion and recessionsof recent decades and the subsequent crisis management.

Sweden is being affected by international concerns, but is still relativelystrongEven though Sweden does not have any problems with its public finances, oureconomy suffered a downturn in the autumn and winter with a sharp fall ingdp in the last quarter of 2011. This downturn reflected a combination of re-straint among Swedish households as a result of international unrest and fal-


Summary

Diagram 7 • GDP in Sweden and in our most important export marketsAnnual percentage change

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

7

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

7

GDP Swedish export markets

Swedish GDPTrend, GDP Swedish export markets

Per c

ent

The recovery is progressing more quicklyin Sweden than in other countries. By 2016

the recession is expected to have beenovercome here in Sweden. Then many other countries will still have some way togo to cyclical balance.

Source: Statistics Sweden and Swedish Association of Local Authorities and Regions.

Table 3 • Demand and outputPercentage change

2010 2011 2012 2013**

GDP 6.1 3.9 0.6 2.6Imports 12.7 6.1 1.4 6.0Household consumption 3.7 2.1 2.1 3.0General government consumption 1.9 1.8 1.0 1.0Central government 4.2 1.7 0.4 –0.4Local government 1.0 1.8 1.2 1.5

Gross fixed capital formation 7.7 5.8 3.1 7.0Investments in stocks* 2.1 0.7 –1.1 0.0Exports 11.7 6.8 1.0 4.5Total use 8.0 4.6 0.9 3.7GDP, calendar-adjusted 5.9 4.0 1.0 2.6

*Change in stocks as per cent of GDP. **Data corrected for calendar effects.


Much of the weak growth in 2012 is ex-plained by weak exports. The shift to low -er increases in stocks also draws downgrowth.

ling export demand. This year has also begun with relatively low economic ac-tivity, but leading indicators point to an improvement in the next few months.

Our assessment is that the Swedish economy will grow by 0.6 per cent in2012, with growth then accelerating to 2.6 per cent in 2013. There are severalreasons to be relatively optimistic about the Swedish economy in the future.First, Sweden is among the countries that have the strongest public financesin the industrialised world. This means that there is scope for fiscal policy sti-mulation, if required by the situation. Second, Swedish households have ahigh savings ratio in international terms. If optimism begins to sprout, thismeans that households have scope to increase their consumption.

Moreover, looking back over the past 20 years, there is much to suggest thatSweden's underlying scope for growth is stronger than in most mature Euro-pean countries. The reforms implemented in our country have likely bornefruit in the form of higher potential for growth. In many other parts of Euro-pe, much still remains to be done in terms of structural reforms.


Summary

Table 4 • Household income and consumption expenditurePercentage change

2010 2011 2012 2013

Real disposable income 1.2 3.3 2.7 2.2Consumption expenditure 3.7 2.1 2.1 3.0Savings* 8.5 9.7 10.1 9.4Interest expenditure* 2.7 4.7 4.7 4.7

*Percentage of households’ disposable income.


Households’ income is continuing to riseat a relatively rapid rate. Households’ con-sumption expenditure will speed up in2013.

Diagram 6 • Net savings in various sectorsPer cent of GDP

1980 1985 1990 1995 2000 2005 2010 2015

-12,5

-10,0

-7,5

-5,0

-2,5

0,0

2,5

5,0

7,5

10,0

12,5

-12,5

-10,0

-7,5

-5,0

-2,5

0,0

2,5

5,0

7,5

10,0

12,5

Public sector

Private sectorTotal saving

GDP change

Per c

ent

Lower savings in the private sector in thefuture will result in a substantial boost toconsumption and investments, which will,in turn, help to keep GDP growth at a rela-tively high level.


Recovery in the labour market, unused resources until 2016

Despite decent growth in coming years we do not expect the economy to re-turn to full resource utilisation until 2016. The reason is that the growth figu-res forecast for gdp will only lead to a moderate reinforcement of the labourmarket. For 2012 and 2013 we expect employment to be unchanged in termsof the hours worked. In the following years our forecast is that, on average, thenumber of hours worked will increase by 1 per cent per year while gdp will in-crease by more than 3 per cent per year.

Even though the correlation does not hold at every point in time, a simple ruleof thumb to use is that unemployment rises if gdp grows more slowly than by2.5 per cent per year. Therefore we expect unemployment to rise gradually toabout 8 per cent in the course of 2012 and then to fall back slowly to just over6 per cent in subsequent years. Continued low resource utilisation indicatesweak inflation pressure in the foreseeable future. We therefore expect theRiksbank (the Swedish central bank) to react to rising unemployment by re-ducing its repo rate once more in 2012.

Relatively good tax base growth despite a weak economyThis year the tax base is expected to grow relatively well despite a static labourmarket. This is explained by a relatively strong increase in pensions and an in-crease in labour market payments on account of higher unemployment. Nextyear the weak payroll total in the tax base will again be countered by risingpensions. Normally the tax base also benefits from the fact that wages are alarger share of the tax base than of municipal and county council costs andthat wages rise faster than other prices. The price increase for other munici-pal and county council purchases is therefore lower than the wage increases


Summary

Diagram 3 • GDP and hours workedSeasonally adjusted, index figures and percentage change from the previous quarter

2008 2009 2010 2011 2012 2013

-4,0

-3,5

-3,0

-2,5

-2,0

-1,5

-1,0

-0,5

0,0

0,5

1,0

1,5

2,0

2,5

84

86

88

90

92

94

96

98

100

102

104

106

108

110

GDP

Hours worked

Hours worked, %-age change

GDP, %-age change

Inde

x 20

08

q 1 =

100

Per c

ent

The number of hours worked does notvary as strongly as GDP. Growth is unableto lift employment.


that affect the tax base. Overall, the real tax base will increase by about 1.5 percent both this year and next year, which must be viewed as a good develop-ment.

The path of the economy towards balance entails a more rapid increase inhours worked in 2013–2016 and a successively higher rate of wage increases.Pension income also contributes to a real increase in the tax base, albeit to asmall extent. However, what has the largest effect is the fact that the prices ofmunicipal and county council expenditure only rise by 2.5 per cent whilehourly wages (which affect the tax base) rise by 3.7 per cent per year. Thismeans that the tax base will grow faster in 2013–2016, in both real and nomi-nal terms, than it did on average in 2001–2011.

Net income in the local government sector weakened in 2011After two record years in municipalities and county councils, due in part tocyclical support and other non-recurring items, net income dropped towardssek 6 billion in 2011. Aggregate net income was sek -2.5 billion for the coun-ty councils and sek 9 billion for the municipalities. The main reason for thisdeterioration in net income is a revaluation of pension liabilities on accountof the low market interest rate (diagram 10 on page 8).

In 2012 we expect that net income will be saved by a number of non-recurring items and will then fall gradually in later years, unless vigorous ac-tion is taken in the form of restraint or tax increases or, alternatively, increa-ses in government grants. Despite this, the situation appears somewhat brigh-ter than in February, as tax revenue is now expected to be more than sek 4billion higher per year on average in the period 2012–2014 than in our Febru-ary assessment (diagram 23 on page 8).


Summary

Diagram 8 • Nominal and real tax base and hours workedPercentage change

2002 2004 2006 2008 2010 2012 2014 2016

-3

-2

-1

0

1

2

3

4

5

6

-3

-2

-1

0

1

2

3

4

5

6

Hours worked

Nominal

Real

Average 2001–2011

Per c

ent

The nominal change of the tax base after2011 is well in line with historical data. Theforecast for the real change exceedshistorical data in each year.


We expect costs to continue to rise at the same rate as they have done histo-rically. This means that the volume (costs in fixed prices) will rise by morethan 1.5 per cent on average per year up until and including 2016. There areno indications that the rate of cost increases will decline. The opposite is morelikely: population increases and shifts in the age structure of the populationmean that the cost pressure from demography is high in county councils, andat the end of the calculation period the demographic pressure will also incre-ase for municipalities. The demand for welfare services is not decreasing andis instead rising in line with the general level of prosperity. In healthcare, in


Summary

Diagram 10 • Net income for the municipalities before extraordinary itemsSEK billion and per cent

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

0

2

4

6

8

10

12

14

16

Net income, SEK billion

Net income, % of taxes and govt grants

SEK

bill

ion

Per c

ent o

f tax

es a

nd g

ovt g

rant

s

Better tax revenue in 2011 led to strong netincome for the municipalities. In 2012 in -creased tax revenue and temporary addi-tional revenues are also expected to con-tribute to very strong net income. Afterseveral years with net income in excess ofthe level for healthy finances, the sur -pluses are then expected to decrease.

Source: Statistics Sweden.

Diagram 23 • Net income for the county councilsSEK billion and per cent

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

-8

-7

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

-8

-7

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5 Net income, SEK billion

Net income, % of taxes and govt grants

SEK

bill

ion

Per c

ent o

f tax

es a

nd g

ovt g

rant

s

It took many years for the county councilsto recover from the crisis of the 1990s.The sector did not report an aggregatesurplus until 2005. After six years insurplus, there was again a deficit for 2011.The explanation is the reduction of the‘RIPS' interest rate for pension liabilities,which results in a non-recurring cost ofSEK 5.7 billion in the ‘mixed model’. Netincome adjusted for the lower RIPS in-terest rate is a surplus of over SEK 3 billi-on.

Source: Statistics Sweden.

particular, it is hard to restrain the pressure of demand. Demands concerningquality are also rising, without there being any clear source of finance.

Major investment needs in the futureWe can also note that costs are going to rise on account of major investmentneeds in the sector. Large parts of welfare provision were built up in the 1960sand 1970s and reinvestments in infrastructure and premises must take placenow. Moreover, premises must be adapted to new methods that have been de-veloped so as to run services more effectively. In the sector a great deal ofwork is also being done on the digitalisation of welfare services. The costs ofpublic transport are also expected to rise strongly in the future, as there arehigh demands for a more flexible labour market without negative environ-mental impacts.

Costs are therefore rising gradually in the form of growing depreciation andinterest expenses as investments and loans increase. In many cases the highlevel of investments also leads to higher operating costs.

Sweden is a country with a high rate or urbanisation. This means that, inaddition to the demographic challenge in the form of an aging population,many municipalities face major challenges in successively adapting theircosts to a shrinking population. Many of these municipalities, which are alre-ady in a difficult economic situation, are also disadvantaged by the fact thatthe equalisation system has not been updated. This means that several im-portant variables are based on a situation that applied almost ten years also.


Summary

Diagram 14 • Gross investments and depreciation in municipal administration, outcome andforecastSEK billion, current prices

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

10

15

20

25

30

35

40

45

50

10

15

20

25

30

35

40

45

50

Gross investments

Depreciation

SEK

bill

ion

Investments will increase in coming yearsaccording to municipal plans. Higher inve-stments also mean that depreciation ex-penses will increase and take more spacein the operating budgets of municipalities.


Municipalities that are growing can also have difficulties. These municipali-ties have to phase their investments to ensure timely provision of places forpreschool children, schoolchildren and older people.

Nevertheless we see municipalities and county councils fighting to keepcosts in check and to not let deficits snowball. Most municipalities and coun-ty councils make sure to keep their net income above zero. However, a fewhave had extensive problems with their finances. But when their net incomestarts to fall too far, they view the situation very seriously and take action. Outof the 42 municipalities that had deficits in 2011, only 5 had deficits for the se-cond year in a row.

In the Swedish version of the report we give examples of two county coun-cils that implemented major programmes in 2011 to bring their finances intobalance.

Non-recurring effects strengthen net income in 2012In 2012 we expect net income to be saved by the repayment of afa pension in-surance premiums. It is likely that salar will propose along with the centralemployee parties that the Board of the afa Försäkring insurance companyrepay premiums for the occupational health insurance (ags-kl) and chargeexemption insurance with respect to 2008, and perhaps also with respect to2007. afa Försäkring is very well-consolidated. This is both because the in-surance benefits will be much lower than foreseen on account of the reformof health insurance, which has resulted in considerable reductions in the in-flow of sickness benefit cases to afa Sjukförsäkring, and because of good fi-nancial returns on its capital. This makes possible a repayment of premiums(of about sek 5 billion per year for municipalities and county councils) for2008 and possibly also for 2007. If this is implemented our assessment is thatthe surplus in the sector will be more than sek 20 billion in 2012.


Summary

Diagram 27 • Gross investments in county councils, outcome and forecast, 2012–2014SEK billion, current prices

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

0

5

10

15

20

25

30

0

5

10

15

20

25

30

Other investmentsBuildingsSE

K b

illio

n

The budgets and plans of county councilsindicate that investments will continue torise until 2014. Our assessment is that in-vestments will exceed SEK 25 billion in2014. This increase is primarily due to in-vestments in buildings.


Our assessment for 2013 is that net income will again fall back to the 2011 le-vel, just under sek 9 billion. With an unchanged tax rate and constant nomi-nal government grants, tough budget restraint will then be required if net in-come is not to fall below zero over time. A sensitivity analysis shows that netincome in the sector will gradually weaken to sek -11 billion in 2016 as a re-sult, if the size of government grants is not increased. However, we do not ex-pect such a deterioration.

The most likely scenario is a combination of tax increases and higher go-vernment grants. This is the historic pattern. In our main scenario govern-ment grants are increased gradually to a level that is sek 18 billion higherthan at present and the tax rate is increased by a total of sek 0.23 up until2016. With these assumptions net income for the sector will be sek 6.5 billi-on in 2016, which is almost sek 10 billion worse than the 'rule of thumb' forhealthy finances.

Municipalities: Prospects and challenges looking ahead

The municipalities that have reported deficits for 2011 have replied to thequestion of what challenges they are facing in the next few years. Many men-tion a continued population decline, a larger number of older people and asmaller number of pupils in both compulsory and upper secondary school astheir greatest challenges.

Many small municipalities have problems with hard-to-finance schools insmall communities where pupil numbers are falling. Some municipalitiesthat have had losses and impairments of financial assets state that a reducedsurplus from financial income is their major challenge in the future. To copewith changes in the population structure it is increasingly important for mu-nicipalities to be able to adapt their costs. Now that the number of pupils in


Summary

Net income for municipalities and county councils will deteriorate unless action is takenSEK billion

2000 2002 2004 2006 2008 2010 2012 2014 2016

-15

-10

-5

0

5

10

15

20

25

-15

-10

-5

0

5

10

15

20

25

Net income = 2 %

Net income

excl grant adjustment

SEK

bill

ion

Without the upward adjustment of gov -ernment grants net income will fall in thefuture despite a tax rate increase of SEK0.23 in county councils. Even though weexpect government grants to increase bySEK 18 billion, our calculations show thatcentral government net lending will be en-hanced to more than 2 per cent of GDP in2016.

Source: Swedish Association of Local Authorities and Regions.

upper secondary school is falling sharply it is completely necessary to alsodraw down costs by adapting staff, premises and other resources. In the sameway, an adjustment is required in elderly care and compulsory school, whereneeds will grow strongly in the future.

Development of costs for older and disabled peopleIn some contexts statements have been made to the effect that the resourcesfor elderly care have decreased in the period 2000–2010. That is not the case.In current prices costs have risen by sek 28 billion. If costs are adjusted forthe fact that, in addition to services under the Social Services Act, elderly pe-ople also receive services under the Act concerning Support and Service forPersons with Certain Functional Impairments (SSA) and if these resourcesare included in the costs of elderly care, the increase is sek 32 billion. The in-crease in constant prices, the volume increase, is then 8 per cent. During thesame period the estimated increase in purely demographic needs can be putat 13 per cent.

For people with disabilities the adjusted volume increase is 36 per cent. Themunicipalities’ total volume increase in 2000–2010 was more than 12 per centand the estimated growth in demographic needs is 5 per cent. The conclusionis that resources in elderly care have increased but that the growth of costshas lagged compared with both demographic needs and other services in mu-nicipalities. One part of the explanation is probably the strong increase in SSAservices for persons with certain functional impairments.

The upper secondary school reform of 2011The reduction in the government grant in connection with the introductionof the new upper secondary school in 2011 is continuing. Ahead of 2012 go-vernment grants were reduced by sek 675 million and in 2013 they will be re-


Summary

Diagram 20 • Volume change in various municipal servicesPercentage change, index 2010 = 100

2010 2011 2012 2013 2014 2015 2016 2017

80

85

90

95

100

105

110

115

120

80

85

90

95

100

105

110

115

120

Gymnasieskola

TotalDisabled

Preschool etc

Compulsory school

Other services

ElderlyIn

dex

2010

= 10

0

Lower needs in upper secondary schoolrequire a cost adjustment. In all other ser-vices we see greater needs in the future,especially in compulsory school, pre-school and elderly care.

Source: Swedish Association of Local Authorities and Regions.

duced by sek 895 million. For 2014 government grants to the municipalitieswill fall by sek 1.4 billion and for the period starting in 2015 sek 1.93 billionwill be deducted. The number of upper secondary pupils will fall sharply inthe next few years. In addition, school organisers will have to handle both thenew and the old upper secondary school as well as coping with adjusting theircosts to the withdrawal of government grants. This faces municipalities withunreasonable demands for adjustments.

Government grants are not adjusted for demographic changeThere is no link between government grants and the size of year groups of pu-pils. When the number of pupils changes the municipality has to provide orre-assign funds on its own. In the current situation, when the number of up-per secondary pupils is decreasing, many municipalities need to redirectfunds to childcare and compulsory school, where age groups are growing yearby year. Many municipalities have an increasingly aging population, which af-fects needs in elderly care.

After 2016 the number of pupils in upper secondary school will rise againand will continue to do so for the foreseeable future. Then the municipalitiesmust themselves – without any grants from central government – providefunds that correspond to the increase in the age groups of young people.

Survey of municipalitiesAhead of 2012 the officials responsible for upper secondary school in 55 mu-nicipalities, that together account for 53 per cent of pupils, were asked ques-tions about how the payment per pupil in 2012 is affected by the saving madeby the government on upper secondary school.

The replies showed that 70 per cent of the municipalities provide fundsfrom other services in their budget for 2012 and that the saving only makes itsfull impact on upper secondary school in 30 per cent of the municipalities. Sothis means that the municipalities provide sek 475 million from other servi-ces while sek 200 million is saved on upper secondary school. In most caseswhere the reduced funding has an impact, all programmes are affected acrossthe board.

There are several reasons why municipalities choose not to let the full im-pact of savings impact on upper secondary school. One may be that they makethe assessment that schools have difficulty in realising the gains calculated bythe Government while the number of upper secondary pupils is falling drasti-cally. If a municipality has a resource allocation system with a payment perpupil, the reduction in the number of pupils means that schools already havemajor adjustments to cope with.


Summary

County councils: Trends in healthcare

The conditions for healthcare are changing constantly. This can involve newdiagnostic and treatment methods or technology for information manage-ment. Shifts in the age structure and health of the population lead to gradualchanges in the tasks of healthcare at the same time as patients’ demands andexpectations are rising.

If healthcare is to be effective, its organisation must adapt continuously tothese changing conditions. At the same time, it is hard to change the organi-sation of healthcare. Existing structures provide security for both citizens andhealthcare professionals. It is the combination of rapid change and strong de-mands for continuity that makes healthcare hard to govern.

To facilitate an adjustment, it is necessary to identify at an early stage whatare expected to be the dominant trends and to make long-term plans on thatbasis. At present work is under way in several county councils on looking ahe-ad in a longer-term perspective than the normal three years and sketchinghow care should be organised one or two decades from now. Several attemp-ts have also been made at international level to describe where healthcare isheading. Some of the trends that are common to both Swedish and interna-tional healthcare are described below.

Advanced care is becoming increasingly specialised…Scientific progress has enabled healthcare to successively present ever betterresults. One example is higher survival rates among, for instance, heart attack,stroke and cancer patients. This progress both leads to and depends on grea-ter specialisation in healthcare. The number of medical specialities rises overtime and there is a process of sub-specialisation within every speciality.

…leading to a concentration of healthcare provisionMaking use of the advantages of specialisation requires a large enough pati-ent population for each speciality. It is therefore natural for specialised careto be concentrated at fewer points of supply. This can lead to the closure of de-partments or changes in the distribution of responsibilities between hospitalsin a county and between counties. For really advanced care a distribution ofresponsibilities between nations may be considered. One recurring theme indiscussions of future healthcare structures is establishing national or inter-national knowledge centres for specific groups of diseases.

…while the number of healthcare units is risingMarket mechanisms are increasingly being used to steer healthcare in thedirection of greater effectiveness. This tends to generate more care providersand more care units. Patient choice in primary care has resulted in a 20 percent increase in the number of health centres. Patient choice in specialist carewill probably lead to the establishment of more independent clinics.


Summary

Increasing need of a coordinating function

These trends tend to increase the fragmentation of healthcare – more unitsoffering specialised services. At the same time there is an endeavour to movein the opposite direction and make healthcare more integrated. The transferof patients between healthcare units does not always function optimally andgreater fragmentation risks leading to the loss of a holistic view of the patient.This is why there has long been an emphasis on a cohesive chain of healthca-re with developed cooperation between different disciplines. This can bedone by creating a stronger coordinating role for primary care. One alterna-tive that has been tried in some places is to bring together several differentspecialities to deal with specific patient groups.

Shift towards older patients with more and chronic diseasesWe are living longer and longer. A longer life also means that more people getthe diseases that are associated with high age. In the future considerably morepatients than today will have cancer or dementia and many will have severaldiseases at the same time. Traditionally healthcare is organised around spe-cific measures for patients with a disease that can be cured, while the patientsof the future will increasingly have one or more chronic diseases. It is esti-mated that 70 per cent of all people aged over 75 have more than one chronicdisease and the number of people in that age group will rise sharply.

…is met by developing local healthcareIn many county councils the development of local healthcare is seen as themodel for managing elderly people with multiple diseases. Local healthcareconsists of primary care and internal medicine and geriatric clinics that willbe responsible for common recurring care that can be managed locally.

…and requires better coordination between county councils and municipalitiesFor the chronically ill the role of healthcare is to alleviate suffering ratherthan to cure and this overlaps a great deal with the care role of the municipa-lities. Building up functioning collaboration between county council healt-hcare and municipal elderly care is necessary so as to be able to deal with thisgrowing group of elderly with multiple illnesses.

Patients are increasingly well informed and can take more responsibility for their health and careit, the Internet and simpler diagnostic methods create new possibilities forpatients to keep themselves informed both about their own health and aboutcare alternatives. This may lead to lower demand for »physical« healthcareservices, but also to a risk that more people will seek care when the informa-tion is hard to interpret. Many hopes are being tied to the potential to gene-rate major efficiency gains through the use of it by healthcare to communi-cate with patients, in following up chronic diseases for instance.


Summary

Prioritisation necessary as healthcare costs rise

In most assessments of the future, the development of medical technology re-sults in cost growth that tends to be higher than the growth of the tax base.This will make active prioritisation based on health economics assessmentsincreasingly common.

…and a greater focus on preventive workThe best diseases are those that never occur. Many conditions are lifestyle-re-lated and can be prevented. Preventive measures can have a major effect onhealthcare costs.

...which means that healthcare has to measure and compareWell-founded decisions on, for example, new treatment methods can only betaken if there is supporting information, i.e. if the data already available in he-althcare can be compiled and used. Effectiveness can be increased by linkingup information about what is done, with what outcomes and at what costs.


Summary

This annex presents some key indicators and the overall income statements ofmunicipalities and of county councils, as well as an aggregate income state-ment for the sector to give an overall picture.

For diagrams showing the distribution of costs and revenue for municipa-lities and county councils separately, tables presenting overviews of centralgovernment grants and other data that we usually present in the Annex to theEconomy Report, we refer to our website, where we are now building up a newarea called Sektorn i siffror (The sector in figures). Go to www.skl.se, chooseVi arbetar med, Ekonomi, Sektorn i siffror.

An aggregate picture of municipalities and county councils


ANNEX

Table 21 • Key indicators for municipalities and county councils, 2011–2016Per cent and thousands of people

Outcome Forecast Calculation2011 2012 2013 2014 2015 2016

Average tax rate, % 31.55 31.60 31.65 31.67 31.73 31.83

municipalities, incl Gotland 20.73 20.59 20.59 20.59 20.59 20.59county councils*, excl Gotland 10.88 11.07 11.12 11.14 11.20 11.30

No of employees**, thousands 1,054 1,064 1,075 1,087 1,100 1,114

Municipalities 795 802 811 820 830 841County councils 259 262 264 267 270 274

Volume change, % 1.3 1.2 1.6 1.7 1.7 1.7

Municipalities 1.0 1.0 1.4 1.5 1.5 1.6County councils*** 1.9 1.6 1.8 2.2 2.0 2.0

Note: For the average tax rate the calculations are based on unchanged tax rates for municipalities as of2011. For county councils there is a tax rate increase.

*The tax base of Gotland is not included, which is why the totals do not add up. **Thousands; average number of people in employment according to the National Accounts.

***Adjusted for effect of tax shift in 2012.

Sources: Statistics Sweden and The Swedish Association of Local Authorities and Regions.


Annex

Table 22 • Aggregate income statement for the sector, 2011–2016Miljarder kronor


Income of activities* 153 165 162 168 175 183Expenses of activities –779 –802 –832 –864 –901 –943Depreciation –24 –26 –27 –28 –29 –29Net expenses of activities –651 –663 –697 –724 –755 –789

Tax revenue 540 562 583 605 632 661Gen gov grants and equalisation 123 120 120 125 129 134Net financial income** –6 1 2 3 2 1Net income before extra-ordinary items 6 20 9 8 7 7

Share of taxes and grants, % 1,0 3,0 1,2 1,1 1,0 0,8

Note: Consolidation has taken place by purchases between sectors.*The non-recurring effect of a probable repayment of AFA premiums of SEK 10 billion is included in

Income of activities for 2012.**The one-time effect of the lowered interest rate for RIPS pensions liabilities for 2011 of SEK –7,7 billi-on is included in Net financial income.

Table 23 • Income statement for the municipalities, 2011–2016SEK billion


Income of activities 114 124 119 124 129 135Expenses of activities –520 –534 –550 –571 –595 –622Depreciation –17 –18 –19 –20 –20 –21Net expenses of activities –422 –428 –450 –467 –487 –508

Tax revenue 355 366 379 393 410 428Gen gov grants and equalisation 76 73 74 77 79 82Net financial income 1 3 3 4 4 4Net income before extra-ordinary items 9 15 6 6 6 5

Share of taxes and grants, % 2.0 3.4 1.4 1.4 1.3 1.0

*The non-recurring effect of a probable repayment of AFA premiums of SEK 8 billion is included in In-come of activities for 2012.**The one-time effect of the lowered interest rate for pensions liabilities of SEK –2,0 billion is includedin net financial income/expense.

Table 24 • Income statement for the county councils, 2011–2016SEK billion


Income of activities 41 43 45 47 49 52Expenses of activities –261 –271 –284 –296 –309 –324Depreciation –8 –8 –8 –8 –8 –9Net expenses of activities –228 –235 –247 –257 –268 –281

Tax revenue 185 196 204 212 222 233Gen gov grants and equalisation 47 46 47 48 50 52Net financial income –7 –1 –1 –1 –2 –3Net income before extra-ordinary items –2 5 2 2 1 1

Share of taxes and grants, % –1,1 2,3 0,9 0,6 0,5 0,5

*The non-recurring effect of a probable repayment of AFA premiums of SEK 2 billion is included in In-come of activities for 2012.**The one-time effect of the lowered interest rate for pensions liabilities of SEK –5,7 billion is includedin net financial income/expense.

Source: The Swedish Association of Local Authorities and Regions.

Table 25 • Public sector finances 2011–2016SEK billion


Income 49,6 50,3 50,7 50,7 50,5 50,4of which Taxes and charges 44,2 44,8 44,9 44,7 44,4 44,3

Expenditure 49,5 50,6 50,8 50,3 49,6 49,0Transfers 18,6 19,0 18,8 18,3 17,8 17,4Consumption 26,5 27,2 27,0 26,8 26,5 26,3Investments 3,2 3,4 3,7 3,7 3,7 3,7Interest expenditure 1,2 1,0 1,3 1,5 1,6 1,6

Net lending 0,1 –0,3 0,0 0,4 1,0 1,4Consolidated gross debt 38,4 38,5 37,2 35,5 33,2 30,8

Anm.: This table is input for publice finances in the chapter National Economy in the Swedish edition.

Source: Statistics Sweden, The National Institute of Economic Research and The Swedish Association of Local Authorities and Regions.


Annex


Annex

The Economy Report. April 2012

On Swedish Municipal and County Council Finances

is a series published twice yearly by the Swedish Association ofLocal Authorities and Regions (salar). In it we deal with the pre-sent economic situ ation and developments in municipalities andcounty councils. The calculations in this issue extend to 2016.

Following a couple of good years the financial situation of muni-cipalities and county councils weakened in 2011, mainly becausetheir pension liabilities had to be revalued on account of low in-terest rates. This year non-recurring income is expected to con-tribute to a very good level of net income, and we see that muni-cipalities and county councils are prepared to increase their in-vestments. But thereafter the situation seems tougher, eventhough our calculations include higher government grants in2014–2016 and we foresee strong tax base growth. Moreover, thecounty councils need gradual tax rate increases totalling sek 0.23to avoid deficits in 2016.

The report is not for sale, but it can be downloaded from the web -site of Sveriges Kommuner och Landsting: www.skl.se. Choose InEnglish and then Publication and reports.

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