7164-697-2

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

Information concerning the content of the report:Jessica Bylund tel +46 8 452 7718Annika Wallenskog tel +46 8 452 7746

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, November 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 978-91-7164-697-2

[Swedish edition: 978-91-7164-696-5, ISSN: 1653-0853]

The Economy Report. October 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).

In 2012 non-recurring revenue is expected to contribute to very good netincome for our sector. This revenue will provide a welcome breathing spacefor the municipalities and county councils that are struggling to bring their fi-nances into balance. But thereafter the situation seems much tougher, eventhough we foresee strong tax base growth and include higher governmentgrants in 2014–2016 in our calculations. In municipalities and county councilstax increases totalling sek 0.40 compared with today will be required to avo-id the worsening of net income for the sector.

This is an abridged version of the report. It contains the Summary (sup-plemented with some tables and diagrams from the main report), some 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 Jessica Bylund, ElisabetJons son and Anna Kleen. We are very grateful to the municipalities and coun-ty councils that have contributed basic data to our report.

Stockholm, October 2012

Annika WallenskogSection for Economic Analysis

Contents

3 Summary3 The Chief Economist’s conclusions7 Municipalities: Municipalities have problems with relatively low solvency9 Challenges in the future11 County councils: County councils with problems often have weak solvency12 Demography increases the costs of cancer care

17 Annex

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

SummaryThe Swedish economy, which has until now succeeded so well inwithstanding the debt crisis, is now entering a period of slow-down. However, real tax bases in the local government sectorwill do well. Net income in municipalities and county councilswill reach the record level of sek 18 billion this year, largelythanks to non-recurring revenue items. In 2013 net income willfall back to sek 9 billion and it is expected to remain at that le-vel until 2016, given successive rises in government grants and anincrease of sek 0.40 in local government taxes compared withtheir present level.

The Chief Economist’s conclusions

In recent years a ”perfect storm” has developed in the Eurozone in the wakeof rapid debt growth, the bursting of housing market bubbles, banks in crisisand a fiscal quagmire. Even in many other countries outside the emu, inclu-ding the uk and us, the aftermath of the financial crisis has resulted in an ex-plosion of both private and public debt. Despite large numbers of crisis mee-tings and a range of measures in the Eurozone intended to restore confiden-ce in indebted countries, we still do not see an end to the crisis.

With the exception of the us, which has its own fast lane by virtue of its sizealone, deeply indebted countries must now engage in austerity and tax incre-ases in an attempt to restore balance. Experience says that debt reduction andbudget restructuring are painful and often protracted processes resulting inweak and “uneven” economic development. For the hardest hit countries insouthern Europe the demands for austerity are particularly onerous since thefast track of currency weakening is closed – as long as they remain emu mem-bers.


Even if there are strong belts, such as Germany and certain northern Eu-ropean states, the major imbalances and demands for austerity point overallto weak economic development on our side of the Atlantic in the comingyears. Indeed, we have already been able to note that growth has been slowingeven in countries whose finances are in order. We expect large parts of Euro-pe to experience lower growth in 2012 and only a weak increase in 2013. Ex-port-weighted growth is put at 1.2 and 1.9 per cent for these two years.

The us has, until now, certainly been spared the hard judgment of the mar-kets despite a two-figure budget deficit and a three figure public debt ratio. Atthe same time, however, us households do not have the financial muscle tofulfil their traditional role as the engine of the world economy. Un em ploy -ment remains high and most people who lost their jobs during the crisis stilldo not have employment. While property prices have stabilised, they havedone so at levels far below those that prevailed before the bottom fell out ofthe market. Without jobs and mortgaged above their chimneypots, it will bedifficult for households to consume the us out of its downswing. Relativelymodest gdp growth of just over 2 per cent is the most likely outcome.

So far us industry has coped fairly well by selling to rapidly growing emer-ging economies. Unfortunately we are now seeing signs of a slowdown in for-merly rapidly growing economies in Latin America and in Asia. Even China,which has experienced a formidable growth miracle in recent decades, is nowshowing signs of weakness, even though this so far involves a slowdown togrowth figures that other countries can only dream of. Instead of growth ofaround 10 per cent as in recent years we now expect something more like 7–9per cent.

Slowdown also starting in Sweden

Up to now the Swedish economy has resisted the slowdown among our tra-ding partners. This far in 2012 the economy has grown by 1.3 per cent compa-red with 2011, which is much better than the Eurozone, for example, whichshows a weak gdp decline so far this year. Thanks to the moderate growth inthe economy the situation in the labour market has also been relatively stab-le with further employment growth, even though unemployment has tendedto rise slightly recently.

However, lately there have been ever clearer signs of a weakening of theSwedish economy, in terms of both business tendency surveys and hard eco-nomic data. There are many indications that late 2012 and early 2013 will bemuch weaker, and we do not expect any clear recovery until the end of nextyear. We expect gdp to increase by 1 per cent this year and 1.8 per cent in2013. Low growth rates for several quarters to come also suggest stagnantemployment and a moderate rise in unemployment in late 2012 and early2013.

The fact that the Swedish economy is also slowing down is further eviden-ce of our strong international dependence. With an export share of gdp of al-most 50 per cent, most of which is input and investment goods for industria-lised countries, particularly in Europe, the backwash of the international eco-nomy is also inexorably reaching Sweden. Over and above a weak global eco-


Summary

nomy, there are also worrying signs in the form of the relatively strong kronathat risks eroding Swedish competitiveness in the longer term. However, itshould be borne in mind that the krona is not distinctly stronger than the le-vels that most commentators have viewed as reasonable ever since the kronastarted floating.

At the same time there are prospects of the Swedish economy coping rela-tively well despite a weak international economy, because our own house is infairly good order. Sweden’s public finances are among the strongest in thewestern world even though it will be difficult to achieve the surplus target forpublic finances during the present business cycle. Thus, if necessary, fiscal po-licy can be realigned in a more expansive direction without risking the credi-bility of our public finances.

It is certainly true that households in Sweden, as is the case in many othercountries, are highly indebted and therefore vulnerable to, for example risinginterest rates and/or falling property prices. However, the expected weaknessof the labour market and the general lack of inflationary tendencies are strongindications that the Riksbank (Swedish central bank) will not choose to inc-rease interest rates in the foreseeable future – on the contrary we expect afurther reduction of the repo rate – at the same time as the weak developmentof the international economy is indicating that market interest rates will re-main low. Moreover, there is quite literally saved capital that households candraw on in the form of a high savings ratio.

Swedish local government sector: A rock in the stormy global sea?

The real tax base increases by 1.8 per cent and 1.5 per cent in 2012 and 2013,which is much stronger than the historical average of about 1 per cent. In con-trast, the increase in nominal terms is comparatively modest: 3.9 and 3.4 percent. This weak growth is explained by low price and wage increases.

After a record year in 2012 net income will decline in 2013

This year, as in 2010, the sector is moving towards a record level of net inco-me of sek 18 billion. This time the explanation is, once again, temporary re-venue. In the autumn municipalities and county councils will receive a re-payment of insurance premiums paid in 2007 and 2008 to afa Försäkring(the Swedish Labour Market Insurance Company), which will give additionalrevenue of sek 11 billion. In 2013 net income will fall back to sek 9 billion,well under the 2 per cent of taxes and government grants regarded as the ben-chmark for healthy finances. While the municipalities will be given a tem-porary respite from savings in upper secondary schooling – they will get backsek 895 million of government grants previously withdrawn – there are noother new government grants that reinforce net income.

One considerable risk not taken into account in the forecast of net incomefor 2013 is that the discount rate for the sector’s pensions may have to be re-duced further, which will then mean that the pension liability will have to berevalued. For comparison, it can be mentioned that the interest rate cut in2011 led to a book deterioration of sek 7 billion in net income.


Summary

Financial pressure on municipalities and county councils despite a

strong tax base from 2014

Despite growth of about 1½ per cent in the real tax base in the future, we ex-pect net income to remain at about the level of 1 per cent of taxes and go-vernment grants during the whole period until and including 2016. This isbecause costs will rise at an even faster rate than the tax base. However, thislevel of net income presupposes that government grants rise on average by 2per cent per year over and above price and wage increases in the sector. Wemake this assumption even though increases in government grants must bepreceded by new decisions of the Riksdag (Swedish Parliament). We have alsoassumed that local government taxes will increase by a total of sek 0.40 com-pared with their present level. It is primarily the county councils that mustraise taxes in order to achieve a surplus corresponding to 1 per cent of taxesand government grants, while the municipalities are almost able to achievethis with the aid of the higher government grants we include in our calcula-tions.

Net income of sek 8–9 billion in the local government sector gives the im-pression of finances that are in good order, but it means that a third of the mu-nicipalities and almost half the county councils are expected to show deficits.

Without upward adjustment of government grants and despite tax increa-ses of sek 0.40, net income for the sector falls gradually to minus sek 10 bil-lion in 2016.

There are several reasons why local government finances will be underpressure in the future. One is that the cost pressure from changes in the sizeand structure of the population will increase significantly in coming years. Inthe 2000s cost increases from demographic change have been around 0.5 percent per year for municipalities and just under 1 per cent for county councils.In the final years of the period covered by our calculation, which includes


Summary

Diagram 1 • Net income in municipalities and county councils

SEK billion

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

-10

-5

0

5

10

15

20

-10

-5

0

5

10

15

20

Net income equal to 2 %

Net income

SE

K b

illio

n

Excl. adjusted government grants

Net income in 2012 will reach a record le-vel thanks to the repayment of earlier pre-miums from AFA Försäkring (the SwedishLabour Market Insurance Company). In2013 net income will fall back to a levelcloser to around 1 per cent of taxes andgovernment grants. According to ourmain calculation, net income will remainin that vicinity for the rest of the period,but this presupposes a successive increa-se in government grants to a level that isSEK 18 billion higher in 2016 than it is to-day. Without the upward adjustment ofgovernment grants the deficit will growand be around minus SEK 10 billion in 2016

despite tax increases of SEK 0.40 includedin the calculation.

Source: Swedish Association of Local Authorities and Regions.

2016, costs increases related to demographic pressure will rise to just over 1per cent per year for municipalities and 1.2 per cent per year for county coun-cils. The rate of increase has not been this fast since the early 1990s.

Over and above population changes we expect costs to rise at the same rateas in the 2000s, which is, in constant prices, 0.7 per cent per year for munici-palities and more than 1 per cent for county councils. The reason is greaterdemand for welfare services and an ever higher level of ambition regardinglocal government tasks. The report includes examples of how the costs of can-cer care, support and assistance for people with disabilities, preschool servi-ces and public transport have risen.

A further strain on the finances of municipalities and county councils isthat investment activity has increased and will remain at a high level. This isdue both to the fact that the infrastructure and many of the properties (schoolsfor example) built in the 1970s and 1980s are now beginning to be worn out,and that healthcare is now being run in a different way than in the past. A newtype of hospital, different from what we have today, is required to make he-althcare more effective. The objective of increasing public transport ridershipalso requires a higher level of investment. These increased investments thenlead, in turn, to an increase in the loan burden on the sector.

Municipal finances

Municipalities have problems with relatively low solvency

Aggregate net income for the municipalities has been strong in recent years.However, there are a number of municipalities that have concerns about ba-lancing their finances. Out of all 290 municipalities, 18 have reported negati-ve net income on average for the period 2009–2011. Diagram 9 shows net in-


Summary

Diagram 9 • Municipalities in deficit in 2009–2011 and debt ratio for the municipality and group

SEK per inhabitant and per cent

-5,000

-4,000

-3,000

-2,000

-1,000

0

1,000

2,000

-125

-100

-75

-50

-25

0

25

50

Färgel

anda

Här

nösand

Ydre

Bräck

e

Storfo

rs

Deg

erfo

rs

Väste

rvik

Uddeval

la

Rättv

ik

Dan

deryd

Malå

Bolln

äsLa

xå

Bengts

fors

Vansb

roTier

p

Sven

ljunga

Eda

All

munic

ipal

ities

Ne

t in

com

e S

EK

/in

ha

bit

an

t

Ne

t a

sse

ts r

ati

o, p

er

cen

t

Net assets ratio, group, 2011

Net assets ratio, municipality, 2011

Average net income 2009–2011

Many municipalities with a deficit on ave-rage in recent years also have a relativelyweak financial position compared with thecountry as a whole. The net assets ratioshows the municipality’s long-term prepa-redness. When comparing municipalities,the net assets ratio including municipalcompanies can be a more relevant measu-re since several municipalities have inter-nal banks that handle group borrowing.

Source: Statistics Sweden.

come for these municipalities along with their solvency (net assets ratio*), in-cluding their contingent liability for their pension undertaking, which is ameasure of their long-term financial position. If a municipality has a negati-ve net assets ratio, this means that its liabilities exceed its assets. Out of themunicipalities that had, on average, a deficit in 2009–2011, thirteen also havea negative net assets ratio for their municipality. If municipal companies areincluded and the consolidated group is studied instead, nine municipalitieshave debts that exceed their assets. The net assets ratio reflects the historicaldevelopment of net income. The diagram below shows that most of the mu-nicipalities that had a deficit in 2009–2011 also previously had finances thathad developed weakly.

Possibility of balancing revenue in recession periodsIn connection with the Budget Bill for 2013 the Government also presented abill on local government balancing funds. The Riksdag is expected to adoptamended legislation this autumn so that the new legislation will be applicab-le as of 1 January 2013.

The purpose of the new regulations is to improve the possibilities open tomunicipalities and county councils to balance out their revenue over time sothat they are better able to address the effects of cyclical variations. In briefthe proposal means that, under certain conditions, municipalities and coun-ty councils will be able to build up local government balancing funds as partof their balance requirement report and their net assets . These reserves willmake it possible to set aside part of a surplus in good times and to then usethese funds to cover a deficit that may arise as a result of a recession.

The sum allocated to a local government balancing fund may correspond tothe lower of either net income for the year or net income for the year after ba-lance requirement adjustments that exceeds 1 per cent of tax revenue, gene-ral government grants and local government financial equalisation. If thelocal authority's net assets are negative, including its contingent liability forpension obligations, the threshold for when funds may be set aside is 2 percent.

The municipalities and county councils that choose to make use of local go-vernment balancing funds have to adopt local guidelines for the managementof these reserves. It will also be possible to make allocations from surplusesbuilt up in the annual accounts for 2010, 2011 and 2012. However, decisions onsuch surpluses must be taken in 2013.

Many municipalities are able to make retroactive provisionsUnder the Government’s proposal many municipalities will be able to makeretroactive allocations to the local government balancing funds from 2010–2012. This means that many municipalities will already be able to have a re-serve in 2013. The largest surpluses are in the municipality group of large ci-ties, which can, on average, set aside sek 1,717 per inhabitant. Sparsely po-pulated municipalities and tourism and visitor industry municipalities havethe lowest share with reserves from 2010 and 2011; in this group 65 per cent


Summary

*Net assets ratio = (assets–liabilities)/liabilities.

of municipalities have that possibility. In all, 219 municipalities are able to setaside a total of more than sek 10 billion from 2010 and 2011. A few more mu-nicipalities will probably be able to set aside funds from net income in 2012.

Challenges in the future

Even though real tax revenue will rise relatively rapidly in years to come, the-re is no lack of challenges for municipalities. Greater needs on account of po-pulation changes, the development of cost for the care of disabled persons andincome support (municipal social assistance) are some of the areas that Fi-nance Directors identify as most uncertain in the coming years.

New population forecast shows that demographic needs have been underestimatedIn May Statistics Sweden published a new population forecast. According tothe new forecast the population will rise much more than has previously beenstated. The changes mainly relate to an assumption about increased immi-gration, but higher fertility and longer life expectancy also play a role. For themunicipalities the new population forecast shows that in the future demo-graphic needs will rise more than previously estimated. In the 2000s demo-graphic needs have corresponded to cost increases of about 0.5 per cent peryear. With the new population forecast these needs rise by more than 1 percent per year from 2015. This makes higher demands on the ability of the mu-nicipalities to adapt their services to changing needs (diagram 15 on page 10).

The new tax base forecast also results in a larger tax base. However, this ef-fect is much less than the effect on costs.


Summary

Diagram 10 • Allocation to a local government balancing fund from 2010 and 2011

SEK per inhabitant and per cent

0

400

800

1,200

1,600

2,000

0

20

40

60

80

100

Larg

e ci

ties

Suburban

munic

ipal

ities

,

met

ropolit

an a

reas

Tourism

and v

isito

r

indust

ry m

unicip

aliti

es

Suburban

munic

ipal

ities

,

larg

e ci

ty a

reas

Comm

uter m

unicip

aliti

es

Man

ufact

uring

munic

ipal

ities

Spares

ly p

opulate

d

munic

ipal

ities

Munic

ipal

ities

in d

ense

ly

popula

ted re

gions

Munic

ipal

ities

in sp

ares

ly

popula

ted re

gions

Met

ropolit

an c

ities

All m

unicip

aliti

es,

wei

ghted a

vera

ge

SE

K/

inh

ab

ita

nt

Pe

r ce

nt

Share able to make allocation

Average allocation

Most municipalities have surpluses from2010 and 2011 that are large enough topermit allocations to a local governmentbalancing fund. The average possible al-location for all municipalities is SEK 1,079

per inhabitant and 76 per cent of munici-palities are in a position to set asidefunds. Out of the 18 municipalities repor-ting a deficit on average for 2009–2011 (di-agram 9) six are in a position to set asidefunds from 2010 and 2011.

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

.

Income support – the national forecast is not always reflected at municipal levelThe municipalities’ aggregate payments for income support covary to a largeextent with the national level of unemployment (diagram 16). Our forecast ofincome support (municipal social assistance) is made using our assessment ofthe Swedish economy and our forecast for unemployment at national level.Our assessment is that unem ployment will rise next year and then fall to 6.5per cent in 2016.


Summary

Diagram 16 • Income support in municipalities and unemployment at national level

SEK billion and thousands of persons

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

250

275

300

325

350

375

400

425

8.0

8.3

8.5

8.8

9.0

9.3

9.5

9.8

10.0

10.3

10.5

Income support

Number unemployed

SE

K b

illio

n

Th

ou

san

ds

The level of income support (excluding re-fugee compensation) is largely explainedby the level of unemployment. A rise inunemployment almost leads to a rise inincome support.

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

Diagram 15 • Volume changes in various municipal services

Index 2011 = 100

2011 2012 2013 2014 2015 2016 2017

75

80

85

90

95

100

105

110

115

120

75

80

85

90

95

100

105

110

115

120

Preschool etc

Elderly care

Disability careTotal

Other services

Compulsory school

Upper secondary school

Ind

ex 2

011

= 1

00

Demographic needs will rise sharply incoming years. The new populationforecast from Statistics Sweden primarilyentails more children and older people.Sharp falls in age groups in upper secon-dary school will require an adaptation ofthis service. In the next few years demo-graphic needs will increase most in com-pulsory school and preschool.

Source: Swedish Association of Local Authorities and Regions.

The correlation between unemployment and income support applies prima-rily at national level. In an analysis of unemployment and income supportpaid per municipality the correlation is not as clear; the picture is different fordifferent municipalities (diagram 17).

Nor is there a strong correlation between income support paid and a mu-nicipality’s net income measured in sek per inhabitant (diagram 18). None ofthe municipalities that had the highest payments in sek per inhabitant forincome support report a deficit for 2011. One explanation of this is the far-re-aching equalization of income and costs for municipalities, which compensa-tes for structural differences.

County council finances

County councils with problems often have weak solvency

The financial crisis has had a severe impact on the public sector and therefo-re also on healthcare in many countries. Swedish county councils have copedmuch better. They have been able to expand their services without drainingtheir finances. Despite this seven county councils show deficits when we addup net income for the past three years. So, do these seven county councils havea poorer financial standing overall compared with the other county councilsand are they thereby in a worse position to meet future challenges?

Solvency (net assets ratio) including contingent liabilities for pension com-mitments is one measure of a county council’s financial standing. If a countycouncil has a negative net assets ratio, this means that its liabilities exceed itsassets.

There is a relatively clear correlation between net income in recent yearsand financial standing as measured by the net assets ratio (diagram 23). Ouranalysis shows that all county councils have a negative net assets ratio whenwe include their contingent liability, but county councils with poorer net in-come often have a lower net assets ratio. Dalarna is the county with the lowest


Summary

Diagram 17 • Jobseekers – income support Diagram 18 • Net income – income support

Per cent and SEK per inhabitant SEK/inhabitant

0

4

8

12

16

0 1,000 2,000 3,000

-4,000

0

4,000

8,000

0 1,000 2,000 3,000

Job

see

kers

, pe

r ce

nt

of

lab

ou

r fo

rce

Income support excl. refugees, SEK/inhabitant Income support excl. refugees, SEK/inhabitant

Ne

t in

com

e, S

EK

/in

ha

bit

an

t

Diagram 17 In 2011 there is a correlationfor many municipalities between highunemployment and high payments of in-come support, but there is a considerablespread, There are, for example, municipa-lities with a relatively high level of incomesupport payments that do not, however,have a corresponding high level of un -employment. This applies to Malmö, Eskilstuna and Södertälje, for example.

Diagram 18 There was no strong correla-tion in 2011 between income support and amunicipality’s net income measured inSEK per inhabitant.Source: Swedish Association of Local Authorities and Regions.

net assets ratio. Dalarna has also been struggling with deficits for a long time.Blekinge’s and Halland’s financial problems have been of relatively short du-ration and they have a much higher net assets ratio than indicated by their netincome in recent years. Apart from Halland, Östergötland and Jönköpingstand out as having the best net assets ratio. This could be explained by thefact that both use a net income figure that includes the whole of their pensionliability in the governance. But it could also be a result of them being unusu-ally well run county councils with good financial management.

Negative net assets ratio hampers use of local government balancing funds bycounty councilsNew rules expected to be in force from 2013 will make it possible to set asidepart of a surplus in good times and to then use these funds to cover a deficitthat may arise as a result of a recession. Because of the county councils’ ne-gative net assets ratio including their pension liability, the scope for allocatingfunds to local government balancing funds is limited. Read more about thisproposal in the "Municipal finances" chapter.

Next year it will also be possible to make retroactive allocations of surplu-ses reported in the annual accounts for 2010 until 2012. Our calculations showthat the scope from 2010 and 2011 is about sek 1 billion (table 17). This all co-mes from 2010. In 2011 no county council attained a surplus of the size requi-red to be able to set aside funds.

Demography increases the costs of cancer care

According to an international survey, cancer is the disease we are most afraidto get. To a great extent this picture of cancer is shaped by the history of thedisease. Cancer care has made enormous progress and the risk of dying of can-


Summary

Diagram 23 • County council net income 2009–2011 and net assets ratio including pension

liability 2011

Per cent of taxes and grants and per cent

-4

-2

0

2

4

-150

-100

-50

0

Blekin

ge

Dal

arna

Jäm

tland

Väste

rbotte

n

V:a G

ötala

nd

Värm

land

Väste

rnor

rland

Hal

land

Skån

e

Öre

bro

Västm

anla

nd

Gäv

leborg

Norr

botten

Uppsala

Sörm

land

Stock

holm

Kalm

ar

Kronober

g

Jönkö

ping

Öst

ergötla

nd

Net assets ratio

Average net income 2009–2011

Ne

t a

sse

ts r

ati

o, p

er

cen

t

Ne

t in

com

e, p

er

cen

t o

f ta

xes

an

d g

ove

rnm

en

t g

ran

ts

County councils with deficits in the pastthree years also have a relatively weak fi-nancial standing. The exception is Ble-kinge, whose financial problems havebeen of relatively short duration.

Source: Statistics Sweden.

cer has been reduced considerably. Partly as a result of this progress the costsof cancer care are also growing at the same time as a greater number of olderpeople is leading to a rising number of patients. This has raised questionsabout the future development of costs for cancer care and how to address it.

It is hard even to estimate the cost of cancer care. In part this is becausecancer patients are cared for in several different parts of healthcare servicesand it is difficult to link cost data specifically to patients with a cancer dia-gnosis. The drg (diagnosis-related groups) system that forms the basis fordescribing healthcare is linked to what part of the body is affected by a disea-se and cancer can affect all parts of the body. One outdated and very uncertainestimate is that cancer care accounts for about 7 per cent of total healthcarecosts in Sweden. This is in line with corresponding estimates from othercountries. Social costs in the form of production loss during sick leave and thevalue of lost years due to an early death should also be added to the direct he-althcare cost. Cost-benefit calculations show that the actual healthcare costaccounts for about half of the total cost of cancer.

The cost of cancer care has pr0bably risen more rapidly than healthcarecosts on average. Both the number of patients and the cost per patient have ri-sen. A continued rise is forecast in the future.

Just under 30,000 men and just more than 25,000 women are given a can-cer diagnosis each year. The most common forms are prostate cancer for men(33 per cent of cases) and breast cancer for women (30 per cent of cases). Thegreat majority survive their disease; the five-year survival rate is 68–69 percent and the ten-year rate is 58 per cent. But around 22,000 people die of can-cer each year.

Fifty years ago around 20,000 people got cancer each year. That yearly fi-gure had doubled by 1990 and since then it has increased by a further 50 percent. One important explanation of this trend is demography. Cancer is a di-sease that is strongly concentrated to high age. So as the population gets ol-der, the number of cancer cases increases. Diagram 26 shows the age-specificincidence of cancer for men and women.


Summary

Table 17 • Possible allocation to local government balancing funds from 2010 and 2011

SEK million

Stockholm 186 Västra Götaland 0Uppsala 0 Värmland 0Sörmland 0 Örebro 2Östergötland 264 Västmanland 0Jönköping 217 Dalarna 0Kronoberg 18 Gävleborg 16Kalmar 118 Västernorrland 55Blekinge 0 Jämtland 2Skåne 0 Västerbotten 0Halland 23 Norrbotten 66

All county councils 969

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

More than half the county councils areable to make an allocation of funds totheir local government balancing fundfrom 2010 and 2011.

Data about age-specific incidence can be used to calculate the purely de-mographic factor. Diagram 27 shows how demography affects the number ofcancer cases assuming the age-specific incidence rates for 2010.

As is seen in the diagram, the actual number of cases has increased more thanis explained by demography; by about 1 percentage point more per year. Thisis associated with an increase in the age-adjusted incidence. From 1970 to2010 the age-adjusted incidence rose from 0.5 per cent to 0.65 per cent formen and from 0.4 per cent to o.5 per cent for women. Paradoxically, progressmade by healthcare in other areas, such as coronary and circulatory diseases,has contributed. More people survive these diseases and therefore run a gre-ater risk of getting cancer later in life. But diagnostics also play a role; more ca-ses of cancer are detected. Thus if the age-adjusted incidence continues torise the number of cases will increase by 2.5–2.8 per cent per year, corre-sponding to a doubling in 25 years.

The number of deaths from cancer has remained stable at around 20,000for a long time. Given that incidence has increased at the same time, this is amanifestation of the fact that survival had increased. More people are beingcured and more people are living longer with a cancer diagnosis. The five-yearsurvival rate, which was under 50 per cent in 1970, has increased on a trendbasis to almost 70 per cent today. A higher survival rate can be explained bybetter diagnostics meaning that the disease is discovered more quickly, butabove all by the improvement in treatment methods. Yet this has also resul-ted in rising costs. Calculations done for particular forms of cancer show thatthe cost per patient has doubled in a fifteen-year period. The Lancet Oncolo-gy Commission points to several different factors that have contributed to in-creased costs:• More patients are receiving relatively expensive treatments.• There is an ever increasing number of specific treatment methods, for ex-

ample the number of cancer medicines has increased sharply.


Summary

26 • Incidence of cancer in different age groups 27 • Patients receiving a cancer diagnosis

Number of cases per 100,000 individuals Number

0

1

2

3

4

85

+

Men

0

20

40

60

80

1970

1980

1990

2000

2012

2020

2030

2040

2050

Men

Nu

mb

er

of

case

s, t

ho

usa

nd

s

Nu

mb

er

of

pa

tie

nts

, th

ou

san

ds

0–4

5–9

10–1

4

15–1

9

20

–24

30

–34

40

–44

50

–54

60

–64

70

–74

80

–84

25

–29

35

–39

45

–49

55

–59

65

–69

75

–79

Women

demography

demography

Actual

ActualWomen

Diagram 26 The risk of getting cancer in -creases with rising age.

Diagram 27 Demographic calculation ofpatients receiving a cancer diagnosisusing 2010 incidence rates. This simplecalculation shows that at present and inthe coming decade the demographic fac-tor will be relatively important for thenumber of cancer patients, contributingabout 1.5–1.8 per cent per year at constantincidence. The projection after 2011 of ac-tual numbers with the assumption of thesame growth over and above demographyas in the historical trend gives a contribu-tion of a further 1 per cent per year.

Source: Swedish Board of Health and Welfare and Swedish Association of Local Authorities and Regions.

• The "life cycles" of cancer therapies are tending to become shorter, i.e.new and more effective methods are appearing.

• There is a tendency for over-use. Extensive and expensive treatments areoften delivered in the final days of the patient's life. This raises difficultethical issues, in which economics does not and should not have a place.

Many concerns have been linked to cancer medicines. Extremely expensivemedicines with a relatively small effect for the patient would risk being a th-reat to the economics of healthcare. This is despite the fact that the cost ofmedication for cancer is still a limited part of the total cost of cancer care. To-day the cost of cancer medicines is estimated to account for about 10 per centof the total cost of cancer care.

The trend in cancer medicines is going in the direction of trying to tailortreatments to patients. Many of the new cancer treatments are therefore aim -ed at small patient groups. This trend means that the cost per patient treatedis high since the research and development costs are largely the same as formedicines aimed at larger patient groups. But since they are generally onlyprescribed to a few patients, they are not so expensive in total that they can-not be handled in the county council budget. However, they can have majorimpacts on the budget level of a specific clinic. This requires, of course, thatthe county councils manage their internal budgets effectively and that, whennecessary, these budgets can be adapted quickly to rapid increases in the costsfor medicines at specific specialist clinics. However, many of the new cancermedicines often do not provide a cure and only extend the patient's life by afew months. In view of this, the costs can be regarded as high and health eco-nomic considerations – and priorities – assume ever increasing importance.Intensive work is under way in the context of the national medicines strate-gy and the national cancer strategy on developing a process for the joint in-troduction of new cancer medicines in healthcare.

Another consideration, alongside the trend towards tailored treatments, isthat many existing cancer medicines have been available for some time andhave been or will be subject to 'generic competition" on the expiry of their pa-tents. Generic competition often results in a sharp reduction in the cost of themedicine concerned. The cost increases for cancer medicines may thereforedecline.


Summary


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 23 • Key indicators for municipalities and county councils, 2011–2016

Per cent and thousands of people

Outcome Forecast Calculation2011 2012 2013 2014 2015 2016

Average tax rate, % 31.55 31.60 31.70 31.73 31.85 32.00

municipalities, incl Gotland 20.73 20.59 20.59 20.59 20.59 20.62county councils*, excl Gotland 10.88 11.07 11.17 11.20 11.32 11.44

No of employees**, thousands 1,059 1,060 1,070 1,084 1,099 1,115

Municipalities 801 802 811 822 833 846County councils 259 258 259 262 266 269

Volume change, % 1.6 2.0 1.4 1.8 1.9 2.0

Municipalities 1.4 1.1 1.3 1.5 1.7 1.8County councils*** 1.9 2.1 1.5 2.3 2.3 2.4

Note: For the average tax rate the calculations are based on an unchanged tax rate for the municipalitiesfrom 2012 to 2015 inclusive and a tax rate increase of SEK 0.03 for 2016. For the county councils a tax rateincrease is included.

*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 24 • Aggregate income statement for the sector, 2011–2016

Miljarder kronor


Income of activities* 154 166 163 169 176 185Expenses of activities –779 –805 –833 –864 –903 –948Depreciation –24 –26 –27 –28 –28 –28Net expenses of activities –650 –664 –697 –723 –755 –792

Tax revenue 540 562 581 603 632 664Gen gov grants and equalisation 123 120 123 126 131 136Net financial income** –6 1 2 1 0 0Net income before extra-ordinary items 7 18 9 7 8 8

Share of taxes and grants, % 1.0 2.7 1.3 1.0 1.0 1.0

Note: Consolidation has taken place by purchases between sectors.*The non-recurring effect of a probable repayment of AFA premiums of SEK 11 billion is included in

Income of activities for 2012.**The one-time effect of the lowered interest rate for pensions liabilities for 2011 of SEK –7.7 billion isincluded in Net financial income.

Table 25 • Income statement for the municipalities, 2011–2016

SEK billion



Tax revenue 355 366 377 391 408 428Gen gov grants and equalisation 76 73 76 77 80 83Net financial income** 1 3 3 2 2 2Net income before extra-ordinary items 9 15 6 5 5 5

Share of taxes and grants, % 2.2 3.4 1.3 1.0 1.0 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.

Table 26 • Income statement for the county councils, 2011–2016

SEK billion



Tax revenue 185 196 204 212 223 236Gen gov grants and equalisation 47 46 48 49 51 53Net financial income** –7 –2 –1 –1 –2 –3Net income before extra-ordinary items –2 3 3 3 3 3

Share of taxes and grants, % –1.1 1.4 1.2 1.0 1.0 1.0

*The non-recurring effect of a probable repayment of AFA premiums of SEK 3 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.

Source: The Swedish Association of Local Authorities and Regions.


Annex


Annex

The Economy Report. October 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.

In 2012 non-recurring revenue is expected to contribute to verygood net income for municipalities and county councils. Thisnon-recurring revenue of more than sek 11 billion provides awelcome breathing space for the municipalities and countycouncils that are struggling to bring their finances into balance.Thereafter the picture looks much tougher. Costs will rise on ac-count of greater demographic pressure, increased investmentsand other factors. Strong tax base growth and higher governmentgrants will not be enough to handle the economy. In municipali-ties and county councils tax increases totalling sek 0.40 compa-red with today will be required to avoid the worsening of net in-come for the sector.

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.

Download at www.skl.se/In English, Publications and reports.

Price Free.ISBN 978-91-7164-697-2

ISBN 978-91-7164-696-5 [Swedish edition]ISSN 1653-0853

Mail SE- 118 82 Stockholm Visitors Hornsgatan 20

Phone +46-8-452 70 00

www.skl.se

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