Exceptionally good creditworthiness in the Swedish local government sector
- Stable political and financial situation
- Swedish municipalities and county councils cannot be declared bankrupt
- The right to levy taxes and set tax rates
- Strong system for balancing municipal finances
- Strict financial requirements and regulations
Swedish municipalities and county councils cannot be declared bankrupt
The special status of the local government authorities in the Swedish constitution and their right to levy taxes mean that municipalities and county councils/regions cannot be declared bankrupt. Neither can they cease to exist in any other way. It is also prohibited to pledge local government property, meaning that municipalities and county councils/regions are responsible for commitments incurred with all of their assets and their full taxation power.
The right to levy taxes and set tax rates
Municipalities and county councils/regions in Sweden have a constitutional right to levy taxes for carrying out their remit. The tax base is based on the residents’ income, and each municipality and county council/region sets its own tax rate. Income from taxation accounts for just over 70 percent of total municipal revenue. The right to levy taxes is an important aspect of local self-government, which states that there must be an autonomous right of decision-making for municipalities and county councils/regions. The level of autonomy granted in Swedish local government is uncommonly high by international standards.
Strict financial requirements and regulations
High demands are placed on the economies of the municipalities and county councils in Sweden. The balance requirement means that the budget normally has to be set up so that income exceeds expenses. If new expenses are introduced during the budget year, the decision must also contain details of how the expenditure is to be funded. If the result is a deficit, the council must, following an examination of the balance requirement, adopt an action plan for restoring a positive result within three years.
Strong system for balancing municipal finances
To ensure that all municipalities and county councils/regions, irrespective of their tax base and structural conditions, have an equal foundation for providing their residents with services, Sweden has a system of balancing incomes and costs. Income equalisation evens out differences in the tax base of the municipalities or county councils/regions, and is primarily state-funded. Cost equalisation evens out differences in structural costs and is neutral in terms of state finances. Municipalities and county councils/regions with a favourable structure pay a charge, while those with an unfavourable structure are paid a cost equalisation grant.