Local authorities cutting costs, raising taxes

South Karelian community of Taipalsaari faces municipal merger

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“A hundred square metres and 10,000 shingles”, is the estimate of Jarmo Koivunen.
      Hammering is heard from the roof of the old log building as a new roof is being put up. The municipally-owned Röyty building in Taipalsaari in South Karelia is being repaired by volunteers of the local farmers’ association and the regional culture association.
      “The municipality doesn’t have the money for this kind of thing nowadays”, says Koivunen, one of the volunteers and a member of the local council representing the Centre Party.
     
Taipalsaari has had to tighten its belt in recent years. On the other side of the main street of the village, municipal mayor Jari Willman says that there are not many places where costs can be cut any more.
      “All superfluous fat has been trimmed away”, Willman says.
     
The upcoming government term does not herald easier times for local authorities. Higher municipal taxes and trimmed-back services are in store, says Timo Kietäväinen, the deputy managing director of the Association of Finnish Local and Regional Authorities.
      The government plans to cut state subsidies to local authorities by EUR 631 million, which would effectively mean higher municipal taxes in many locations.
     
According to the government programme, the cuts are temporary. On the other hand there is no prospect that there would be any increase in state subsidies, says MP Kimmo Sasi (Nat. Coalition Party) who headed the economic policy group in the government formation talks. “The trend is to operate with one’s own tax revenue.”
      The government is also urging local authorities to raise productivity.
     
The impact of the cuts is mitigated somewhat by the fact that the local authorities are still getting an enhanced share of the yield of corporate taxation – although only half as much as before. This benefit, worth EUR 300 million, will continue through the end of 2013. Sasi says that it is clear that the rise will end after that.
      The government would like to see local authorities collect more revenue through property taxes. However, the six parties in the upcoming government were not able to agree on raising the minimum for the property tax. The taxation of residential and company buildings is not particularly popular at the municipal level.
     
A significant change is that revenue from property taxes is no longer divided into equal shares and shared among all municipalities. This decision is of considerable benefit to local authorities in areas where there are many summer cottages.
      Kietäväinen of the Association of Finnish Local and Regional Authorities not very disappointed with the government programme, saying that it is “not as bad as I imagined”.
     
In Taipalsaari the municipal income tax rate has been raised to 19.75 per cent, and Mayor Willman expects no change in the next couple of years.
      However, the mention in the government programme of strong local authorities covering an entire area where people live and work, would require changes. Half of those in Taipalsaari who have jobs actually work in neighbouring Lappeenranta.
     
The government plans to make changes to the municipal subsidy system so that it would provide an incentive for municipal mergers.
      Until now, Taipalsaari with its 4,900 residents has wanted to stay independent, but the Mayor suspects that the proposal for a merger needs to be re-examined.


Previously in HS International Edition:
  Finance Ministry proposes cuts in municipal subsidies as government formation talks begin (20.5.2011)

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