Health and social services reform will reduce the functions of local government and halve municipal personnel

Reform of healthcare, social welfare and rescue services will have a major economic and operational impact on Finland’s municipalities. The range of functions for which local government is responsible will be reduced significantly and the number of people employed in the municipal sector will fall considerably.

Health and social services reform will reduce the total cost of local government activities, and approximately half of the municipalities’ operational expenditure will be transferred away. In the longer run, the most significant local government impact will be removal of the responsibility of individual municipalities for the costs related to an ageing population and associated morbidity rates, together with removal of the consequential risks for local government finances.

Under the reform, 21 new self-governing health and social services counties would be established in Finland to organise the health, social and rescue services tasks being transferred from the municipalities. The counties would take up these responsibilities from 2023.

The City of Helsinki would be responsible for organising health, social and rescue services within its own area and would not form part of any health and social services county. In addition, the new joint county authority for the Hospital District of Helsinki and Uusimaa would organise demanding specialised healthcare activities separately laid down by law or separately agreed for Uusimaa.

Municipal funding

A proportion of the municipalities’ costs would be transferred to the counties, amounting to about EUR 19.1 billion at the 2020 level. The revenue of municipalities would be reduced by a corresponding amount when examined at national level. Central government transfers to local government would be reduced, as would the compensation for tax losses. The municipalities’ share of corporation tax revenue and their local income tax would also be reduced. Taxation would account for approximately EUR 13 billion of the revenue transfers.

Part of the local income tax would be transferred to finance the counties’ activities by lowering the municipalities’ income tax rates on an equal basis, by 12.63 percentage points on current estimates. The aim would be to ensure that municipal taxation remains almost unchanged, as municipalities’ income tax rates would be lowered across the board and central government taxation correspondingly raised. The tax percentage differences between municipalities would also remain unchanged. In addition, the municipalities’ share of corporation tax revenue would be reduced by one third, while central government’s share would be correspondingly raised.

While a proportion of the municipalities’ revenue and costs would be transferred in equal measure when examined for the country as a whole, there could be great differences form one municipality to the next. Changes in local government finances would nevertheless be made more equitable among municipalities by introducing different kinds of equalisation elements to the system of central government transfers to local government. As a result of the equalisation elements, the calculated change in the balance of a municipality’s finances would, at the five-year transition period, be no more than +/- EUR 100 per capita on a continuing basis for the time being. The balance referred to means the annual margin after depreciation. The annual margin refers to the adequacy of funding for capital expenditure, investments and loan repayments after covering running costs.

The basic structure of the system of central government transfers to local government for basic public services would remain unchanged, although the parts based on health and social services would be removed. A new criterion would be a supplementary transfer for promoting health and wellbeing. The most significant changes would be those made to the equalisation supplement and deduction percentages in the financial equalisation system for revenue, which will benefit those municipalities with above and below average tax revenue.

Asset arrangements

The health and social services counties would be required to have the assets necessary for fulfilling their responsibility for organising services, therefore ensuring that services can be arranged when functions are transferred from municipalities to the health and social services counties.

The joint municipal authorities for hospital districts and specialised healthcare and their assets and liabilities would be transferred directly to the new counties under the legislation. The counties would get the moveable assets of health, social and rescue services and the contracts of the municipalities and other joint municipal authorities that manage health, social and rescue services, as well as the holiday pay liabilities of the personnel being transferred .

Remaining in municipal ownership would be the health, social and rescue services premises, which would be leased to the health and social services counties for at least a three-year transition period. The county would have the right to extend the validity of the lease by one year.

No compensation would be paid to municipalities or joint municipal authorities for the asset transfers. The removal of joint municipal authority apportionments, movable property and holiday pay liabilities from a municipality’s balance sheet will be covered in bookkeeping terms by amending the municipality's basic capital, without any impact on financial performance.

Each municipality would be entitled to compensation for direct costs arising from asset arrangements where the municipality had not been able through its own actions to influence these costs and its financial autonomy was jeopardised. Such costs could arise, for instance, from municipal premises left surplus to requirements after the transition period. The compensation could be granted upon application. The situation would be appraised on the basis of the estimated need for raising the local income tax rate.

Personnel

The health, social and rescue services personnel of the municipalities and joint municipal authorities would transfer in full to the employment of the health and social services counties. Social workers and psychologists in student welfare services would also be transferred from municipal education services to the employment of the counties.

Personnel who manage a municipality’s joint support services would also be transferred if at least half of the tasks are allocated to the transferrable duties. Support services are deemed to be all tasks supporting health, social and rescue services, such as centralised catering, cleaning, finance and human resources management, ICT services and medical laboratories and imaging services. In all, the health and social services reform would affect more than 210,000 municipal employees and officials.

Based on the proposals, the transfers would be seen as a transfer of business, and so the personnel would retain the rights and obligations of their contractual or public-service employment relationship that were valid at the time of transfer. The scope of the legislation on municipal employment relationships would be extended to cover the personnel of health and social services counties and joint county authorities for health and social services, which means the change of employer would not affect the conditions of the employment relationship at the time of transfer.

Approximately 173,000 people from 332 municipalities and joint municipal authorities would be transferred to a new employer in the transfers of business. About 360 transfers of business are expected, as some of the joint municipal authorities have places of business in more than one health and social services county.

In connection with the special arrangements for Uusimaa, there would be no change in employer for the City of Helsinki personnel performing duties of the joint municipal authority for the Hospital District of Helsinki and Uusimaa, which will become a joint county authority for health and social services, and duties of the health and social services county.

Inquiries:

Sirpa Paatero, Minister of Local Government, tel. +358 50 512 1602, sirpa.paatero(at)vm.fi
Valtteri Aaltonen, Special Adviser to Minister Paatero, tel. +358 295 530 399, valtteri.aaltonen(at)vm.fi

Establishment and governance of counties and county divisions:
Erkki Papunen, Ministerial Adviser, Ministry of Finance, tel. +358 2955 30167, erkki.papunen(at)vm.fi

Funding:
Markku Nissinen, Senior Ministerial Adviser, Ministry of Finance, tel. +358 2955 30314, markku.nissinen(at)vm.fi
Ville Salonen, Ministerial Adviser, Ministry of Finance, tel. +358 2955 30388, ville.salonen(at)vm.fi

County funding:
Jenni Jaakkola, Senior Specialist, Ministry of Finance, tel. +358 2955 30493, jenni.jaakkola(at)vm.fi
Miikka Vähänen, Ministerial Adviser, Ministry of Finance, tel. +358 2955 30341, miikka.vahanen(at)vm.fi

Asset arrangements:
Pasi Leppänen, Ministerial Adviser, Ministry of Finance, tel. +358 2955 30564, pasi.leppanen(at)vm.fi
Mervi Kuittinen, Senior Ministerial Adviser, Ministry of Finance, tel. +358 2955 30445, mervi.kuittinen(at)vm.fi

Personnel:
Anu Hernesmaa, Ministerial Adviser, Ministry of Finance, tel. +358 2955 30027, anu.hernesmaa(at)vm.fi
Marja Isomäki, Senior Ministerial Adviser, Ministry of Finance, tel. +358 2955 30414, marja.isomaki(at)vm.fi

Taxation:
Timo Annala, Ministerial Adviser, Ministry of Finance, tel. +358 2955 30318, timo.annala(at)vm.fi
Marja Niiranen, Ministerial Adviser (VAT matters), Ministry of Finance, tel. +358 2955 30238, marja.niiranen(at)vm.fi