“More for the richest” – The municipality fears that the government’s decision will lead to a “death field” –

The government plans to postpone the reform of the municipalities’ state share system by a year. This means that the difficult situation of some municipalities will continue even longer.

– This is a punishment for municipalities that have managed their social security services well, says Kemi’s mayor Matti Ruotsalainen.

The social security reform disrupted the finances of many municipalities, even though the reform was not supposed to have an impact on the municipal finances.

By distributing state shares, the state has aimed to ensure that basic services for citizens, such as education, can be organized as equally as possible in all Finnish municipalities.

However, the transfer of social security services – and social security costs – from municipalities to welfare regions has led to a situation where 12 municipalities pay state contributions to the state. Many of these municipalities are aging municipalities with a weak tax revenue base.

“Death Field”

The government’s goal is that the municipalities’ state contributions would be determined on the basis of the municipalities’ current tasks, and that in the future no municipality would have to pay state contributions to the state.

Kemin Ruotsalainen assesses in dramatic terms the effects of the state share reform being postponed until 2027:

– The area of ​​Meri-Lap will become a field of death, the Swede sees.

He says that he is referring to the “death field” of the overall effects of social security reform on the region. This year, Kemi will pay 2.6 million euros in state contribution to the state.

According to Ruotsalainen, the logic of the distribution of state shares has contributed to a situation where “the city no longer has the means to balance its finances”.

– Even if we stopped all discretionary activities, stopped libraries, high schools and sports services, it wouldn’t help, Ruotsalainen says.

According to a Swede Orphan (kok) the board has not assessed the overall effects of its actions in a sufficient manner. He fears that the government’s hospital network solution will also bring a bad setback to the region’s vitality.

– When people don’t get treatment early enough, it’s the most effective way to shorten treatment queues, Ruotsalainen says ironically.

The government has ruled that from the beginning of 2026, no more difficult surgeries requiring 24/7 operating room readiness may be performed at Kemi Hospital. Births will also end in Kemi at the end of 2025 at the latest.

Breaking the law?

According to Ruotsalainen, Kemi’s earlier adjustment program has caused this year’s estimated deficit to turn to 11 million euros.

According to him, the postponement of the state share reform threatens to complicate the economic situation so that the deficit will increase to more than 20 million euros, i.e. more than 1,000 euros per inhabitant by 2027.

– We have to decide whether the municipal law or the legislation related to people’s basic services is being violated, Ruotsalainen says.

The tax rate in Kemi is already among the highest in the country, i.e. 9.6.

– Of course it is possible to raise it to the Finnish record, the Swede acknowledges.

The Swede raises the question of whether the constitution’s line on equality is still valid in Finland, when municipal tax percentages in the country can vary between 4.4 and 10.8.

“The biggest benefit equalized”

The situation in the Ministry of Finance is different from that in Kemi. The reason for the negative state contributions are the so-called “social security installments”, which balance the changes in the municipalities’ finances from the social security reform.

– Municipalities that now have to pay state contributions to the state are united by the fact that they benefited from the social security reform. Much more social security costs were transferred from the municipalities in question than revenues were transferred, says the negotiating official Away from Heimberg from VM.

According to Heimberg, the biggest benefit has been equalized in the social security installments, but the municipalities still get to keep part of the benefit. Correspondingly, large losses are equalized to a certain limit, but the municipalities bear part of the loss themselves.

With the Social Security reform, the income tax rates of all municipalities were cut by 12.64 percentage points.

The social security reform took significantly more tax revenue from municipalities with strong tax revenue bases than from municipalities with weak tax revenue bases due to, for example, an aging population.

Reform as fear

According to the report made by the Municipal Association, Kauniainen, one of the richest in Finland, is the municipality that receives the most per inhabitant – more than one thousand euros per inhabitant – in state contributions based on social security items. Kauniainen has the lowest municipal tax rate in Finland, 4.4.

Among large cities, social security installments significantly increase state contributions in Espoo.

– The richest municipalities are given the most, social security consultant, former party secretary of the center Jarmo Korhonen describes the situation.

However, Kauniainen does not feel that he is the winner of social security reform. Mayor of Kauniainen Christopher Masar points out that social security reform took a significantly larger slice of tax revenue from Kauniais than the city’s social security expenditures were, and now social security installments are correcting the situation.

According to Masari, Kauniainen has been waiting with fear for the reform of the state share system.

– The fear is that we will lose even more if a large part of the social security installments is taken away, he says.

“There is nothing to give”

Kauniainen belongs to a municipality whose financial balance changes during the five-year transition period by the maximum amount allowed, i.e. 60 euros per inhabitant.

Masar points out that even in 2022, Kauniainen made a surplus of EUR 12 million. After the Social Security reform, Kauniainen’s economy has turned into a deficit, and according to Masari, the city will probably have to raise the tax rate for next year.

– The social security reform was not supposed to have an effect on increasing the tax rate, but this is not the case in practice, says Masar.

Masar says that he understands that some kind of equalization must be done within the country in order to secure services in aging municipalities as well.

– But there’s not much left to give here. Equalization starts to go too far when the overall effects of the various reforms are not taken into account.

– Services here have to be weakened so that funds can be transferred to other parts of Finland.

Masar points out that as a growing city, Kauniainen has significant investment needs in infrastructure and schools, for example.

“The grind continues”

The city of Kaskisten pays the largest negative state share per inhabitant.

The negative state share this year is around 800 euros per inhabitant, i.e. around 1 million euros. This is a big burden on the approximately seven million euro budget of Finland’s smallest city.

The postponement of the state share reform is disappointing for the city.

– The fight continues, mayor Markku Lumio says.

Lumio says that he thinks it’s special that Kaskinen would have “won” with the social security reform.

Lumio admits that the city benefited from the fact that health and social care expenses were taken off its shoulders, but according to him, the effect was about 200,000 euros a year, not about a million euros, the amount of which the municipality pays state contributions.

The city’s economy was balanced in 2022, but after the social security reform, the city has run a deficit.

– We cannot terminate statutory services, says Lumio.

He believes that the state contributions should be determined based on the municipality’s current tasks.

– You can’t endlessly look in the rear-view mirror.

Different situations in neighboring municipalities

Even neighboring municipalities with similar service needs can currently be in a very different situation in terms of state contributions due to social security installments. This is the case, for example, in central Finland’s Laukaa and Muurame.

Laukaa will lose 405 million euros per inhabitant in state contributions due to social security installments, while Muurame will receive 325 million euros in state contributions through social security installments.

Laukaa receives fewer state contributions for its higher costs (823 euros per inhabitant and 29.9 percent of the costs of cultural activities) than Muurame (1181 euros per inhabitant, i.e. 47.7 percent of the costs of cultural activities).

– If social security history did not affect the calculations, the situation would turn the other way around, i.e. Laukaa would receive more state shares than Muurame, special expert of the Municipal Association Olli Riikonen it is stated in the comparison drawn up.

In Laukaa, the tax rate is 9.9, in Muurame 6.9.

– If the municipalities have very different tax rates, it can have an impact on residential choices, Riikonen states.

Cost neutral

Minister of Municipalities and Regions Anna-Kaisa Ikonen (kok) justified the postponement of the reform of the state share system on Tuesday by saying that the reform must be based on a strong knowledge base, and the government still needs additional information on the effects of the reform.

– We must take into account the needs of municipalities that are losing migration as well as the conditions of growing municipalities and cities to invest in growth and take care of social problems, Ikonen said in the press release.

The government has outlined that the reform will be carried out in a cost-neutral manner, i.e. it must not increase public expenditure.