Finnish municipalities and regions

Local government finances

Notepad and a pen

Finnish local authorities spent EUR 42 billion in 2016 on arranging services and promoting the welfare of residents. Social and health care services account for almost a half of the total expenditure and education and culture almost one third. 

Local authorities finance their services with taxes, central government transfers, various fees and charges, and sales revenues. Local income tax paid by residents, real estate tax and a share of corporate tax account for almost half of all municipal revenue. Each local authority decides independently on its income tax rate. The average local tax rate is 19.91 per cent of taxable income. 

Fees and charges account for about a quarter of municipal revenue. Most of the customer charges are collected for services such as water supply, waste disposal, power supply and public transport. Just under one tenth of social welfare and health expenditure is covered through customer and patient charges. Basic education is free. 

The central government participates in the financing of statutory local services by granting transfers to local government. The central government transfer system evens out financial inequalities between local authorities and ensures equal access to services throughout the country. Central government transfers account for less than one-fifth of all municipal revenue.

Local self-government is an essential element of municipal finances. Local authorities have substantial freedom to choose how they finance their services and investments.