Local government facing massive deficits

Despite a projected budget deficit of 3 billion kronor ($379 million) for 2009, Sweden’s county and local governments shouldn’t expect any more money from the state.

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“Local politicians must now prioritize core welfare services,” said Minister for Local Government and Financial Markets Mats Odell told the TT news agency.

“It’s not surprising that municipalities are also affected by this crisis.”

In a forecast presented on Wednesday, the Swedish Association of Local Authorities and Regions (SALAR) projected social support payments would increase by 3.5 billion kronor between 2008 and 2011.

Despite previous support from the central government, additional personnel cuts and higher local taxes will be needed to make up increased costs, according to SALAR.

Odell said he can’t promise any more money over and above the funds already earmarked for the local government sector simply because SALAR projects a negative effect on welfare if no additional money is forthcoming.

He stressed that the economic situation remains fraught with uncertainty and that the central government is also battling larger deficits than local governments.

He added that municipalities with sound finances can have the option of having a budget deficit during one year if they promise to return their books to balance within three years.

According to SALAR’s projections, local and regional governments need to slash spending by 5 billion kronor next year and an additional 8 billion in 2011 in order to avoid raising taxes.

The association’s forecast is based on an average tax increase of 21 öre next year, which it estimates will add 3.4 billion kronor to the local government sector.

SALAR also expects local governments’ tax base to fall by 1 percent this year and next, before an uptick in economic activity and the labour market takes place in 2011.

“We expect that employment will increase somewhat in 2009 before dropping off again in 2010,” said SALAR head Anders Knape.

He believes the state funding offered so far to the local government sector is insufficient.

Minister of Finance Anders Borg has continually defended his steadfast resistance toward additional injections of state money by arguing that general welfare must be safeguarded.

But Knape is skeptical of the finance minister’s reasoning.

“If no more funding comes through, people are going to feel it,” he said.