Municipalities face cuts as unemployment costs surge

Municipalities are facing an exceptionally difficult financial autumn as tax revenues have grown more slowly than expected and the transfer of employment services to local authorities has sharply increased costs, Yle reports.

Mikko Mehtonen, a development manager at the Association of Finnish Local and Regional Authorities, said the cost of unemployment had increased “explosively”. He said municipalities could be forced to raise local tax rates and reduce services because forecast economic growth could not be relied on.

“Municipalities are now using every possible means to increase revenue and achieve savings,” Mehtonen said.

Several major cities, including Vantaa, Espoo, Turku, Jyväskylä, Lahti and Tampere, have already reduced their staffing. Mehtonen said the parliamentary elections scheduled for next spring were also creating uncertainty, although municipalities still had to prepare their budgets.

Schools and day care centres under review

Budget adjustment measures could affect services ranging from parks and leisure facilities to swimming halls, libraries and customer fees.

“In many places, libraries and swimming halls may have to be closed, or at least their opening hours reduced,” Mehtonen said.

School and day care centre networks are also under review in many municipalities. Tampere is preparing next year’s budget, with possible increases in fees, shorter opening hours and changes to service levels under consideration. The city is also assessing its service network, including the number of schools and day care centres, over the longer term.

Mehtonen stressed that decisions on the number of schools and day care centres were not linked only to financial pressures, but also to where people live.

Tax rises expected in several municipalities

Lahti raised its municipal tax rate by 0.5 percentage points to 8.6 per cent for the current year and reduced its workforce by dismissing 34 employees and abolishing 78 positions.

No significant savings measures are planned in Lahti for 2027, but the city’s service network is being assessed. A regional service programme due to go before the city council in October proposes closing six day care centres and two schools.

Tampere is already discussing a municipal tax increase. The forecast for the current year’s tax revenue has fallen by about 13 million euros, while the cost of providing employment services is rising.

Mehtonen said several municipalities could raise their tax rates.

“There have been municipalities raising their local tax every year. We will certainly see them next year as well,” he said.

State funding and healthcare queues add pressure

Central government transfers for basic services are also putting pressure on municipal finances. Transfers have been cut during the current government term, and cuts totalling about 190 million euros are expected in 2027.

Mikko Koskela, Tampere’s finance director, said Tampere had received clearly the lowest level of basic service transfers among the largest cities.

Healthcare queues are also affecting municipal finances, Koskela said. Long queues can worsen symptoms, shifting the need for help to employment services for which municipalities are responsible.

Long-term sick leave and untreated mental health problems can weaken employment, reducing municipal tax revenue and increasing social security costs.

Turku is also facing a difficult situation. The city’s finance director, Valtteri Mikkola, highlighted problems with the central government transfer system and said changes made in connection with the social and healthcare reform had significantly weakened Turku’s financial position.

“It is truly unfortunate if additional cuts weaken the operating conditions of the largest cities, which are important for growth across the whole country,” Mikkola said.