Concepts and definitions

Annual contribution margin

Annual contribution margin indicates the income financing available for investments and the paying of loan instalments after running costs have been covered. It is a key figure when evaluating the adequacy of income financing. The basic assumption is that income financing is adequate if the annual contribution margin is at least equal to the capital depreciations.

The depreciations indicate the average annual need for replacement investments. If the annual contribution margin covers depreciations (replacement investments), the municipality does not need to contract debts, realise capital assets or long-term investments or lower its working capital in order to keep the production system of services operational. If the annual contribution margin is negative, income financing does not even cover running costs.

Cash balance

Financial asset securities + cash and bank deposits from the balance sheet of the municipality/joint municipal board.

Joint municipal board

Joint municipal boards were introduced as a form of intermunicipal cooperation in connection with the revision of the Local Government Act in 1993. They replaced the earlier inter-municipal associations. A joint municipal board is a form of permanent collaboration of more than one municipality in some field of operation. A joint municipal board is set up under an agreement (charter) between the local authorities concerned which has been approved by their councils.

Joint municipal boards are independent legal persons and governed by the legislation on local government. A joint municipal board can acquire rights and enter into commitments and has the right to be heard before authorities. Ultimately, the participating municipalities are responsible for the finances of the joint municipal board.

The most significant joint municipal boards are regional councils, hospital districts and joint municipal boards in the field of public health, in special care districts and education districts. Three-fourths of joint municipal board expenditure is derived from the provision of health care services.

Loan stock

Liabilities - (Advances received + Accounts payable + Adjusting entries for liabilities + Other liabilities) from the balance sheet of the municipality/joint municipal board.

The loan stock of a municipality or joint municipal board refers to interest-bearing liabilities.

Municipal enterprise

A way to organise municipal business activities. Municipal enterprises following the so-called municipal enterprise model are independent units in terms of accounting to which the council of the municipality or joint municipal board has granted a more independent budgetary status than that of other municipal functional units. According to the instructions of the Municipal Section of the Accounting Board, municipal enterprises draft separate financial statements containing a profit and loss account, a funds statement and a balance sheet.

A municipal enterprise is part of the municipal administration and finances; it is not a separate legal person and it does not have an independent legal obligation to keep books.

Only a part of municipal enterprises follow the municipal enterprise model. In statistics on the finances of municipalities and joint municipal boards other municipal business operations (incl. enterprises treated as so called other balance sheet units and business with separate accounts) are treated in the same way as other municipal activities. Income and expenditure from joint-stock or other such business operations are not included in the statistics on the finances of municipalities even if the municipality owns the entire capital stock of the enterprise.

The profit and loss account in the municipal budget includes settlements between the municipality and a municipal enterprise (internal interest paid and return on the municipal enterprise's fixed capital) but not the municipal enterprise's "own" profit and loss estimates. Hence a municipal enterprise is not linked to the municipal budget "line by line". According to the budget recommendation of the Association of Finnish Local and Regional Authorities, the municipality must also compile for its budget a profit and loss statement that includes the profit and loss estimates of the municipal enterprise line by line and from which the interest paid on internal loans and the return on fixed capital have been eliminated. The municipality can use this profit and loss estimate in communicating about its budget to the public.

The separate financial statement of a municipal enterprise is integrated "line by line" into the municipality's or joint municipal board's financial statement to form an overall financial statement.

Since a municipal enterprise is treated differently in the budget than in the financial statement, the figures in the budget and the financial statement may not be comparable.

In order to compile statistics on financial statement estimates and budgets, Statistics Finland collects separate data from the municipal enterprises' financial statement estimates and budgets. This enables the combining of the municipalities' and their municipal enterprises' budgets and financial statement estimates into a comprehensive budget/financial statement estimate for the entire municipality, whose figures are comparable with those of the financial statement. In Statistics Finland's budget publications the budgets of municipalities and joint municipal boards are published without the budgets of enterprises following the municipal enterprise model. Combined budgets, or budget data comparable with financial statements, are also published on the Statistics Finland website.

Tax funding

The tax-based financing of municipalities comprises municipal tax revenue and state subsidies to municipalities.

Tax revenue

In the financial statement municipal tax revenue is entered as tax revenue for the accounting period when the Tax Administration made the transfer. Transfers of municipal tax revenue during an accounting period include:

  • monthly transfers of payroll tax and advance payments of taxes
  • transfers of taxes levied under the Tax Assessment Procedure Act during tax years preceding the accounting period
  • adjustment transfers.

Corporation tax transfers during the accounting period include the transfers of advance payments of taxes and other transfers of corporation tax. The tax on real property transferred during the accounting period is entered as revenue from municipal tax on real property. Dog tax, which is levied by the municipality, is entered as revenue for the accounting period when it's collected or according to accumulation.

Referencing instructions:

Official Statistics of Finland (OSF): Finances and activities of municipalities and joint municipal boards [e-publication].
Helsinki: Statistics Finland [referred: 25.10.2014].
Access method: http://www.stat.fi/til/ktt/kas_en.html.

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Finances and activities of municipalities and joint municipal boards


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