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Distribution of tasks at state, municipal, and county levels

The tasks of the public sector are decided by the legislative power, i.e. by Parliament. The work of the public administration consists in producing goods and services, paying grants to households and companies, levying taxes, and making rules for regulating society.

In principle, legislation has aimed at distributing functions among state, counties, and municipalities in such a way that overlapping is avoided.

Figure 5 shows the distribution of public expenditure and receipts in 1994 for state, local authorities, and social funds.

Figure 5. Public expenses and income for central government, social funds and local authorities 1994

Note: Expenditure counted as task indicates total expenses in connection with the tasks within the individual sector. Expenditure counted as burden (finance) corresponds to the individual sector's need to finance expenditure through income from the private sector. Own income is the total gross operating and capital income less transfers from other public subsectors. Redistributed income is the total gross operating and capital income less transfers to other public subsectors.

State tasks

The state handles the following tasks:

• Police and administration of justice
• Foreign service and development aid
• Defence
• Higher education and research
• Sickness benefits
• Pensions
• Unemployment insurance
• Child benefit
• Certain cultural activities
• Trade and industry subsidies
• Persons seeking asylum and refugees

Until the 1930s the police was partly a local task, but was subsequently taken over completely by the state. Several European countries still have a local police force.

A number of the state tasks, e.g. old age pension and child benefit, are administered by the local authorities and accounted by them. In return, they receive full compensation for these tasks from the state.

The local job placement service and the local labour inspection are also state institutions, and until the middle of the 1970s the general employment policy has been centrally managed by the Ministry of Labour directorates. However, following upon the considerable increase in unemployment, municipalities and counties have taken over some of the tasks, e.g. in connection with educating and finding jobs for unemployed young people and the long-term unemployed.

Unemployment insurance is administered by the unemployment funds and financed partly through contributions from employees and employers, partly through state grants.

Municipal and county tasks

The main tasks of the municipalities are within the social area, primary education, and the environment, while the tasks of the counties focus on health, secondary education and other tasks requiring larger populations.

Most of these tasks are placed with the municipalities and the counties by law. Therefore, local authorities must perform their share of the tasks, but within the limits of the law they may themselves determine the local level of service. Furthermore, in addition to the tasks they are obliged to undertake by law, local authorities have gradually assumed responsibility for a number of local joint tasks, e.g. heat supply and the provision of sports facilities. In principle, local authorities cannot engage in trade or industry. Danish legislation is very restrictive about local authority access to sponsoring individuals and companies.

- The individual tasks

The local authority accounts provide a survey of their tasks. In the standard accounting system there are seven main expenditure accounts:

_ 0. Urban development, housing, environment

_ 1. Utilities and public transport

_ 2. Roads

_ 3. Education, culture, leisure

_ 4. Hospitals and health insurance

_ 5. Social and health services

_ 6. Administration

The relative economic weight of the various local authority tasks is illustrated in table 1, which shows the distribution by percentage of the budgeted total operating costs (less operating receipts) for 1995 in the various main areas for municipal and county authorities.

Table 1. Tasks of municipalities and counties, budget 1996. Operating costs (less operating receipts)

Source: The Ministry of the Interior, "Local Government Budget 1996".

As appears from table 1, the social and health area is the biggest expenditure item in local authorities. A little more than 20 percent of social and health spending goes towards income transfers, including social security cash benefit, early retirement pension, and rent subsidy.

The state reimburses 50% of municipal spending on social security cash benefit and early retirement pension (100% for early retirement pensions granted before 1992). For early retirement pensioners who are more than 60 years of age, the state pays the entire pension.

Expenditure for rent subsidy and rent allowances for pensioners are reimbursed by the state (50% and 75%, respectively). For refugees special reimbursement rates apply. For the first 18 months after they have been granted residence permit, the state pays cash benefit expenses, social security and youth allowance, and after this period the state covers 75% of the expenditure. In addition, the state reimburses 75% of the expenditure for institutions.

The largest proportion of municipal spending on social welfare and health concerns the area of institutions and services for children and the elderly. Municipalities run a number of institutions, including day-care facilities for children and nursing homes for the elderly, and they organise home help, home nursing, health visitor arrangements and the like.

Finally, municipalities pay a number of social benefits such as old age pension and child benefit on behalf of the state. The state refunds all of these benefits, and the expenditure is not counted as part of the local authority budgets.

In the field of education, tasks are well distributed among state, counties and municipalities. The Danish folkeskole is a 9-year primary and lower secondary school system run by the municipalities. In addition to the 9 years, a one-year pre-school class and a one-year 10th year of school are offered by the municipalities.

In connection with the folkeskole, municipalities must provide a long list of services, such as school libraries, school medical officers, school dentists and school buses. In addition, there are tasks like leisure-time education for adults.

In the area of culture, municipalities are obliged to provide public library facilities, where citizens can borrow books free of charge. Libraries also organise cultural events such as concerts, author readings, and children's theatre.

Finally, municipalities have a number of tasks with regard to urban development and the environment, e.g. refuse collection and waste water treatment, and to a large extent they are also in charge of the supply of water, gas, electricity, natural gas and district heating.

As already mentioned, counties are responsible for tasks requiring a fairly large population. As appears from table 1, the most costly task carried out by the county authorities is hospitals, and only counties deal with hospitals. However, in the local authorities of Copenhagen and Frederiksberg hospitals are managed by the Metropolitan Hospital Corporation established on 1st January 1995. The corporation is headed by a board of directors appointed by the municipalities of Copenhagen and Frederiksberg and the central government.

Counties must ensure that citizens can receive medical attention in a hospital free of charge and that they have free access to consulting a general practitioner or a specialist.

In the social area, the primary task is residential homes for children and young people and institutions for young people and adults with severe physical or mental handicaps. Municipalities reimburse 50% of county expenditure for these tasks for clients under 67 years of age.

Counties are responsible for the three-year gymnasial (i.e. high school) education of 16-19 year-olds and for courses towards the Higher Preparatory Examination. Central government is responsible for all higher education and for vocational education of the 16-19 year-olds.

Finally, counties are responsible for inspecting enterprises causing special environmental pollution, and for physical planning of open areas.

The relative size of local authorities in an international context

Danish municipalities and counties have been given very extensive responsibilities in comparison with local authorities in many other countries.

Figure 6 illustrates the extent of this measured as local government expenditure in percent of the GNP in a number of countries. It appears that Danish local councils manage resources amounting to just over 30 percent of the total value of Danish production.

The extent of decentralisation can also be measured, however, by comparing local expenditure to total public expenditure. This can be seen for the same countries in figure 7.

Figure 7 shows that also when local government expenditure is seen in relation to total public expenditure, decentralisation is strongest in the Nordic countries. For Denmark, the local government share of expenditure is a little more than 50%.

The following pages will show how Danish local authorities are increasingly self-financed. Thus the right to levy tax has also to a large extent been decentralised.

Figure 6. Local government expenses in percent of GNP 1991. (OECD, National Accounts 1980-1992, vol 2. 1994)

Figure 7. Local government expenses in percent of total public expenses 1991. (OECD, National Accounts 1980-1992, vol 2. 1994)

Local authority income

Local authority income can be subdivided into the following categories:

1. taxes

2. operating and investment income (from public and private buyers)

3. reimbursements (percentage grants)

4. general grants and special grants, net interest income

5. loans for certain construction costs

Taxes constitute the biggest single source of income in local authorities. Municipal and county authority income tax is collected together with state tax and paid to the Customs and Tax Administration, which settles the amount collected with the local authorities.

Local authorities are free to set their own tax rate, called the tax levy percentage.

The tax levy percentage in a local authority is decided each year in connection with the adoption of the budget when the local authority's total income need has been calculated. The overall distribution of municipal and county authority tax levy percentages for 1995 is given in figure 8.

Both municipal and county authorities levy land tax on the basis of the value of land. In municipalities the individual municipal councils decide on the fraction of the value of land, the land tax percentage, that is to be levied.

The land tax percentage in municipalities must be between 0.6 and 2.4 percent. For 1994, 1995 and 1996 a lower maximal land tax of 1.5 percent for agricultural holdings has been agreed.

The land tax percentage in county authorities is fixed by law at 1 percent. For farming land used for production purposes, however, it is only 0.57 percent.

Figure 8. Number of municipalities distributed by interval of total county and municipal tax percentage for 1996 (including the municipalities of Copenhagen and Frederiksberg)

Both the municipal council and the county council can exempt certain properties from land tax, e.g. private schools, non-profit institutions, sports grounds and museums. Furthermore, e.g. protected buildings are exempt from land tax by law.

Figure 9. Number of municipalities distributed by intervals of land tax percentage for 1996 (excluding the municipalities of Copenhagen and Frederiksberg)

In addition to land tax, municipalities may collect contribution rates on the property value of business premises. Furthermore, both municipal and county authorities can collect contribution rates on public property. For 1996, 79 local authorities are collecting contribution rates on private business premises - 31 of these local authorities are collecting the maximum contribution rate of 1 percent.

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Schultz Grafisk April 1996