Local authorities shall be entitled, within national economic policy, to adequate financial resources of their own, of which they may dispose freely within the framework of their powers.
Norwegian local authorities have their own resources thanks to local taxes, central government transfers and charges levied on users of public services (water supply, waste collection, child care, etc.). The central government transfers are made up partly of general grants (36% of total revenues) and partly of earmarked grants (5% of total revenue in 2014). Resources derived from taxation and general grants awarded by central government may be disposed of freely. Municipalities (and counties) may spend these funds as they see fit provided that they duly perform the tasks assigned to them by law. In total, it appears that some 75% of all local authority resources may be freely disposed of.
It appears from the information received from Norwegian local authorities that the resources available to them are generally sufficient to enable them to carry out their tasks. Central government transfers can be increased if municipalities have to meet particular needs. The four biggest municipalities (Oslo, Bergen, Trondheim and Stavanger) receive a special “urban grant” to offset the costs entailed in being an urban centre.
Local taxes and levies account for approximately 40% of local authorities’ total resources. Fees and charges levied on users of public services make up roughly 15% of this amount. Local authorities are free to set the rate of local tax, within the limits of a statutory ceiling, but it seems that, because of financial needs, it has been nearly 35 years that any local authority has set the local tax rate lower than the highest level permitted by law. As a result, all municipalities apply the same level of taxation.
Local authorities’ main source of tax revenue is income tax, of which they receive a share. The amount of income yielded by this source does in fact evolve, therefore, depending on economic growth. There is also a wealth tax which is levied at both municipal and central government level. Municipalities can also choose to levy a property tax under the Property Tax Act. Between 2005 and 2013, local authority revenues rose by 2.5% per year, 0.3% up on the previous 15 years, due to regulations of property tax creating a larger base for taxation.
One of the main aims of the system of funding local authorities is to equalise their resources so that they can offer the same standard of service anywhere in the country. There is therefore a significant degree of redistribution of resources by central government, based on several criteria. When distributing general grants, which are allocated in the first instance according to the number of inhabitants in the municipality (a per capita grant totalling NOK 218,00), central government takes account of both structural cost differences between municipalities (expenditure equalisation) and differences in tax revenues (income equalisation). The expenditure equalisation component is based on a set of objective criteria designed to equalise resources across the country. They include the age structure of the population, the number of married, single and divorced people, the number of jobless, the number of immigrants and the number of people with disabilities. The income equalisation component, on the other hand, is based on the income tax and wealth tax paid by individuals and the natural resources tax paid by companies operating in the energy sector. Local authority resources also include central government transfers to enable authorities to pursue regional policy goals (e.g.: Northern Norway and Namdalen grants, district grants to Southern Norway). A special grant is available, furthermore, for small municipalities (fewer than 3,200 inhabitants) whose tax revenues have been below 120% of the national average over the past three years. Municipalities which are experiencing unusually rapid population growth receive a special grant. In addition, “discretionary” grants can be awarded to local authorities to compensate for specific circumstances which are not compensated by the general grant scheme. All in all, it appears that the system of distributing resources between Norwegian local authorities fully satisfies the requirements of the Charter.
Norwegian local authorities represented by their association (KS) are regularly consulted by the Norwegian government about the distribution of resources between local authorities. In the course of these meetings, the cost of reforms and the compensation payable by central government to local authorities are also discussed, due to the general principle that new tasks for local government should be fully compensated by the central government – while full compensation may often be a matter of negotiation.
The share of earmarked grants in total central government transfers to local authorities is significantly smaller than that of general grants and has tended to diminish in recent decades. In 2014, (unconditional) general grants accounted for 36% of local governments’ total resources, whereas (specialised) earmarked grants made up only 5%. In this context, KS remarked that there is continuous pressure from interest groups and their political spokesmen to introduce and increase earmarked grants.
Since 2001, Norwegian local authorities have been able to borrow without the prior approval of central government, but only for the purpose of financing capital investment. While there is no limit on the amount that may be borrowed, restrictions apply to municipalities whose budget is found, in the course of the governor’s review of local government budgets, to be in deficit, and also to municipalities which have failed to eliminate their deficits within two years after the deficit has been presented. These municipalities are then entered in a register (the ROBEK, Register for Governmental Approval of Financial Obligations) and may borrow only with the prior approval of central government. As of 1st September 2014, 54 municipalities were listed in this register (roughly 12% of the total number). After rising sharply in 2005 (to approximately 120), the number of municipalities listed in the Register has levelled off since 2007.
In the light of the above, the rapporteurs conclude that Norway is in conformity with Article 9 of the Charter.