ABCs of municipal finances

The ABCs of municipal finances section is a compilation of terminology definitions and explanations to assist interpretation of the content in the Municipal finances section.

Annual margin

Annual margin refers to the income cash flow remaining after current expenditures have been covered. The annual margin is used for investments and loan repayments.


By the end of the year, the council must approve the municipality’s or joint municipal authority’s budget for the coming calendar year, with due consideration to the group’s financial responsibilities and obligations.

Budget year

The term ‘budget year’ refers to the first year of a planning period. For example, the budget year for the 2020 reporting period is the year 2020.

Cash flow from operations and investments

A positive (excess) amount of cash flow from operations and investments indicates how much of the cash flow will be allocated to net lending, loan repayments and strengthening the cash reserves. A negative (deficient) amount indicates that expenses need to be covered from existing cash assets or by taking out additional loans.

Central government transfer

Central government transfers are statutory portions of the calculated costs of certain municipal services that are paid by the central government to municipalities.

Depreciations and impairments

All planned depreciations from the acquisition costs of intangible and tangible assets belonging to non-current assets are presented as depreciations. In the financial statements of municipalities and joint municipal authorities, impairments pertaining to non-current asset land and water areas as well as advance payments and incomplete acquisitions are recorded as impairments.

Divestment income from investment assets

Income from the sale of property.

Financial income and expenses

The section for financial income and expenses lists the earnings and costs from activities that can be regarded as financial operations.

Financial plan

In the context of approving the budget, the municipality or the joint municipal authority council must also approve a financial plan for at least three years (planning period).

Hospital district

In Finnish health care, a hospital district is an administrative unit with the purpose of providing specialised health care services to the residents of its member municipalities. Hospital districts are defined in the Act on Specialised Medical Care. The Act states that each Finnish municipality must belong to a hospital district’s joint municipal authority.

Investment costs

The total sum of asset acquisition costs activated in non-current assets.

Investment cost contributions

Contributions from the State, municipalities and joint municipal authorities, the EU and other parties to cover investment costs.

Joint municipal authority

A joint municipal authority is a public body formed by two or more municipalities, which performs tasks assigned to it by the relevant municipalities.

Joint municipal authority for social welfare and health care (SOTE)

A joint municipal authority that provides social welfare and health care services.

Loan portfolio

The term ‘loan portfolio’ refers to long-term or short-term interest-bearing borrowed capital. It is calculated by subtracting advances, trade payables, accrued liabilities and other liabilities from the total borrowed capital.

Local executive

The local executive is the most important operational body in a municipality. It is tasked with managing the municipality’s operations, administration and economy.

Local council

The body with the highest decision-making power in a municipality. Its members are local councillors elected through local elections. The term ‘city council’ can be used in cities.


A municipality is a local public body which is based on residential self-government and has its own limited area and population as well as the power to levy and collect taxes.

Operating expenses:


The concept of ‘grants’ encompasses financial support and subsidies paid to households, organisations and communities alike. Examples of financial support provided to households are social assistance and support for informal care. Examples of financial support provided to organisations and communities are operational grants issued to associations, clubs and road maintenance bodies.

   Materials, supplies and goods

This concept is considered to encompass office and school supplies, literature, medication and treatment supplies, and acquisition costs of electricity.

   Personnel costs

Personnel costs include salaries, wages and other compensations subject to withholding tax, comparable expenses and costs determined directly based on pay or other compensation, such as pension costs, social security contributions as well as statutory and voluntary personal insurance premiums.

   Other operating expenses

Other operating expenses include rent expenses, damages and direct taxes paid by the municipality in question.

   Purchased services

This refers to services purchased directly for the customers, i.e. municipal residents, as well as services that the municipality uses for its own service production. Customer services are end product services intended for municipal residents that the municipality buys from other service providers. Payments other than customer service payments pertain to services rendered within the municipality’s service provision arrangement including office and expert services, ICT services, cleaning services and laundry services.

Operating income:

   Reimbursements and subsidies

Grants, financial support and other transfers from the State, European Union or other organisation are recorded in a separate income statement group when they are not performance-based compensations received by the municipality in question or investment cost contributions. These compensations include government grants adding to basic social assistance, wage subsidies and EU support for development projects supporting the municipality’s own operational economy.

   Fee income

This includes customer fees and payments for goods and services in the context of which the purpose of pricing is not to cover the production costs in full or the prices of which are determined based on each customer’s capacity to pay. The bases for the payments are often laid down in relevant acts or decrees.

   Other operating income

These include other items than the aforementioned regularly accumulated operating income. Examples of these are rental income and parking infraction fees.

   Sales income

Sales income refers to income from goods and services that are primarily intended to be sold at prices that cover the production costs.

Operating margin

The operating margin, which is presented as an interim result in the income statement, indicates how much of the operational economy expenses are left to be covered with tax income and central government transfers. In the context of a joint municipal authority, the operating margin indicates the amount of operating economy cash flow available to cover depreciations, amortisations and impairments.

Profit/loss for the financial period

The profit/loss for a financial period is the difference between the income and expenses scheduled for the period, which either increases or decreases the free reserves or equity of a municipality or joint municipal authority.


A region is an area consisting of multiple municipalities, which has been ratified by the Finnish Government.

Regional council

A regional council is a statutory joint municipal authority which consists of municipalities belonging to the same region and promotes the general development of the region and cooperation among the municipalities.

Special care district

A special care district is a regional unit tasked with providing special care services to persons with developmental disabilities within the region.

Tax income

A municipality’s tax income consists of the municipal tax,  corporation tax portion, property tax and dog tax. Each municipality can independently decide on the income tax rate and, within the framework of the law, the amount of property tax and dog tax to be levied. The central government decides on the corporation tax rate and enters a portion of the corporation tax to municipalities.