The Intercommunal Equalization System in the Canton of Fribourg

Flavien Felder, IFF Institute of Federalism, University of Fribourg

Relevance of the Practice

The State Council of the canton is responsible to organize the management of the financial equalization in due respect of the provisions listed in the corresponding act.[1] In practice, this task is in the hands of the Municipalities Department, which is entitled to conduct the financial and administrative supervision of local authorities (municipalities, inter-municipal associations, agglomerations and legal entities under public law). This department is also responsible for drafting policies aiming at encouraging mergers of municipalities and for dividing efficiently the public tasks between the state and the municipalities. It collaborates with the Prefect, works closely with the municipalities, and offers them different type of services, management tools and trainings. This type of services can be found in all the Latin cantons in a form or another. In general, they are attached to the State Council and financed by the cantonal taxes.

Until 2010, the financial equalization was exclusively indirect, as the cantonal subsidies for municipal expenses and the financial participation of the municipalities in the cantonal expenses were determined according to the financial capacity (calculated, as usual, on the basis of resources and expenses). In 2011, this system was replaced by a radically new system of horizontal equalization of resources and vertical cost compensation of public expenditures aiming at reaching the following objectives.[2]

The objectives of the revised Inter-Municipal Financial Equalization Act adopted by the citizens of the Canton of Fribourg on 7 March 2010 is to partially compensate for the disparities in the fiscal potential of the municipalities[3] and to partially compensate for the financial needs of the municipalities as assessed by a synthetic needs index.[4] In this revised mechanism, one significant improvement lies in the fact that the resource equalization tool does no longer provide for a minimum allocation and functions optimally thanks to a simple, completely symmetrical and linear system.[5] Another significant change relates to the second tool of the equalization mechanism, namely the needs-based equalization which, contrary to what applies in all other cantons, no longer concentrates its financial transfers to structurally weak regions to compensate for the costs of remoteness or difficulties due to topography but favors instead the centers/urban municipalities.[6] This is a paradigmatic shift as far as the urban-rural interplay in the Canton of Fribourg is concerned. As a matter of fact, this tool does no longer primarily compensate the rural municipalities for their ‘remoteness costs’ or topographic burdens. On the contrary it takes better account of the burdens borne by urban centers.

Description of the Practice

Two distinct instruments, the resource equalization and the needs-based equalization, are implemented by the Canton of Fribourg to achieve the expected effects of its inter-municipal financial equalization mechanism.

The first instrument, the resource equalization, is based on the fiscal potential of each municipality calculated per capita (or inhabitant), on the basis of eight types of regular municipal taxes:[7] (i) the personal income tax; (ii) the personal wealth tax; (iii) the tax on the profits of legal entities; (iv) the tax on the capital of legal entities; (v) the tax at source; (vi) the tax on capital benefits; (vii) the real estate tax; (viii) a part of the motor vehicle tax. The yields of these taxes are calculated at the rate of the basic cantonal tax or, at a standardized rate, in order to neutralize the effect of the communal coefficients[8] chosen by municipalities. In addition, the reference period corresponds to the three most recent consecutive fiscal years for which published statistics from the Direct Tax Administration Service are available.[9] For example, the 2021 resource equalization is based on the 2016, 2017 and 2018 fiscal years.

This instrument does not require any additional funds, as the amounts are transferred from the contributing to the beneficiary municipalities on the same value date of 30 June. The total annual amount of the levies and payments are thus identical. The overall amount of resource equalization is the result of a choice made by the legislator: the initial amount corresponds to the volume calculated in the previous indirect equalization system. An analysis of previous years’ volumes showed that they represented about 2.5 per cent of the overall amount of potential resources in the last year taken into account. This is therefore the percentage that has been fixed in the law[10] and it makes it possible to adjust the amount for resource equalization annually in line with the evolution of tax yields.[11] Rural municipalities that do not have particularly rich taxpayers among their citizens mostly benefit from this instrument. Other rural municipalities which, for historical or geographical reasons, can count on rich taxpayers do not automatically benefit from this instrument.

The second instrument, the needs-based equalization (or cost compensation)targets the municipal expenditure side. In order to measure the differences between the municipalities, it is no longer the expenditure that is directly defined but the specific needs that generate public expenditures by the concerned municipalities. As in the case of resource equalization, the system identifies the financial volume to be allocated to this instrument, how it is to be financed, which municipalities are to benefit and the amount to be allocated to each municipality.[12] To measure and determine the specific needs of the municipalities, the analysts use six criteria for which statistics are available for all municipalities and that are in close correlated relations with municipal expenditures.[13] It is worth noting here that contrary to what had long been the practice, this tool does no longer aim at compensating rural areas. On the contrary, it recognizes the peculiar burden borne by the urban centers that tend to be more densified and to have additional structural needs. Thus, the selected criteria of calculation for this second tool of the equalization mechanism in the Canton of Fribourg are: the population density; the employment rate; the population growth over 10 years; the number of persons aged 80 years and plus; the number of children of compulsory school age[14] and the number of children under 4 years of age. Like the equalization of resources, the criteria for the equalization of needs refer to the statistical data of the three most recent known reference years or, when not available, the data of one or two consecutive years,[15] related to the legal population of the three reference years.[16] For each of the six indicators, an additional calculation is operated resulting on six partial indices. The sum of the partial indices forms the synthetic index of need. The aggregated municipalities’ synthetic index of need functions as the reference threshold of 100 points. The municipalities with an index above this threshold have specific needs that have to be compensated. Those municipalities with an index below 100 points have less needs and are not compensated.[17] As seen above, another peculiarity of this instrument is that it is purely vertical. Thus, the compensations are supported by the canton only[18] and to a maximum amount corresponding to the 50 per cent of the total amount transferred under the first instrument, the resource equalization.[19] Contrary to some other cantons and the national equalization mechanism, the Canton of Fribourg does not have a compensation fund for hardship cases.

Assessment of the Practice

The Inter-Municipal Financial Equalization Act of the Canton of Fribourg provides that the financial solidarity system is to be reviewed every four years.[20] Among other, the performance of the instruments and the relevance of the criteria must be tested.[21] The first evaluation report published in 2015[22] has made it possible to adopt minor changes of the system mainly by adjusting it to the new cantonal policies and to the new statistical data. More importantly, this practice demonstrates that rural municipalities (in the Canton of Fribourg and in Switzerland in general) can no longer easily claim financial compensation for their ‘remoteness’. A telling example is that of the municipal road as for decades, the general assumption (largely accepted in the political spheres) was that rural municipalities were to be compensated for the expensive municipal roads maintenance. But the system now being based on more technical data proved that urban centers bear a higher burden as far as roads maintenance is concerned. Therefore, the system revised in 2010 allows for a more comprehensive and factual compensation of the municipalities’  needs and integrates, in its second instrument, the 6 criteria listed above.

The Municipalities Department is convinced that the system is now more consistent with the needs of the municipalities and of the canton.[23] The law guarantees a very flexible approach that allows regular adjustments to match with the technical needs. This tends to demonstrate that the simplicity of the mechanism based on a bi-directional dynamic (horizontal equalization of resources by the municipalities and a vertical equalization of needs by the state) significantly reduces the political bargains among the municipalities. Technical adjustments recommended by the group of experts in the frame of the periodic review were easily approved and the law was adjusted accordingly.

One last component of the mechanism is yet to be mentioned here: the vertical/state contribution to the system is fixed by the law and cannot go above 50 per cent of the horizontal/municipal contribution to the resource equalization. This clearly prevents excessive demands from the municipalities since an increase of the cantonal contributions to the mechanism automatically results in the doubling of the municipalities’ contributions to the equalization of resources instrument. In 2015, the authors of the report decided to maintain the 50 per cent relation.

References to Scientific and Non-Scientific Publications

Legal Documents:

Canton of Fribourg Inter-Municipal Financial Equalization Act, SGF 142.1

Scientific and Non-Scientific Publications : Rühli L, ‘Monitoring des Cantons 5: Le Labyrinthe de la péréquation financière’ (Avenir Suisse 2013) <>

[1] Art 18(1) of the Canton of Fribourg Inter-Municipal Financial Equalization Act, SGF 142.1.

[2] Lukas Rühli, ‘Monitoring des Cantons 5: Le Labyrinthe de la péréquation financière’ (Avenir Suisse 2013) 18 <>.

[3] Art 3 of the Inter-Municipal Financial Equalization Act.

[4] Art 9 of the Inter-Municipal Financial Equalization Act.

[5] Rühli, ‘Monitoring des Cantons 5’, above, 18.

[6] ibid.

[7] Art 4 of the Inter-Municipal Financial Equalization Act.

[8] ibid.

[9] Art 5(2) of the Inter-Municipal Financial Equalization Act.

[10] Art 6 of the Inter-Municipal Financial Equalization Act.

[11] Calculation Method, Annex 1 to the Inter-Municipal Financial Equalization Act, 4.

[12] ibid 5.

[13] Art 11 of the Inter-Municipal Financial Equalization Act.

[14] ibid.

[15] Arts 12 and 23 of the Inter-Municipal Financial Equalization Act.

[16] Calculation Method, above, 5.

[17] ibid.

[18] Art 14 of the Inter-Municipal Financial Equalization Act.

[19] Art 13 of the Inter-Municipal Financial Equalization Act.

[20] Art 20 of the Inter-Municipal Financial Equalization Act.

[21] ibid.

[22] B Dafflon, ‘Évaluation du système de péréquation financière intercommunale – Rapport du Groupe de travail’ (Etat de Fribourg, 11 May 2016)             <>

[23] Calculation Method, above, 8.