Time for the municipalities to review their operations – new rules should stop cheating

UNHEALTHY COMPETITION

Before a new set of regulations regarding competition-restricting public sales activities is to be drawn up, the municipalities should review their operations, according to several experts. “If you are a municipality aiming to create a good business climate, this question is fundamental,” said expert Stefan Sagebro at a recent seminar.

At a seminar organized by the Swedish Business Association recently, the issue of unhealthy public competition, such as tax-funded municipal gyms and cafes, was discussed. The background is that the government is now reviewing the regulations for anti-competitive public sales activities. An important part of that work is how the Swedish Competition Authority can get greater opportunities to act.

Stefan Sagebro, expert on industrial policy, competition and state support at Swedish Enterprise, stated that a core issue is that municipalities and other public actors have completely different conditions for conducting business than private actors.

– If you are a municipality aiming to create a good business climate, this question is fundamental. For the companies affected by competition from a municipal operator, it can hit very hard.

One reason why the government is reviewing the issue is that there are limitations and ambiguities in the existing regulatory framework, which means that the regulations do not have the effect that the legislator intended, said the Swedish Competition Authority’s director general Rikard Jermsten at the seminar.

– We are testing, for example, the competition law effect against what is called a relevant market. The problem is that in most cases that scenario is much wider than the situation where a public and private actor meet locally.

It is likely that the inquiry will instead propose that the Swedish Competition Authority should be able to adopt a local perspective in its analyzes and investigations.

– It is absolutely central to look at the effect the public actor’s activities have on the local market and not compare against a regional level or against neighboring countries as we have seen examples of, said Stefan Sagebro.

“Municipal competence has been exceeded”

Rikard Jermsten highlighted municipally run gyms as an example where the Swedish Competition Authority could have acted more resolutely if the authority had been able to focus on the local competition situation.

– In those cases, we have seen that the municipal competence has been exceeded but have not been able to do anything within the current regulatory framework. It is clearly unsatisfactory.

The Swedish Competition Authority also does not have the same ability to control and assign sanctions against public and municipal operations as it does against private companies.

– If it turns out that a private company is breaking the competition rules, the company can promise to stop doing so. Then we have the opportunity to come back and check it. We cannot do that with public activities, but then we will end the investigation, continued Rikard Jermsten.

When a new set of regulations is now underway, there is reason for the municipalities to review activities that may be in conflict with the competition law.

Johan Grip, CEO at Startpoint Advisory

Johan Grip, CEO of the consulting company Starpoint Advisory.

Photo: Private

Gävle and Vännäs are examples of municipalities that try to be forward-looking. They have hired the consulting company Starpoint Advisory to map how their VAT-liable activities affect the private business world.

– It was important to understand what underlies these activities. Is it a political decision or is it management organizations or companies that for various reasons have acted on their own, said Johan Grip, CEO of the consulting firm Starpoint Advisory.

He said that they have examined the municipalities’ VAT-liable activities partly from a legal perspective and partly weighed the appropriateness of offering an activity that can be provided by a private company.

– Through those analyses, we have been able to give the municipalities the green light where we have found some contradictions, but in other cases it has been more questionable and then we have pointed it out.

– But it is important to point out that all income subject to VAT by definition does not break the law or is inappropriate, continued Johan Grip.

When the regulations can now be tightened, it is important for the municipalities to be prepared. Here is a good dialogue with the local business community, Johan Grip said.

– It is probably good if the municipalities ask themselves how their actions affect the private business world and that this dialogue is held before any decisions are made.

The Swedish Competition Authority’s Rikard Jermsten believes that perhaps the most important thing is for the municipalities to become more aware of what they are doing, on what basis and what effects it has.

– This must also be raised at a strategic level, although it may be more difficult in a politically controlled organization, but it is the best way to avoid problems.