Funding Of And Public Spending In The Autonomous Åland Islands
Funding Of And Public Spending In The Autonomous Åland Islands
Economics is a factor that greatly influences the manner in which autonomies can function and exercise their powers. Therefore, the economic rules that define the relationship between the autonomous entity and the state within which the autonomy exists may be just as important as the other rules concerning the autonomy arrangement. The economic rules concerning the autonomy should therefore be considered in the same context as the distribution of legislative powers, the organization of the government of the autonomous entity and the potential of the autonomous entity to establish relations with other countries or inter-governmental organizations, just to mention a few of the other aspects of autonomy.
The importance of economy holds true also concerning the Åland Islands, which according to Sections 75 and 120 of the Constitution of Finland is a self-governing part of Finland. The more precise constitutional designation of the Åland Islands as a self-governing part of Finland is spelled out in the Self-Government Act of the Åland Islands, a piece of law of constitutional nature, although not a constitutional act proper. Chapter 7 of the Self-Government Act with Sections 44 through 51 contain the main economic provisions, but the Act also contains other provisions relevant for the economy of the self-governing entity. Conditions are different in different autonomies and the fiscal relationships between autonomies and the states where they are situated vary very much, but the comparative question here could be the following: what could a refurbished financial relationship between Puerto Rico and the United States look like against the background of the current financial relationship between the Åland Islands and the state of Finland? A few thoughts about this are sketched up in the concluding remarks, but because this article is not a systematic comparison between the Åland Islands and Puerto Rico, the answer to this general question will depend on the reply formulated by each reader for herself or himself. A range of more specific questions related to the Åland Islands will be specified below.
Financially, the Åland Islands are very independent as concerns spending decisions, although decisions concerning the funding of the autonomy functions are influenced by the somewhat limited taxation powers of the autonomy arrangement. As established in Section 44 of the Self-Government Act, the Legislative Assembly confirms a budget for the Åland Islands. Sub-section 2 of the provision establishes a specific aim for the Legislative Assembly of the Åland Islands to adopt a budget that maintains the social benefits of the population of the Åland Islands at least at the same level as in mainland Finland.How is the Government and the Legislative Assembly of the Åland Islands producing the budget of this autonomous entity in a manner that guarantees this established aim?
On the income side of the budget, the main contribution is the annual equalization amount that the Åland Islands receive over the State budget on the basis of Section 45 of the Self-Government Act, supplemented by the tax retribution, but it is also possible for the budget of the Åland Islands to receive extraordinary grants. What is the manner in which the equalization amount is determined and how are the additional transfers over the state budget managed? It is also possible for the Åland Islands to take up bond loans and other loans in its own name and under its own fiscal responsibility. Under some special circumstances, the Åland Islands may receive so-called special subsidies over the state budget. In addition, the legislation of the Åland Islands establishes a Slot-Machine Association with the aim to contribute, on the basis of its legal monopoly in gaming, to the public funding of good causes in the Åland Islands. What is the position of these funding mechanisms in the economic system of the Åland Islands? The Åland Islands have, under Section 18, para. 5, powers of taxation that relate to an additional tax on income and a provisional extra income tax, as well as the taxes on business income and taxes on amusement activities, the legal basis of the dues levied for the Åland Islands and the municipal tax. How is the Ålandic tax regime applied on the inhabitants and what is its share of the revenue? Out of the funding methods mentioned above, the equalization amount from the state budget to the budget of the Government of the Åland Islands is the most important one (generally around 75 % and around an estimated 67 per cent in 2018), followed by the municipal tax that brings in proceeds to the budgets of the 16 municipalities in the Åland Islands. Under Section 66 of the Self-Government Act, the self-governing entity is exempt from tax in the same manner as the State of Finland.
As a part of Finland, the Åland Islands is also part of the European Union. When Finland joined the EU in 1995, the accession treaty was negotiated with two options concerning the Åland Islands, that Åland would join the EU together with Finland under some particular exemptions or that Åland would not join the EU together with Finland but remain outside of the EU in a position of a third state (as is the case, e.g., concerning the Faroe Islands in Denmark). The first option was chosen by the inhabitants of Åland in an advisory referendum, and the Legislative Assembly of the Åland Islands made the decision accordingly. As a consequence, the Accession Treaty of Finland was supplemented with Protocol 2 on Åland with certain exemptions. How do the provisions of an economic nature in the Protocol impact on the funding of the autonomy? Although the EU almost entirely directs itself towards the Member States, not towards the sub-state entities, EU law has developed a concept of sufficient fiscal autonomy for the purposes of running, in a sub-state entity such as the Basque Country in Spain, a non-selective state aid scheme. State aid is generally prohibited, but a Member State can, under some circumstances, create a non-selective state aid scheme. Sub-state entities and municipalities would in most cases not be able to do so, except under certain preconditions. Would these preconditions be fulfilled in relation to the Åland Islands?
The very first Self-Government Act was enacted by the Parliament of Finland in 1920 and started to operate in 1922 after a Settlement was reached in 1921 before the League of Nations on certain additional guarantees to the inhabitants of the Åland Islands as concerns the maintenance of the Swedish character of Åland. A subsequent Self-Government Act of 1951 shifted the funding of autonomy from regional taxes to a budgetary transfer from the state, and in the Self-Government Act of 1991, the current arrangement with the equalization amount was solidified. A new self-government act was in the planning during the 2010s, but for various reasons, no final result was reached about an entirely new Act. One possible outcome from the long process of negotiations and committee work to amend the 1991 Self-Government Act could be new provisions on funding that would tie the equalization amount to the number of inhabitants of the Åland Islands, which has been on the increase during the past 20 years. However, by the time of writing this article, the matter was still under consideration.
One of the stated aims of the 1920 Self-Government Act was to give the chance to the inhabitants of the Åland Islands to arrange their existence as freely as was possible for a region that does not constitute a state. How has the self-governing entity succeeded in this respect from an economic point of view?
Terminologically, this article uses the term Åland Islands about the region and the territory as well as about the jurisdiction. This territory is governed by the self-governing entity of the Åland Islands, which is a public authority created by means of the Self-Government Act. Therefore, this article uses the term self-governing entity about the legal person that constitutes the public authority entitled to enact legislation for the jurisdiction and exercise public powers under the legislation enacted by the Legislative Assembly.
I. Tax Powers
The original provisions in the first Self-Government Act, the Act of 1920, contained in Section 21 provisions concerning the separate tax authority of the self-governing entity. According to the provision, the self-governing entity has the right to use for its purposes the proceeds from local property tax of an old type, taxes on business income and taxes on amusements of various kinds. The Legislative Assembly was given the right to decide on these taxes and to decide on an additional tax collected on the top of the income tax of the state. In addition, the Legislative Assembly was given the power to impose temporary extra taxes and to collect fees for different measures taken by the authorities of the self-governing entity. Because the inhabitants of the Åland Islands were initially unwilling to put the Self-Government Act into operation, there was no immediate implementation of the provision, but only after the entering into force of the so-called Guaranty Act in 1922 (see below).
There was a wish to guarantee a certain economic basis for the self-government by means of the so-called Åland Islands Settlement that was done within the League of Nations in 1921. As a result of the wish of the inhabitants of the Åland Islands, demonstrated by petition campaigns in 1917 and 1919, to secede from Finland and to join Sweden, a territorial dispute about the national affiliation of the Åland Islands arose between Finland and Sweden. The matter was brought before the League of Nations, which resolved the case in favour of Finland, but under the condition that certain provisions that guarantee the Swedish character of the islands are inserted into the Autonomy Act, as the Self-Government Act was called in the Settlement. Para. 6 of the Åland Islands Settlement mentions that “[t]he Åland Islands shall have the right to use for their needs 50 % of the revenue of the land tax, besides the revenues mentioned in Article 21 of the Law of Autonomy”. This provision was transferred from the Åland Islands Settlement to the Guaranty Act of 1922, where Section 4 repeats the contents of para. 6 of the Settlement.
As concerns the land tax, the rules were changed in an interesting manner in 1929, when the Parliament of Finland decided to abolish the land tax in mainland Finland by means of a legislative amendment, but added to the same enactment a provision according to which the repeal of the land tax did not apply to the Åland Islands. In the Government Bill (Bill no. 34/1929), reference was made both to the Åland Islands Settlement and to the Guaranty Act as a basis for the maintenance of the land tax in the Åland Islands. This means that the Parliament also made reference to a source of international law when the domestic tax law was amended. It appears that the Åland Islands Settlement and its provision on tax income for the Åland Islands was considered binding.
As a result of the abolition of the land tax in mainland Finland, the Åland Islands remained as the only part of the country where this tax still was in use. The proceeds from the land tax were, however, modest at the same time as the tax did not anymore correspond to the needs of that period of time. Against that background, the Legislative Assembly adopted in 1929 an enactment of the repeal of the share of the Åland Islands from the land tax. It should be noted that in the Åland Islands, the land tax was not repealed by the Parliament of Finland, but by the Legislative Assembly, that is, by the Åland Islanders themselves. The justifications for repeal in the Åland Islands enactment made reference to a budget entry in the state budget of Finland, intended for the self-governing entity, which may be viewed as a precursor to the equalization amount payable to the self-governing entity under the 1991 Self-Government Act (see below). It is an interesting aspect in the context that the then Legislative Assembly actually used, as a basis of its decision, a tax competence that remained in the Åland Islands from the time the Parliament of Finland had tax law competence in the Åland Islands: what the Legislative Assembly repealed was originally legislation of the Parliament of Finland that had been enacted within the Parliament’s field of competence.
As concerns other types of tax than the land tax, it appears that they constitute such taxes that the self-governing entity could, on the basis of Section 4 of the Guaranty Act or Section 21 of the 1920 Self-Government Act, use for its own needs and that in Section 21 were identified as the local property tax of an old type, taxes on business income and taxes on amusements of various kinds, but included also other types of tax, such as the ruble tax, crown tenths, several forms of particular land taxes and some duties. In other words, the law-maker of Finland behaved as these types of tax belonged to those types of tax that were guaranteed for the self-governing entity in the Self-Government Act or in the Guaranty Act: at the same time as these types of tax were revoked in mainland Finland, exemptions were made for the Åland Islands either on the basis of Section 4 of the Guaranty Act (taxes that the self-governing entity is entitled to use for its own needs) or Section 21 of the 1920 Self-Government Act (property tax of an old type and taxes on business income that the self-governing entity is entitled to use for its needs). These taxes therefore remained in force in the Åland Islands as intended in the 1921 Åland Islands Settlement. The land tax was one of the last types of tax revoked by means of a decision of the Legislative Assembly of the Åland Islands.
The need to modernize taxation by means of revoking old types of tax and by means of introducing, for instance, income tax of the state and municipal tax was, of course, not limited to mainland Finland. The same need of modernization existed in the Åland Islands. There, the old types of tax were revoked by means of decisions made by the Legislative Assembly. Thus it was the representative institution of the Åland Islands that itself revoked those old types of tax that were guaranteed for the self-governing entity in the 1920 Self-Government Act and the Guaranty Act. In other words, it was the beneficiaries of the 1921 Åland Islands Settlement who themselves and by means of decisions of their own revoked the tax legislation that originally had been intended to provide for revenue for the self-governing entity and its administration. As a consequence, the modernization of the types of tax in the Åland Islands comprised the introduction of new types of tax on the basis of the taxation authority that the Legislative Assembly had when it decided in 1923 about the amusements tax and about the municipal tax (that is, municipal income tax, which is a flat-rate tax) and in 1924 about business tax.
The additional tax on income has been used by the Legislative Assembly only twice, in 1931 and between 1967 and 1969. The Legislative Assembly has enacted a general Act of Åland on the Åland Islands Tax (SoÅ 58/1993), which establishes a 3.5 percent tax on income for persons and inheritance, but this Act needs to be activated by a separate annual tax law, and no such activation law has ever been enacted in the Åland Islands. This means that the Legislative Assembly has been wary about imposing such additional taxes on the inhabitants and businesses of the Åland Islands that would increase taxation from the level that the Parliament of Finland has already imposed in the form of general state taxes on income. As a consequence, the provisional extra income tax has never been imposed, while the trade and amusements taxes, when such were imposed, had a marginal role only in the budget of the self-governing entity. Dues levied for public services that the Government of the self-governing entity or the municipalities in the Åland Islands provide for inhabitants are normally at a modest level and do not cover the actual cost of the services. There is a general Ålandic Act on Dues and Fees to the Self-Governing Entity, but also an Ålandic Act on Fees to the Health Service of the Åland Islands, an Ålandic Act on Pharmacy Fees, and an Ålandic Act on the Traveller’s Fee, imposed on operators of vessels in passenger traffic to and from the Åland Islands. As concerns the Traveller’s Fee, there has been unclarity about whether is a tax on consumption, in which case it would belong to the legislative competence of the Parliament of Finland, which is the position of the Constitutional Committee of the Parliament, or whether it is a trade tax, in which case it belongs to the legislative competence of the Åland Islands. The Supreme Court sided with the self-governing entity in thinking it is a trade tax, that is, a tax on business income, which settled the matter.
In reality, the main power of taxation under the legislative competence of the self-governing entity is the municipal tax or the local government tax imposed as a flat rate tax on the income of individuals and business enterprises. The Legislative Assembly has the power to establish the law on municipal tax, including the deductions by which the individual tax levels are regulated, but the general rate of municipal tax is established separately in each municipality on the basis of Section 121 of the Constitution of Finland, which establishes this rate as one of the dimensions of constitutionally guaranteed municipal self-government. Smaller amounts of municipal revenue is collected, for instance, under the Ålandic Act on Municipal Business Tax, the Ålandic Act on Municipal Farm Tax, the Ålandic Act on Real Property Tax, the Ålandic Act on Dog Tax, and the Ålandic Act on Shipowner’s Tax. The taxation competence is also exercised by means of the possibility of the Legislative Assembly to create tax deductions within the area of municipal tax and —potentially— other kinds of tax from which the proceeds go to municipalities. Against this background, it is possible to conclude that out of the total income tax paid by an average income-earner in the Åland Islands on the basis of his or her salary, slightly over 50 per cent is retrieved as municipal tax, while the rest of the income tax goes to the state of Finland, which is a progressive tax. When considering the distribution of the entire tax burden of an individual between the Legislative Assembly and the Parliament of Finland, including the value added tax, it appears that roughly one-third of tax powers is based on the competence of the Legislative Assembly, while another one-third is income tax of the state and yet another one-third is VAT of the state.
As a consequence, the legislative powers of the Åland Islands in the area of income tax are considerable, but the political discussion over recent decades has concerned the wish of the Åland Islands to take over such forms of taxation that are now within the legislative competence of the Parliament of Finland, such as indirect taxation (VAT and different duties),taxation related to shipping, property tax, etc. Such an amendment of the fiscal basis of the autonomy arrangement would probably have to be coupled with a transfer of substantive legislative competences from the Parliament of Finland to the Legislative Assembly of the Åland Islands (see below).
II. Equalization Amount
The equalization amount is compensation from the state to the self-governing entity for functions that the self-governing entity takes care of instead of the state. In that sense, the equalization amount corresponds to those taxes mentioned in the 1921 Åland Islands Settlement and that were abolished later on by the Legislative Assembly. Therefore, there is a connection between the equalization amount and para. 6 of the 1921 Åland Islands Settlement.
The final amount of the financial equalization is determined retroactively in a special equalization procedure, but advance payments are made over the state budget to the self-governing entity. The advance payments are taken into account when the final equalization amount is calculated. This means that the final equalization amount may be smaller or larger than the sum of the advance payments. The equalization amount is the most important component of the budget of the self-governing entity, making up altogether 75 per cent of the budget of the Åland Islands. The equalization amount has averaged at 197 M€ (226 M$) per year during 2006-2015.
It is often the case that the equalization amount is mistakenly understood as a state subsidy to the Åland Islands. It is, however, not a state subsidy, for instance, of the kind intended in the Finnish Act on State Subsidies (688/2001), but instead a transfer of funds that is of a constitutional nature. The procedure for determining the equalization amount is carefully delineated in the Self-Government Act.
The amount of equalization is established so that the state income for the relevant year, less the new loans that the state has taken, is determined on the basis of the final state accounts and that net sum of state income is multiplied by the factor of 0.45. This factor is the basis for equalization pursuant to Section 47 of the Self-Government Act and represents in part a historical trend in transfers over the state budget to the Åland Islands on the basis of Section 29 of the 1951 Self-Government Act, which were understood as a reflection of the financial needs of the self-governing entity. At that point, it was estimated that the share of the Åland Islands in the net state budget of Finland was 0.45 per cent. In addition, in the travaux preparatoires to the 1991 Act, an estimate from the end of the 1970s and the beginning of 1980s was included of how large the transfers from the Åland Islands to the state budget are in the form of taxes collected (at the time 0.48 %) and how much the Åland Islands should, as a consequence, be compensated in order to reach a balance in the transfers. The debate between the Åland Islands and mainland Finland has since been about the correctness of the figure of 0.45, but it appears that the factor of 0.45 is not patently incorrect, although economic fluctuations benefitting the Åland Islands and mainland Finland, respectively, may alternate. The equalization amount therefore represents compensation to the self-governing entity for the state functions it takes care of and the funding of which it otherwise would have to cover by raising taxes. The equalization amount introduces a stable income post into the budget of the self-governing entity, but at the same time, the annual equalization amount can fluctuate quite a lot. Moreover, the Government and the Legislative Assembly of the self-government entity do not have such financial instruments at their disposal by which they could themselves steer the economy of the Åland Islands by means of taxation decisions.
During the period 2006-2015, direct taxes were imposed in the Åland Islands at an annual average of altogether 71 M€ (81 M$). The total amount of indirect taxes and other income collected by the state from the Åland Islands is, however, very difficult to calculate. The Ministry of Finance calculates the amount of collected VAT in the Åland Islands to an annual average of 85.5 M€ (98 M$), while the Government of the self-governing entity estimates that this figure is some 20 M€ higher. The Ministry of Finance and Statistics Finland conclude that in 2014, the total tax income of the state from the Åland Islands amounted to 236.7 M€ (271.3 M$), which is 0.60 % of the total tax income, some 0.15 percentage points higher than the factor for determining the equalization amount. This circumstance has an impact on the so-called tax retribution (see below, section 4).
As concerns the equalization amount, the Government Bill no. 73/1990 concerning the 1991 Self-Government Act recognizes a direct link between the equalization amount or at least the need to increase it and the right of the self-governing entity to use for its purposes various tax revenue collected in the Åland Islands. The Government of Finland is of the opinion that the point of departure for the possibility to increase the equalization amount is constituted by the fundamental obligations that Finland has assumed through the 1920 Åland Islands Settlement, that is, maintenance of the language, culture and local habits of the territory. As a consequence, so the Government writes, it is the duty of the state to finance or to take appropriate measures if the core aims of self-government are endangered, that is, if situations arise where there is a risk that the position of the Swedish language and the culture of the Åland Islands might be upset. In addition to the fact that the equalization amount in Section 47(1) of the Self-Government Act has its basis in the tax provisions of the 1921 Åland Islands Settlement, there is hence also a duty to increase the amount with reference to the fact that reaching the aims of self-government due to greatly increased costs is connected to the general obligation originally found in the Åland Islands Settlement.
According to Section 47, the basis for equalisation shall be altered if the bases for the State final accounts change in a manner that has a considerable effect on the amount of equalization. According to Section 47(3), the basis for equalization shall be raised if (1) the expenditures of self-government entity have increased because administrative duties of the State have been transferred to the self-government entity, or because the entity by agreement with the State pursues in full or for a considerable part an activity that is in the interest of the State, (2) the realization of the purposes of autonomy causes substantial additional expenditures, or (3) other significant expenditures which have not been taken into account when enacting this Act are caused to the self-governing entity’s administration. Conversely, the basis for equalization shall be lowered if administrative duties of the self-governing entity have been transferred to the State and the expenditures of the entity have hence decreased.
The alteration of the basis for equalization shall be provided by an Act of Parliament enacted with the consent of the Legislative Assembly of the Åland Islands. So far, the amount of equalization has not, however, been changed, one reason being that any alteration has to be agreed to by both parties to the arrangement. If one of the parties is in opposition to the alteration, it will not succeed. The Government of Finland proposed to the Parliament in Government Bill 15/2017 that a temporary reduction of the equalization amount would be effectuated in order for the equalization amount not to be hiked as a consequence of a pending reform of regional administration in mainland Finland that would affect the tax collection through the state income tax. However, the proposal did not comply with the grounds for lowering the equalization amount (and there would also have been opposition from the Åland Islands because the proposal touched upon the Ålandic legislative competences in the areas of municipal law and municipal taxation). Therefore, after a discussion in the Constitutional Committee of the Parliament, the Government withdrew its proposal and settled for another kind of solution where the tax payers of the Åland Islands get a substantial tax deduction. As a consequence, the amount of state income taxes collected in the Åland Islands will remain the same as until now.
The decision-making on the economic relationship between the self-governing entity and the state of Finland is carried out by the Åland Delegation, created under Section 5 of the Self-Government Act as a joint body for the self-governing entity and the state of Finland. The Åland Islands is actually bi-partisan body with two members representing the Legislative Assembly of the Åland Islands and two members representing the Government of Finland. The Governor of the Åland Islands, who in principle is a representative of the state of Finland but appointed by the President of Finland in agreement of the Legislative Assembly, is the chairperson of the Åland Delegation. The Åland Delegation carries out the economic equalization between the self-governing entity and the state of Finland under Section 45 and determines the advance payments, as described above. It also determines the tax retribution under Section 49. It decides on the extraordinary grants under Section 48 and awards possible subsidies for particular reasons under Section 51 of the Self-Government Act, dealt with below. The Delegation also provides the conditions for the use of the extraordinary grant and the subsidies for special reasons. The determination of the equalization and the tax retribution are technical measures, but as concerns the extraordinary grant and the subsidy for particular reasons, the task of the Åland Delegation is to decide whether the applications shall be granted. All economic decisions made by the Åland Delegation require the confirmation of the President of the Republic.
III. Other transfers over the State budget and other sources of revenue
While the equalization amount is the main source of revenue of the budget of the self-governing entity, also other sources of revenue exist. One of the avenues to increased transfer over the state budget is based on the economic performance of the Åland Islands, as reflected in the collection of state taxes in the Åland Islands. When the collection of direct taxes is better than the national average, a transfer to the budget of the self-governing entity will take place on the basis of Section 49 of the Self-Government Act by way of a tax retribution: “If the income and property tax levied in Åland during a fiscal year exceeds 0.5 per cent of the corresponding tax in the entire country, the excess shall be retributed to Åland (tax retribution).” In this way, it is guaranteed that the money raised in the Åland Islands by way of state taxation can be contributing to the facilitation of economic activities in the Åland Islands. It also means that all state tax revenue from the Åland Islands is used for public purposes in the Åland Islands as a compensation for the fact that the Åland Islands does not have a broader tax competence, which as a consequence means that only a part of such revenue is used for funding state activities in mainland Finland. This system fulfils therefore to some extent the function of possessing tax powers proper by the self-governing entity, because the underlying idea for the tax retribution is to create a reason for the authorities of the self-governing entity to carry out such an economic policy that leads to increased tax revenue.
As mentioned above, the amount of state taxes collected from the Åland Islands has been 0.60 % of the taxes collected nationally. Therefore, the tax retribution has been triggered regularly each year since the entering into force of the current Self-Government Act. During the taxation years of 2006-2015, the tax retribution amounted to an annual average of 14.4 M€ (16.5 M$), paid to the budget of the self-governing entity during the period of 2008-2017. For instance in 2009, the tax retribution paid back over the state budget to the budget of the self-governing entity was 24 M€, which is around 15 per cent of the equalization amount of 164 M€ and around 8 per cent of the total budget on 305 M€ (349 M$) of the self-governing entity.More recently, the tax retribution has been decreasing. This constant excess of the coefficient of 0.45 for the equalization amount has actually sparked a discussion of the need to consider the equalization coefficient and the coefficient for the tax retribution as one entity with a view to reform the fiscal system between the state of Finland and the self-governing entity. This may be a consequence of the fact that the economic development in the Åland Islands is not always in sync with the economic development in mainland Finland.
In addition to the above-mentioned transfers on mathematical grounds over the state budget (the equalization amount and the tax retribution), two more discretionary grants are defined in the Self-Government Act. According to Section 51 “Åland shall be subsidised from State funds in order to 1) prevent or remove substantial economic disorders that affect especially Åland and 2) cover the costs of a natural disaster, nuclear accident, oil spill or another comparable incident, unless the costs are justifiably to be borne by Åland”. No such calamities have occurred while the 1991 Self-Government Act has been in force, and therefore, no subsidies of the kind have been paid to the self-governing entity. On the basis of Section 48 of the Self-Government act, “[a]n extraordinary grant may be given on the proposition of the Legislative Assembly of the Åland Islands for particularly great non-recurring expenditures that may not justifiably be expected to be incorporated in the budget of Åland. An extraordinary grant may only be given for purposes within the competence of Åland.” Such extraordinary grants are rare, and three examples are known, from the area of projects on the supply of electricity in and to the Åland Islands.
Gaming is a legislative competence of the Legislative Assembly of the Åland Islands under Section 18, para. 6, and the aim of the legislation of Åland concerning gaming is to maintain a monopoly in the Åland Islands by means of the Slot Machine Association of the Åland Islands. The Slot Machine Association is a statutory association and it is active outside of the territory of the Åland Islands on those passenger vessels that are registered in the Ålandic sub-register of the Finnish shipping register, and also in gaming over the internet. This means that revenue of the Association is created from a larger customer base than just the inhabitants of the Åland Islands. The general aim of the activity is to control gaming and to use the proceeds for social and societal needs in the Åland Islands. In 2017, the Slot Machine Association returned some 9 M€ (10.3 M$) to the budget of the self-governing entity, used in part for the building of a geriatric hospital. The tax on gaming is a legislative competence of the Parliament of Finland (although contested by the Åland Islands), but on the basis of a political compromise between the two parties (and perhaps also because of the principle that tax revenue accrued from the Åland Islands is returned to the Åland Islands), a transfer takes place. In 2017, the transfer from the state to the budget of the self-governing entity of lottery tax was 11.4 M€ (13 M$), which was 4.2 per cent of the total revenue of the self-government of the self-governing entity.
Section 50 of the Self-Government Act establishes the right of the self-governing entity to issue bond loans and to take up other loans to cover its financial needs. However, the provision is in no active use, and therefore, no public borrowing appears to drive the public economy of Åland, because the budget of the self-governing entity is virtually loan-free. For instance, in the budget for the year 2018, as decided by the Legislative Assembly in December 2017, the Government of the self-governing entity proposed that there is no need to take up loans in 2018. This stands in marked contrast to almost all States and sub-state entities in Europe and, indeed, in the world, including Puerto Rico, where the economies of public authorities are often loan-driven to an excessive degree. The 16 municipalities of Åland display a somewhat more varied picture: according to statistical information from 2015, some municipalities have virtually no loans at all, while some Ålandic municipalities have a high burden of loans that may exceed the national average twice or even three times over. This is, in part, a reason for a pending reform of the municipal structure by means of mergers of the 16 municipalities into perhaps four larger municipalities. The budget of the self-governing entity also contains a budget line for subsidies to the municipalities of the Åland Islands for public tasks that they carry out on the basis of legislation enacted by the Legislative Assembly.
IV. Spending Powers
In contrast to the income of the budget of the self-governing entity, the spending side of the budget is much less affected by rules established in the Self-Government Act. In principle, the Legislative Assembly is, when adopting the budget on the basis of Section 44(1), at liberty to make any allocation decisions it sees fit under rules established in an act of Åland. The state authorities of mainland Finland have no competence to interfere in the budgetary processes, and the State Audit Office has no power to audit the accounts of the self-governing entity (see below).
The only explicit statutory limitation placed on the budgetary powers of the self-governing entity is established in Section 44(2), according to which the Legislative Assembly shall, when confirming a budget, strive to ensure at least the same level of social benefits for the population of Åland as is enjoyed by the population in mainland Finland. This provision was preceded by the Act of Åland on Certain Fundamentals about the Economy of the Åland Islands (SoÅ 22/1983), adopted in a constitutional order by a two-thirds qualified majority by the Legislative Assembly. This Ålandic Act guarantees the same level of social benefits to the inhabitants of the Åland Islands as for those living in mainland Finland, as well as corresponding levels in the areas of special subsidies to business activities in less developed areas and traffic in the archipelago as well as subsidies and loans to municipalities.
It is evident that in practice, the level of social benefits of the inhabitants of the Åland Islands have constantly been at least at par with those of the inhabitants of mainland Finland, and they could have been so even without the provision in the Self-Government Act. However, it appears that, for instance, the budget for 2018, adopted by the Legislative Assembly, does not make any particular analysis of the levels of social benefits in the Åland Islands and Finland or even any reference to Section 44(2) of the Self-Government Act. It is therefore not immediately clear how Section 44(2) is implemented, but it appears that there is no systematic review of the application of the provision in relation to each budget decided by the Legislative Assembly. This provision may have had some implicit effect when, in the budget for 2017, certain austerity measures were taken, but it was decided that such measures would not be implemented in relation to social benefits.
However, it should also be noted that the Constitution of Finland requires in Section 19 on the right to social security that public authorities take action to ensure the individual’s right to receive indispensable subsistence and care, which in practice translates in the Åland Islands as in mainland Finland into a duty of municipalities to cater for the immediate needs. Also, the Legislative Assembly, in the same manner as the Parliament of Finland, shall guarantee to everyone by Act the right to basic subsistence in the event of unemployment, illness, and disability and during old age as well as at the birth of a child or the loss of a provider. The law-maker should also cater for adequate social, health, and medical services and promote the health of the population. In the Åland Islands, health care is a function provided by the authorities of the self-governing entity. Moreover, the public authorities shall support families and others responsible for providing for children so that they have the ability to ensure the well-being and personal development of the children. The public authorities shall also promote the right of everyone to housing and the opportunity to arrange their own housing. Most of these matters outlined in the Constitution fall within the competence of the Legislative Assembly of the Åland Islands and require that action be taken by means of legislation for the Åland Islands. In addition to Section 19 of the Constitution, there are other provisions in the Constitution that require fulfillment of constitutional rights of individuals by means of legislation and, as a consequence, action by public authorities when implementing such law, which means that the budget of the self-governing entity needs to cover such expenses, too. Educational rights guaranteed in Section 16 of the Constitution are typically an area of public activity that would be covered out of the budget of the self-governing entity by means of allocations to primary and secondary education, high-school, pre-school activities, and vocational education.
An implicit steering effect on the budget of the self-governing entity is perhaps caused by the fact that the legislative powers allocated to the Legislative Assembly in Section 18 of the Self-Government Act are predominantly in the area of public law, as the concept is understood within continental European law. The Legislative Assembly is competent in such areas as health, social services, education, environment and the police, all of which require explicit administrative implementation through agencies and civil servants. All these functions that the Legislative Assembly is competent to legislate on require relatively significant public funding, and as a consequence, the public sector of the Åland Islands have been larger than that of mainland Finland or of Sweden. However, it appears that in 2018, the share of the public sector in Åland of the GDP of Åland is more or less at the same level as in Finland. By implication, those legislative powers that the Parliament of Finland is in charge of in the territory of the Åland Islands are predominantly of a private law nature, requiring less infrastructure in the public administration.
A case in point concerning the impact of the distribution of legislative competences is an Opinion of the Supreme Court issued as a resolution of an administrative dispute between the self-governing entity and the Ministry of Agriculture and Forestry of mainland Finland on the basis of Section 60 of the Self-Government Act. The Legislative Assembly of the Åland Islands has generally the competence to regulate agriculture and different forms of subsidies to agriculture on the basis of Section 18, para. 15 of the Self-Government Act, whereas the Parliament of Finland has the competence, on the basis of the relatively narrowly formulated exception to the main competence of Åland, to legislate on price competition of agricultural produce. The case dealt with the issue of whether measures during the years 2016 and 2017 on the basis of the Act on State Guarantees for Loans to Farms belong to the competence of the Legislative Assembly or to that of the national parliament. The Supreme Court was of the opinion that measures encompassed by the Act belong to the competence area of agriculture and forestry and steering of agricultural production and therefore to the legislative competence of the Legislative Assembly. Public authorities of the state of Finland were thus not competent in the matter. As a consequence, if there is a wish to implement similar measures in the Åland Islands, the Legislative Assembly should first legislate on the matter and after that, there should be preparedness to cover potential costs out of the budget of the self-governing entity. Because the legislative competence is on the Åland Islands, the law applicable in mainland Finland cannot be applied in the Åland Islands, and the authorities of mainland Finland lack material jurisdiction to grant state guarantees to such loans for farms in the Åland Islands. For this reason, there is also no reservation in the state budget of Finland for covering such state guarantees in the Åland Islands.
Public spending is controlled in the Åland Islands in the same way as in other parts of the European Union by the requirement that public procurement is carried out under principles and rules of the Directive 2014/24/EU of the European Parliament and of the Council of 26 February 2014 on public procurement. As a consequence, the Legislative Assembly has enacted a Public Procurement Act within the framework of its competence under Section 18, paras. 1 and 4, on legislative powers on the organization, staffing and certain functions of public authorities in the territory of the Åland Islands. In compliance with the Directive, the Public Procurement Act of Åland aims at, inter alia, increasing efficiency in the use of public funds when procurement of good and services takes place in the open market. The interpretation of the competence line concerning whether public procurement is administrative procedure within the competence of the Legislative Assembly or competition law within the competence of the Parliament of Finland was first raised in an Opinion from 1994, in which public procurement was deemed to be entirely within the competence of the Åland Islands. In 2007, when the Legislative Assembly passed new legislation on this matter, a majority of the Supreme Court held that the dimension of competition law in the legislation had evolved in such a manner that the legislation was now to a great extent within the legislative competence of the Parliament of Finland on the basis of Section 27(10) of the Self-Government Act (competition law). The reason may have been that EU law on public procurement was increasingly emphasizing the competition aspect, which would imply that the leading features of public procurement law were increasingly situated in the area of competition law. The President nevertheless sided with the minority of the Supreme Court, which thought the legislation was still chiefly about administrative procedure and as such within Ålandic competence on the basis of Section 18(1 and 4). As a consequence, the Ålandic law was not vetoed by the President, but could enter into force.
In 2017, further legislation in the area of public procurement was passed by the Legislative Assembly, but this time the Supreme Court held that the legislation was within the competence of the Legislative Assembly. However, the Court reiterated its ”dictum” from the Opinion of 2007 that it may become necessary to re-evaluate a competence issue. The Court concluded that although the regulation of public procurement had evolved further during the preceding years, the dimensions of competition law had not changed so significantly that there was reason to re-consider legislative competence. As a consequence, the Supreme Court was of the opinion that previous praxis, including the decision of the President, did not give reason to re-consider legislative competence in this case and that the previous line of interpretation would be followed under the present circumstances.
The above Opinion appears, however, to open up the possibility of reconsideration of the competence line in these matters so that legislative competence could shift to the Parliament of Finland, should public procurement law, in particular that of the EU, evolve further into the area of competition law and away from the area of administrative procedure. Such a development would upset the traditional view about the fields of competences. It should not be so that an interpretation of what the focus of EU law is has an impact on which side of the competence line public procurement is placed, the Legislative Assembly for public authorities of the Åland Islands or Parliament of Finland for competition law.
Principles concerning auditing of the economic management of the self-governing entity confirm the broad autonomy of the Åland Islands: the State Audit Office, which is functioning under the authority of the Parliament of Finland and is empowered generally to oversee any public or private spending that concerns funds allocated over the state budget, is not empowered to exercise its control powers to the funds that are paid to the budget of the self-governing entity, for instance, as the equalization amount. This budgetary independence of the Åland Islands in respect of state funds transferred as a lump sum does not mean that there is no control: there is a separate Audit Office attached to the Legislative Assembly.
V. Impact of EU law
When Finland became a Member State of the European Union in 1995, the accession treaty was negotiated by the state of Finland with two options concerning the Åland Islands. The first option was that the Åland Islands to join the EU together with Finland and, at the same time, enjoy some derogations of the kind that a third state has, while the second option was that the Åland Islands would remain entirely outside of the EU, in a position as a third state (although remaining part of Finland). The Åland Islands decided to choose the first option, which is recorded in Protocol 2 on Åland as part of the Finnish accession treaty and thus as part of the primary law of the EU. The Protocol takes into account the special position of the Åland Islands in public international law and grants derogations within the areas of the right to real property, the right of establishment and the right to provide services by persons who do not enjoy the regional citizenship of the Åland Islands.
Article 2 of the Protocol defines the Åland Islands as a third territory, as defined in Article 3 (1) third indent of Council Directive 77/388/EEC as amended, and as a national territory falling outside the field of application of the excise harmonization directives as defined in Article 2 of Council Directive 92/12/EEC. On the basis of the provision, the Åland Islands shall be excluded from the territorial application of the provisions of the EU law in the fields of harmonization of the laws of the Member States on turnover taxes and on excise duties and other forms of indirect taxation. While turnover taxes and excise duties are generally within the legislative competences of the Parliament of Finland, the Legislative Assembly has the possibility to legislate on some duties. This derogation has a particular economic aim, because it is aimed at maintaining a viable local economy in the Åland Islands, an economy that is very much dependent on shipping and tourism, including the ferry-boats traveling between Finland and Sweden. It is possible on the basis of the Protocol to maintain tax-free sale of goods on the basis of the status of the Åland Islands as a third country. Shipping produces income for persons working on the ferry-boats and for the shipping companies, income that is taxable in municipal taxation. The state income tax is also benefitting from the taxable incomes, because the revenue accrued from the Åland Islands is maintained at a relatively high level as long as those economic activities that benefit from the Protocol are doing well. However, Protocol 2 does not have any direct impact on the provisions on economic relationships between the self-governing entity and the state of Finland.
As stated above, the European Union is mainly active in relation to its Member States, not in relation to their sub-state entities. However, during the last decade, the application of EU:s state aid provisions at sub-state level have sparked the question of whether there exist some space for sub-state entities to run their own state-aid schemes. The Court of Justice of the European Union (CJEU) has developed a set of criteria for the purposes of determining whether tax decisions made by sub-state entities are selective, in which case they are forbidden under the state aid rules, or non-selective, in which case they are permissible. In a first case, C-88/03 Portuguese Republic v Commission of the European Communities, the Court found that the Autonomous Region of the Azores, which is part of Portugal, was not autonomous enough to qualify for a non-selective and thus permissible state aid scheme. The Court pointed out that:
[I]n order that a decision taken in such circumstances can be regarded as having been adopted in the exercise of sufficiently autonomous powers, that decision must, first of all, have been taken by a regional or local authority which has, from a constitutional point of view, a political and administrative status separate from that of the central government. Next, it must have been adopted without the central government being able to directly intervene as regards its content. Finally, the financial consequences of a reduction of the national tax rate for undertakings in the region must not be offset by aid or subsidies from other regions or central government.
This set of criteria was refined in a subsequent case (joined cases C-428/06 to C-434/06, Unión General de Trabajadores de La Rioja (UGT-Rioja) and Others v Juntas Generales del Territorio Histórico de Vizcaya and Others), involving a preliminary ruling to a Spanish court. In this case, the CJEU held that the three criteria comprise of institutional, procedural, and economic autonomy. It seems on the basis of EU law that the state aid rules distinguish between sub-state entities which are sufficiently autonomous for the purposes of non-selective tax schemes, on the one hand, and not sufficiently autonomous, on the other. How would this categorisation play out in relation to the self-governing entity of the Åland Islands?
The EU law definition of sufficient autonomy in the area of state aid rules is a restrictive one, but important in directing our attention towards the issue of funding of the sub-state entity. It seems clear that the self-governing entity fulfils the institutional and procedural aspects of the definition of sufficient autonomy: the self-governing entity is a legal entity separate from the state of Finland. In addition, because the legislative competence of the Legislative Assembly is exclusive in relation to the legislative competence of the Parliament of Finland and because administrative competence follows from legislative competence, it is clear that state authorities cannot intervene in decisions, legislative or executive, made by the self-governing entity.
The final question here is then whether the financial consequences of a reduction of the national tax rate for undertakings in the Åland Islands are or could be offset by aid or subsidies from other regions or central government. As explained above in relation to the pending reform of regional administration in mainland Finland, a re-organisation of tax collection by shifting tax from municipal tax to state income tax would have resulted in an unjustified increase in the equalization amount. Therefore, to keep the tax revenue collected in the Åland Islands and thus the equalisation amount at the ordinary level, the Government of Finland proposed that a particular tax deduction be applied in the Åland Islands that reduces the state income tax collected in the Åland Islands. This means that even a further decrease in state income tax would result in a corresponding decrease of the equalisation amount, while an increase in the revenue collected by national income tax would increase the equalization amount on the basis of the technical formula. However, within this general system of equalisation, including the possibility under Section 47 to alter the basis for equalisation because of measures in the Åland Islands and the system of tax retribution, it would generally not be possible to expect particular budgetary transfers from the national budget to the budget of the self-governing entity to fill financial gaps in the budget of the self-governing entity caused by reduction in the national tax.
At the same time, however, the Self-Government Act makes possible two different discretionary grants. Under Section 51, as explained above, there is one potential reason for a subsidy over the budget of Finland to the budget of the self-governing entity, namely to prevent or remove substantial economic disorders that affect especially Åland. A reduction of the national tax rate for undertakings in the Åland Islands would not constitute a reason to invoke Section 51. This conclusion is supported by praxis concerning the provision, as no subsidies of the kind have ever been paid to the self-governing entity. On the basis of Section 48 of the Self-Government Act, “[a]n extraordinary grant may be given on the proposition of the Legislative Assembly of the Åland Islands for particularly great non-recurring expenditures that may not justifiably be expected to be incorporated in the budget of Åland. An extraordinary grant may only be given for purposes within the competence of Åland.” Because the state income tax is not within the competence of the Legislative Assembly, a reduction of the national tax rate could not justify the use of Section 48 as a basis for a decision on an extraordinary grant from the budget of the state of Finland to the budget of the self-governing entity. Again, praxis supports this conclusion, because such extraordinary grants are rare, and only three examples are known, such as the building of a vocational school in hotel and restaurant activities and an electricity project in the Åland Islands.
As a conclusion, it appears that the self-governing entity is sufficiently autonomous under EU law to run its own non-selective state aid schemes. It would not be possible to roll over effects of reduction of national tax rates in the Åland Islands via the state budget as impromptu transfers to the budget of the Åland Islands. Such schemes are currently in place within, for instance, agriculture and energy, all notified to the European Commission.
VI. Concluding remarks
The Åland Islands is one of the better off regions in Europe, at par with the region in Finland where the capital, Helsinki – Helsingfors, is situated. However, the GDP per capita is higher in the Åland Islands than in Finland generally and at par with Sweden: the GDP per capita of Åland was in 2015 around 35700 € (40919 $), while it was 31600 € (36620 $) in Finland and 35900 € (41149 $) in Sweden. Public entities, such as the self-governing entity of the Åland Islands and the municipalities of the Åland Islands, contribute within the public sector to the increase in the value of the GDP. However, in the main, the economic success of the Åland Islands is probably explained by the fact that the area also has a strong private sector, consisting of, inter alia, shipping, banking and insurance, and tourism, and also a strong tradition of entrepreneurship. Unemployment in the Åland Islands is lower than elsewhere in Finland, only 3.7 per cent.
Against this background, there may exist an answer to the chicken and egg problem of “which was first”. Was it so that the business environment generated economic activity or was it so that the self-governing entity that used its autonomous position to facilitate economy? The business environment and entrepreneurship probably come first, not the self-governing entity, although the latter is essential in facilitating economic activities. A variation of this question is whether the economy is good because of autonomy, or is autonomy good because of economy? The answer to both of the questions is probably yes, at the same time. It is evident that the self-governing entity does not have very much powers of taxation by which it could steer the economy of the Åland Islands, but in this fiscal context, the equalization amount may function as a “stability factor” with positive effects on the business environment.
The equalization amount coupled with the more or less constant tax retribution, a consequence of the higher revenue from state income tax than national average, cater for most of the income to the budget of the self-governing entity of the Åland Islands. The fiscal relationship between the self-governing entity and the state of Finland has made it possible to have a virtually loan-free economy of the self-governing entity. The municipalities in the Åland Islands get their revenue from municipal tax and from subsidies from the self-governing entity. The role of regional tax or administrative fees in the budget of the self-governing entity has been very limited. The apparent success of the economic formula in funding the self-governing entity has, in practice, resulted in a situation where the Government and the Legislative Assembly of the Åland Islands have not formally had to consider the requirement in Section 44(2) of the Self-Government Act that the social benefits in the Åland Islands would have to be at least at the same level as in mainland Finland. However, it can be assumed that such considerations are present when the annual budget of the self-governing entity is drawn up within the Government of the Åland Islands and debated and approved by the Legislative Assembly.
The particular position of the Åland Islands under EU law, with the exceptions as concerns the right of establishment, conveyance of real property and the application of indirect taxes helps maintain the business environment of the Åland Islands in the shape it had before EU-membership. However, at the same time, some criticism has been raised against the stifling effect of the exceptions concerning the right of establishment and the sale of real property on economic activities in the Åland Islands. Those exceptions constitute corner-stones of the self-government of the Åland Islands and contribute to the image of the self-governing entity as a strong autonomy. In fact, the autonomy of the Åland Islands appears to be so strong that it can, from a financial and fiscal perspective, be characterized as sufficiently autonomous under EU law to run its own non-selective state aid schemes.
Notas Al Calce
* Markku Suksi is Professor of Public Law at Åbo Akademi University (Finland), former director of the Institute for Human Rights and former Finnish E.MA National Director. He also was a member of the Editorial Committee of Mennesker&Rettigheter (Nordic Journal of Human Rights). Professor Suksi has published in the areas of fundamental rights, linguistic rights, territorial and non-territorial autonomy, constitutional law, administrative law, and comparative law. In 2015 he co-published Access to Information and Documents as a Human Right. Further, Prof. Dr. Suksi also has extensive experience in constitutional Law consultations and elections observation in countries as Hungary, Romania, Estonia and the Russian Federation.
 I am greatly indebted to Director Dan E. Eriksson and Senior Legal Counsel Niclas Slotte at the Government of the Åland Islands for valuable comments. All remaining errors in the text are to be attributed to me as the author of the article.
 In 2015, the share of the public sector of the Åland Islands of the GDP of Åland was around 20%, which is about the same as the share of the public sector of entire Finland of the GDP. Some 15-20 years before, the public sector of Åland was, however, somewhat larger than that of Finland (or Sweden).
 Because economy has not always been good in the Åland Islands, the Legislative Assembly enacted already in 1983 an Act about the guarantee of at least an equal level of benefits as in mainland Finland within social care, particular subsidies to various economic activities in underdeveloped areas and traffic in the archipelago. One part of this guarantee is now constituting sub-section 2 of Section 44 in the 1991 Self-Government Act.
 The term “Åland Islands” may cause confusion and therefore, in the main, when the public powers of the Åland Islands are dealt with, reference is made to the legal person that constitutes the self-governing entity in the Åland Islands. This public entity is thus separate from the state of Finland, but also from the municipalities in the Åland Islands, which are legal persons of their own, entitled to self-government under Section 121 of the Constitution of Finland. However, at the same time, the term “Åland Islands” is a reference to the archipelagic territory in the South-Western part of Finland.
 A reform of the structure of municipalities is pending in the Åland Islands and may result in the reduction of the number of municipalities from 16 to 4.
 However, the EU has a consultative body under the name of the Committee of Regions, where each Member State has delegations representing the regional (and local) level. Out of the 9 delegates from Finland, one is representing the Åland Islands, as determined in Section 59 e of the Self-Government Act.
 This 1921 Åland Islands Settlement is not a formal treaty of public international law. Instead, the State of Finland considers it as a unilateral commitment under customary international law that is still binding on Finland, although the League of Nations perished as a consequence of World War II. The 1921 Settlement should not be confused with the 1921 Åland Convention on the neutrality and demilitarization of the Åland Islands. On the Åland Islands Settlement, see Markku Suksi, Sub-State Governance through Territorial Autonomy 149-152 (2011).
 Such new provisions could be fashioned, e.g., in the manner outlined by the parliamentary committee for drafting a new Self-Government Act. SeeOikeusministeriö Justitieministeriet, Ålands självstyrelse i utveckling. Ålandskommitténs 2013 slutbetänkande 68-69 (33/2017).
 This section of the article is based on Markku Suksi, Stegvisa förändringar i Ålandsöverenskommelsens innehåll? – Ålandsöverenskommelsen förr och nu, in Oikeus kansainvälisessä maailmassa – Ilkka Saraviidan juhlakirja 271-308 (Markus Aarto & Markku Vartiainen eds., 2008).
 For interpretations of the Supreme Court concerning the legislative competence of various statutory fees and the issue of whether they are fees or taxes, see Markku Suksi, Ålands konstitution 215-221 (2005).
 For the different types of dues and fees that can be levied on the basis of Ålandic legislation, see , § F On taxes and fees, in Statute Book of the Åland Islands 199-205 (2017), www.regeringen.ax/sites/www.regeringen.ax/files/law/code/f_s199-224.pdf.
 Opinion of the Supreme Court no. 2498 of 7 November 1974; See also Suksi, supra note 10, at 217.
 For the different types of municipal tax, see § F On taxes and fees, in Statute Book of the Åland Islands 213-23 (2017), www.regeringen.ax/sites/www.regeringen.ax/files/law/code/f_s199-224.pdf.
 For the exercise of Ålandic tax competence in municipal taxation, including deductions, see Suksi, supra note 10, at 211-213.
 Because the state income tax is progressive, earners of high income pay a greater proportion in the proportional state income tax and a smaller proportion in the municipal tax, while earners of low income mainly pay municipal tax and only little state income tax.
 In this respect, it should be noted that although Protocol 2 concerning the Åland Islands to the Finnish EU Accession Treaty makes an exception for the Åland Islands concerning indirect taxes and thus creates the position for the Åland Islands of a third country in the EU as concerns indirect taxation, the legislation that constitutes the VAT belongs to the competence of the Parliament of Finland. The exemptions for the Åland Islands in respect of the VAT and the excise duties are based on an Act of the Parliament of Finland, Lag om undantag för landskapet Åland i fråga om mervärdesskatte- och accislagstiftningen (1266/1996), which implements the status of the Åland Islands as a third country.
 Oikeusministeriö Justitieministeriet, supra note 8 at 66.
 The deduction of the new state loans from the state income has been motivated by the fact that the Government of the Åland Islands can take up loans in its own name under Section 50 of the Self-Government Act.
 See Suksi, supra note 10, at 153.
 Oikeusministeriö Justitieministeriet, supra note 8 at 66.
 Regeringens proposition RP 15/2017 rd. till riksdagen med förslag till lagstiftning om inrättande av landskap och om en reform av ordnandet av social- och hälsovården samt till lämnande av underrättelse enligt artikel 12 och 13 i Europeiska stadgan om lokal självstyrelse.
 Regeringens proposition RP 71/2017 rd. till riksdagen om komplettering av regeringens proposition (RP 15/2017 rd) med förslag till lagstiftning om inrättande av landskap och om en reform av ordnandet av social- och hälsovården samt till lämnande av underrättelse enligt artikel 12 och 13 i Europeiska stadgan om lokal självstyrelse i fråga om de bestämmelser som gäller Ålands finansiella ställning; See also Opinion of the Constitutional Committee No. 26/2017, pp. 73-75.
 For the decision concerning economic equalization of the year 2017, seehttps://www.ambetsverket.ax/sites/www.ambetsverket.ax/files/ad_arenden/d_10_16_04_2_beslut_130918_avrakning_2017.pdf (accessed on 5 December 2018). The calculation of the equalization amount resulted in the conclusion that too much had been paid to the Åland Islands in advance payments and therefore, altogether 419 653.14 € (419 653.14 $) had to be paid back to the state. For the Åland Delegation’s determination of the equalization amount and tax retribution between 1993 and 2013, see https://www.ambetsverket.ax/alandsdelegationen/klumpsumma-och-flitpeng-1993-2013 (accessed on 5 December 2018).
 Oikeusministeriö Justitieministeriet, supra note 8 at 67.
 See also Valtiovarainministeriö, Valtion tulojen budjetoinnin muutoksia Ahvenanmaan tasoitusmaksun näkökulmasta 19-20 (26/2012).
 Oikeusministeriö Justitieministeriet, supra note 8 at 66.
 See Landskapsregeringens berättelse 232-33 (2010).
 In 2017, the growth rate of the GDP of Finland was up to 3 per cent, but in the Åland Islands only 0.5 per cent. See ÅSUB, Ekonomisk översikt hösten 2017 (2017), https://www.asub.ax/sv/statistik/ekonomisk-oversikt-hosten-2017). See also Ålands landskapsregering, Förslag till budget för landskapet Åland 10 (2019), https://www.regeringen.ax/sites/www.regeringen.ax/files/attachments/page/budget_for_landskapet_aland_2019_slutlig_for_tryckning_25.10.2018.pdf.
 Valtiovarainministeriö, supra note 25 at 20.
 Valtiovarainministeriö, supra note 25 at 20; Oikeusministeriö Justitieministeriet, supra note 8 at 67.
 The use of internet to provide gaming opportunities means that in principle, the Slot Machine Association can market Ålandic games in Finnish for potential customers in mainland Finland, where the Finnish Slot Machine Association has monopoly on the basis of the legislative competence of the Parliament of Finland. This led to a dispute of a constitutional kind, where the Constitutional Committee of the Parliament, which in principle is the authoritative interpreter of the constitutionality of legislative proposals, including issues of legislative competence of the Parliament within the Self-Government Act, and the Supreme Court of Finland, which is the body in charge of competence control concerning the enactments of the Legislative Assembly of the Åland Islands, stood against each other. It seems that the Supreme Court had the last word in this very particular setting, where each body of interpretation tries to interpret its list of competences within the same Self-Government Act. For an analysis of the constitutional situation, see Suksi, supra note 7, at 310-311.
 See Ålands landskapsregering, Årsredovisning 2017 – Landskapet Ålands förvaltning och ekonomi 240 (2017),
 Id. at 205.
 Ålands landskapsregering, Budget för landskapet Åland 29 (109/2017), available at https://www.regeringen.ax/sites/www.regeringen.ax/files/attachments/page/allm_mot_o_budgetforslag_med_fnu_slutlig_for_landskapet_aland_2018_2018-05-03_074019.pdf (“Med beaktande av ovanstående bedömer landskapsregeringen att det inte finns behov av låntagning under år 2018.”).
 In many cases, the EU Member States exceed the reference values established in the EU treaties, namely that the public sector deficit of the GDP should not exceed 3 % and that the gross debt of the public sector should not exceed 60 %.
 ÅSUB, Kommunernas bokslut 2015, preliminära uppgifter (2015), https://www.asub.ax/sv/statistik/kommunernas-bokslut-2015-preliminara-uppgifter.
 The self-governing entity of the Åland Islands is also a legal person, and as provided in Section 66 of the Self-Government Act, this legal entity shall have the same right of exemption from taxes and of comparable benefits as the State.
 Ålands landskapsregering, supra note 34 (It is also the case with the budgets for 2016, 2015, 2014, 2013, 2012, and 2011 that there is no consideration of Section 44(2). The same is true for the budget proposal for 2019: there is no consideration of Section 44(2) of the Self-Government Act. However, in 2012, one representative in the Legislative Assembly raised the issue of securing at least the same level of social benefits in the Åland Islands as are available in mainland Finland.); See Ålands Lagting, Minst samma sociala förmåner som i riket, ändring av allmänna motiveringen (FM 2/2010-2011), https://www.lagtinget.ax/arenden/minst-samma-sociala-formaner-riket-andring-allmanna-motiveringen-13547/32785.
 Ålands landskapsregering, supra note.
 Opinion of the Supreme Court 2017:48 (Dnr H2016/171 of 29 June 2017).
 See Opinion of the Supreme Court, 12 September 2017 (Dnr OH2017/134).
 Opinion of the Supreme Court, 2 July 2007 (Dnr OH2007/75).
 If it has an impact, then the EU law is a cause for competence leakage from Åland to Finland which is similar to the problems experienced on the basis of the 1920 Self-Government Act, when the exercise of treaty powers by the State of Finland determined that material legislation would be the competence of the Parliament, not of the Legislative Assembly of the Åland Islands; See Suksi, supra note 7, at 296.
 Government Bill 73/1990 concerning the 1991 Self-Government Act, p. 53; Suksi, supra note 10, at 161.
 See Treaty on the Functioning of the European Union art. 355(4), Mar. 25, 1957, C;2016:202:TOC (“4. The provisions of the Treaties shall apply to the Åland Islands in accordance with the provisions set out in Protocol 2 to the Act concerning the conditions of accession of the Republic of Austria, the Republic of Finland and the Kingdom of Sweden.”).
 The exemptions for the Åland Islands in respect of the VAT and the excise duties are based on an Act of the Parliament of Finland, Lag om undantag för landskapet Åland i fråga om mervärdesskatte- och accislagstiftningen (1266/1996), which implements the status of the Åland Islands as a third country.
 Portuguese Republic v. Commission of the European Communities, Case No. C-88/03, Judgement (E.C.J., Sept. 6, 2006) (action for annulment).
 Id. ¶ 67 (This definition of sufficient autonomy was based on the Opinion of Advocate General Geelhoed, delivered for the resolution of the case on 20 October 2005.), in ¶ 54 of this Opinion, the Advocate General meant by a “truly autonomous” entity one which is institutionally, procedurally and economically autonomous. It seems on the basis of the case that the Azores fulfilled the institutional and procedural criteria, but failed to meet the economic criterion, because Azores did not have “control of both revenue and expenditure”, as the matter is defined in joined cases Unión General de Trabajadores de La Rioja (UGT-Rioja) and Others v Juntas Generales del Territorio Histórico de Vizcaya and Others, Case No. C-428/06 to C-434/06, ¶ 67 (E.C.J., May 8, 2008).
 Unión General de Trabajadores de La Rioja (UGT-Rioja) and Others v Juntas Generales del Territorio Histórico de Vizcaya and Others, Case No. C-428/06 to C-434/06 (E.C.J., Sept. 11, 2008) (preliminary ruling).
 Id. ¶ 87 (“In that regard, it is apparent from an examination of the Constitution, the Statute of Autonomy and the Economic Agreement that infra-State bodies such as the Historical Territories and the Autonomous Community of the Basque Country, since they have a political and administrative status which is distinct from that of central government, satisfy the institutional autonomy criterion.”).
 Id. ¶ 95 (“As is apparent from paragraph 67 of Portugal v Commission, in order to be adopted in the exercise of powers which are sufficiently autonomous, a decision of an infra-State authority must have been taken without the central government being able directly to intervene as regards its content.”).
 Id. ¶ 123 (“As is apparent from paragraph 67 of Portugal v Commission, one condition for an infra-state body to enjoy economic and financial autonomy is that the financial consequences of a reduction of the national tax rate for undertakings in the region must not be offset by aid or subsidies from other regions or central government.”); See also European Commission v Hansestadt Lübeck, Case No. C-524/14 P (C.J.E.U., Dic. 21, 2016) (the court concluded that the creation by the Airport of Lübeck, under its own authority and on the basis of a provision in the Act on Air Traffic Licensing Rules, of a scale of airport fees applicable to that airport was not a selective measure, because the fees applied in a non-discriminatory way to all those airlines that were using Lübeck airport. The airport fees were thus non-selective and therefore not forbidden state aid.).
 Suksi, supra note 7, at 297.
 The proposal mirrors the rule that legislative competence belongs to the Legislative Assembly: competence in the area of municipal taxation should not be affected by legislative reform that affects mainland Finland only; See Perustuslakivaliokunnan Lausunto, No. 26/2017, 75 (2017); The reform in mainland Finland does not alter the tasks of the municipalities in the Åland Islands, which means that their funding needs remain unchanged. The unjustified increase in the equalization amount would, if the plan had gone forward, have been the result of the increase in the state taxes in the entire country.
 Oikeusministeriö Justitieministeriet, supra note 8 at 67; See also Suksi, supra note 7, at 166.
 An interesting episode involving subsidies to production of electricity by renewable sources of energy was in the making during the past decade, but the arrangement never entered into force in the form intended. However, if it had entered into force, the conclusion the existence of sufficient autonomy for the self-governing entity might be different. Perustuslakivaliokunnan Lausunto, Hallituksen esitys laiksi uusiutuvilla energia-lähteillä tuotetun sähkön tuotantotuesta, No. 37/2010 (2010), https://www.eduskunta.fi/FI/vaski/Lausunto/Documents/pevl_37+2010.pdf (the Parliament of Finland cannot unilaterally regulate the granting of subsidies to electricity producers in the Åland Islands, but that could be done if the authorities of mainland Finland and the self-governing entity agree to create a joint system for subsidies on the basis of input of renewable energy to the grid. At the same time, the Constitutional Committee was of the opinion that the Self-Government Act does not create obstacles for paying subsidies to power stations in the Åland Islands.); Ålandic legislation about such subsidies was enacted in 2013 (Act N:o 2013:31). The national interest behind such a system was to involve the Åland Islands in the national fulfilment of the EU-target 20-20-20 by the year 2020. In the beginning of 2015, the Parliament adopted an Act (759/2015) that authorized the state to participate in the funding of three identified projects after that the Constitutional Committee had concluded that the proposed act does not fall within the legislative jurisdiction of the Legislative Assembly. A joint system of subsidies was designed by the two parties. As a consequence, the Legislative Assembly enacted on 29 April 2015 an Ålandic Act (2016:37) that brought into force the 2010 in the Åland Islands the act of mainland Finland about the subsidy system, at the same time as its own legislation, enacted in 2013, about subsidies to electricity production through renewable sources was in force. The Supreme Court concluded in its Opinion of 26 August 2015 that the legislative competence concerning the right of establishment and the protection of nature and environment is with the Legislative Assembly and that the Ålandic legislation only implemented the legislation of mainland Finland that was enacted back in 2010. This arrangement was labeled as a new type of cooperation between the self-governing entity and mainland Finland within the area of legislation. The Act of Parliament from 2015 should have been brought into force by means of a Decree of the Government of Finland, pending notification with the European Commission and its approval. However, to date, no such Government Decree has been issued, and on 5 February 2016, the Government of Finland informed the Government of the self-governing entity that mainland Finland cannot participate in subsidizing electricity production by means of renewable sources. This meant that mainland Finland had departed from the agreement and led to the revocation by the Legislative Assembly of the Ålandic Act of 29 April 2015 on the day it would enter into force. The revocation Act (2016:38) was adopted on 18 April 2016, and by its entering into force, the entire arrangement was cancelled. The Legislative Assembly adopted in 2016 additional provisions of its own on subsidies to electricity production by renewable sources (2016:51) in order to comply with the EU targets, added to the Ålandic Act of 2013. Because subsidies in the Åland Islands to production of electricity by means of renewable sources is, as concluded by the Supreme Court, entirely within the competence of the Legislative Assembly, whereby also the possible duty to legislate is with the Legislative Assembly, a joint arrangement of the kind agreed between the self-governing entity and the state of Finland would actually have had the effect of circumventing the fiscal system established in Sections 45 through 47 of the Self-Government Act: subsidies to electricity production that should be paid out of the budget of the self-governing entity would have been paid directly from the budget of the state to the three windmill projects in the Åland Islands. As a consequence, the budget of the Åland Islands could have allocated resources to other objectives. It is another matter that the Act of 2015 by the Parliament of Finland, mentioning in its appendix three windmill projects entitled to subsidies, would probably have violated EU rules about state aid, because the intended state aid was selective.
 European Commission, GDP at regional level, Eurostat (2019), https://ec.europa.eu/eurostat/statistics-explained/index.php?title=GDP_at_regional_level.
 ÅSUB, Inkomstfördelning och välfärd 2017, Översikter och indikatorer 2017:6 (2017), https://www.asub.ax/sv/statistik/inkomstfordelning-och-valfard-2017; See also ÅSUB, Åland in figures 2018 (2018), https://www.asub.ax/sites/www.asub.ax/files/attachments/page/alsiff18_en.pdf.
 Ålands landskapsregering, Förslag till budget för landskapet Åland 2019, 10 (2019), https://www.regeringen.ax/sites/www.regeringen.ax/files/attachments/page/budget_for_landskapet_aland_2019_slutlig_for_tryckning_25.10.2018.pdf.
 According to one interlocutor, the strong entrepreneurship, based originally on the old farming and fishing communities, and the self-government have grown into a symbiotic interrelationship that facilitates a strong economic development.