1
Fiscal decentralization
in the Czech Republic
Robert Jahoda
Email: jahoda@econ.muni.cz
Framework
1. Public administration reform ­ David
2. Local Governments finances
1. Regions
2. Municipalities
3. Building fiscal capacities - municipalities
4. Problems
Comparison of LG's revenues
in 2000 [in % of GDP]
12,24,72,15,1 OECD
30,6122,416,2DK
20,43,91,215,2Sw
15,26,13,35,8Po
14,29,92,91,4NL
11,26,42,72Hu
11,23,11,36,7CR 2005
10,47,31,61,5UK
9,63,41,94,3Fr
9,22,32,04,8CR
2,70,50,81,4SK
totalgrantsnontaxtax
Public sector expenditures
(mld. Kč)
192,7214,3195,5164147,1136,3129,2122,8110,392,6Municipalities
91,335,814,4Regional offices
20,319,819,420,921,620,819,5District offices
801
705,2669,5
626,9580,6546,8503,5466,8431,8374,3State Budget
11491060,2962,2867,9796,4752,7700,8660,5593,9518,8Public Sector Exp.
2003200220012000199919981997199619951994
Regions
01-03: moving of competencies from central
government to regions
Fiscal insufficiency of regions
problem: own revenue
insufficiency
central government: social
democrats
regions: Civic dem. par.
unwillingness to solve
biggest part of revenues
are grants (conditional) ­
financing of education,
roads and ,,minimal public
transport service"
2
Budgetary allocation of taxes
(regions)
main law affecting ,,own" resources
in the first version (from 2001): no tax
revenues
in the novel (,,temporary only for 2002"): small
portion according to transfered competencies
main task: cover up direct cost of primary and
secondary education
temporary novel remained in force until 2005
novels: Pardubice region version,
governmental (2003, 2004)
Present problems
regions still play small role
tax revenues X conditional grants
central governments X regions
absence of minimal standards of public
services
regional hospitals: commercial company X
allowance non-profit organization
,,minimal public transport service": unsigned
agreements between regions and Czech
railway company
European Charter of Local Self-Government
Czech Republic signed the ECHLS on 28 May 1998, and
ratified it on 7 May 1999
and
European Charter of Regional Self-Government
the final version of this charter has not been passed yet
Important documents Districts
deconcentrated branches of
government
coordinated inter-municipal affairs
the head was appointed by MI
till 2000 districts were ,,independend",
2001-02 were part of the state budget
the biggest part of the revenue: grants
important part: tax revenues
Municipalities
ECHLS
problems:
too many small municipalities
municipalities with different extend of
delegated responsibilities
tax revenues
indebtedness
BAT ­ tax revenues
small share of local taxes ­ LG cannot
influence their revenue
1993-2000: revenue generated from the
taxes paid in the (surrounding) area
2001: big change of BAT
most of the tax revenues are from ,,shared"
taxes and have the shape of the
unconditional grants
3
Purposes for BAT change
small municipalities
unjustifiable differencies
concentration of tax payer cash
registers
speculative moves of self employment
different dynamics of tax revenues into
state and municipal budget
125,9113,7106,299,589,983,675,772,165,462,8Total
4,24,24,23,80,70,70,60,80,80,2Other
45,137,833,530,831,3VAT
5,143,73,73,83,63,23,63,43,3Administrative and local fees
4,84,74,64,54,54,44,34,13,94Property
5,86,15,86,26,210,65,24,332,3municipality
23,822,822,620,517,312,913,611,910,311,8non-municipality
29,628,928,426,723,523,518,816,213,314,1CIT
1,61,51,21,31,6from other
11109,79,38,216,716,916,715,815,8from self-emp
24,522,620,919,416,334,731,930,728,225,3from wages
37,134,131,83026,151,448,847,44441,1PIT
2005200420032002200120001999199819971996
Tax revenues of LGs
Borrowing of LGs
source: Ministry of Finance of the CR: Macroeconomic Forecast
macroeconomicaly it is not a problem ­ 2005: 2,8 % GDP
problem from microeconomic point of view:
some municipalities have serious problem and are ,,forced" to sell
property
problem grows (reciprocal proportion) with the size of
municipality
How to solve indebtedness?
MF take steps in the end of 90-ties:
some grants are tied in with the debt
maximum debt service was set as % of revenue
(unclear how to measure, valid only for 1 year)
these steps were not successful
in 2004 new definition of the debt service
MF is in charge of controling municipal debt