Sanja Kmezić, Katarina Đulić

Transcription

1 Sanja Kmezić, Katarina Đulić Skopje, April 2017

2 Political economy of change Administrative-territorial decentralisation Political decentralisation Fiscal decentralisation 3 phases Functional (expenditures) Financial (revenues) Capital investments and local public debt Special issue: fiscal data non transparent

3 Serbia is a unitary country with two levels of political units: central and local government and with (formally) two autonomous provinces: Vojvodina and Kosovo & Metohija. In reality, Serbia has an asymmetric form of fiscal federalism. The local level of government includes cities and municipalities as basic forms of local self-government. There is no regional government level, except for statistical regions. Only one part of the territory has a level of government that is between the central and local tier the Autonomous Province of Vojvodina in the northern part of the country. According to the Law on Territorial Organisation, there are 145 LGUs (without Kosovo LGUs): 119 municipalities, 25 cities and the City of Belgrade which has a special legal status.

4 Administrative counties the form of deconcentration of central government authorities local/regional branches of central government s institutions/ministries - 25 counties. Statistical regions NUTS2: 4 statistical regions: Vojvodina, Belgrade, Sumadija and Western Serbia, Southern and Eastern Serbia (+ Kosovo).

5 Actual developments between 2000 and 2008 confirmed that there was a lack of a true strategic commitment to decentralisation. On the one hand, substantial progress was achieved in the financial and functional decentralisation during 2006 and On the other hand, during the same period, a big step back was taken in political decentralisation -- The 2002 Law on Local Self- Government introduced direct election of mayors, a system that had significant advantages in Serbia when compared to the system of indirect election. However, this solution was abandoned as early as 2006, when the new Constitution was adopted. There has not been any significant change in respect of the election of local members of municipal assemblies (proportional system).

6 Until 1990, Serbia, as a country, and its system of financing subnational governments were quite decentralised. Under the authoritarian regime of Slobodan Milošević, the Government of the Republic of Serbia initiated a rapid process of consolidation and centralisation of power by adopting a new Constitution of the Republic of Serbia in 1990, which abolished the existence of autonomous provinces and diminished the role and mandates of local governments dramatically. The breakup of Yugoslavia, wars, the economic embargo and the hyperinflation of the early 1990s contributed to further fiscal limitations and additionally worsened local government finance. In 1995, the National Assembly adopted the Law on Assets Owned by the Republic of Serbia, which nationalised all public property and established a centralised property management system. De facto, Serbian local governments were no longer authorised to manage and dispose of public property without obtaining the central government s permission.

7 The 1990 Constitution and the subsequent accompanying legislation abolished the fiscal autonomy of local governments (or LG). During this period, LG were fiscally dependent and predominantly financed from shared revenues. Own source revenues were generated from charges and other non-tax revenues. The main source of funding for local governments was a sales tax. However, the amount to be transferred to LG was subject to discretion of the central government and a decision on the amount was passed annually without clear criteria. Additional funds were also transferred to certain local governments primarily for the purpose of fiscal equalisation. This was also done without clear and transparent criteria. All administrative functions (health, education, social protection) were responsibility of the Republic of Serbia. Serbia could delegate these functions to LG along with necessary funding.

8 (Phase 2) : Trend of fiscal decentralisation Adoption of documents aimed at strengthening the role (function) of LG and their fiscal autonomy (revenue) (Phase 3) : Trend of fiscal centralisation and pseudo-decentralisation a) Continuous ad hoc abolishment and decrease of LG revenue or change of methodology of calculation of revenue; b) Frequent ad hoc transfers of new mandates/expenditure to local level without corresponding allocation of necessary funding; c) Vertical imbalance between local revenue and expenditure.

9 LGs in 1990s deprived of basic financial and development instruments Reforms 2001, 2002, 2004, 2006 Major reasons for the reform consolidation, stabilization and depolitisation of the system The role of donor community, central government and LG Year Nominal value of total assets of LG Real value of total assets of LG according to prices in 2004 Growth rate relative to the base year (2000) GDP Total local revenue as a share of GDP , ,743.3 / 355, , , % 708, , , % 919, , , % 1,088, * 81, , % 1,284,

10 LG functions: utility and communal services; planning and development; utility and road infrastructure; pre-school education; capital maintenance of elementary and high schools and utility costs; primary health care. LG sources of revenues (2006 Law): Own-source: property tax, fees and charges; Shared revenues: PIT, real estate transfer tax, inheritance tax; Intergovernmental grants: non-earmarked, earmarked.

11 : the trend of fiscal centralisation and pseudodecentralisation Centralisation of public finance: changes in the legal framework every single year, sometimes several times a year: a) Continuous ad hoc repeals, cuts or changes to LG revenue; b) Frequent ad hoc transfers of new mandates/expenditures and costs to local level without the transfer of the necessary funds (e.g. primary health care, road maintenance, preschool ed.); c) Vertical imbalance between revenue and expenditure.

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13 1) 2009: Suspension of a formula for calculation of non-earmarked transfers (1.7% GDP) until mid 2011; -50 bln RSD 2) 2011: Pseudo-decentralisation move an increase of the share in wage tax, followed by a decrease of the tax base and the tax rate; 3) 2011: Change in the methodology for calculation of nonearmarked transfers - greater non-transparency and unpredictability; 4) 2012: Change in the methodology for calculation of nonearmarked transfers - greater non-transparency and unpredictability; 5) 2012: Abolishment of certain LCF and shared charges; -5.5 bln RSD; 6) 2013: Reduction of non-taxable part of the tax base and of tax rate for the wage tax (instead of expected 40, LG got 20 bln RSD).

14 7) 2013: Change in methodology for taxation of legal entity property (+); 8) 2013: Real estate rental income tax lost; -3 bln RSD 9) 2013: Change in methodology for calculation of administrative fees not implemented in practice; 10) 2013: Reduction on non-earmarked transfers; -3.7 bln RSD 11) 2014: Reduction on non-earmarked transfers; bln RSD 12) 2014: Abolishment of CLUC (gross effect: -14 bln RSD)); 13) 2015: CLDC reformed contribution; 14) 2015: Change in methodology for calculation of non-earmarked transfers; 15) 2016: Amendments to LLGF the LG share in revenues from the wage tax decreased from 80% to 74% for municipalities, 77% for cities, and from 70% to 66% for the City of Belgrade.

15 Poor understanding of the concept of FD; A lack of economic analysis and argumentation in respect of function decentralisation; a lack of strategic plan and monitoring of the process of delegation; Art of Constitution; Art. 21. Law on Local Self-Government (LLSG): o Mandates and competences could be delegated only by the law o Funds are provided from the central government budget o Constitution: only competences that can be provided in a purposeful manner at the local level can be delegated o LLSG: mandates are delegated if their delegation allows citizens: (i) to exercise their rights and obligations more efficiently and (ii) to satisfy citizens needs that are of immediate importance for their life and work

16 But funds are not provided from the central government budget in spite of: Art. 3 LLGF: Guaranty of sufficiency of funds; Art LLGF: Specific earmarked transfers (for compensation, functional). Mandates/new expenditure transferred to LG via different legal instruments Collective bargaining: education, culture; Government decrees: salary calculation coefficients culture, preschool education, LG employees; Government s decision: until recently the base for calculation and payment of salaries of public sector employees; Rulebooks: for pre-school education; Court rulings: non-paid obligations of the abolished republic Fund for protection of environment and ex agriculture cooperatives; Abolishment/reduction of resources of financing while related obligations stay the same.

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18 1. Three distinct phases: ; ; Ad hoc decision making - no strategic plan and systematic approach to decentralisation functional and fiscal decentralisation are not treated simultaneously. The national govt fails to recognise LG budgets as an integral part of the public finance system; it often resorts to decreasing their funds in order to achieve balance in the national budget. A lack of political awareness of the role of LGs they are treated as parastatal bodies, not as an integral part of the state. 3. The central govt s justification for most of its measures improvement of the local business climate - the need to reduce the local fiscal burden on businesses, disregarding LG interests it suspended/reduced local revenue, but it kept increasing the national budget revenue (VAT, excise taxes, pension contributions).

19 4. Intergovernmental fiscal governance: no institutional mechanisms for strategic planning and monitoring of the FD process; a lack of horizontal and vertical coordination and consultation in the process of transferring/changing local functions and finance. 5. Policies and decisions - not informed and based on evidence; databases non-transparent, inadequate, unused, or nonexistent. Central govt decision making - not supported in either ex ante or ex post financial analyses Non-transparency hinders expert or scientific analysis and oversight/control over the financial system by other public authorities, the interested public and tax-payers.

20 6. Complete absence of stability, predictability and legal and financial certainty - legal changes very frequent, sometimes radical, with immediate effects particularly problematic for capital investment planning and financing. 7. The low-quality and excessive legal framework regulating the matter of local finance and mandates The matter of local revenue: a plethora of laws and bylaws - the unsystematic and partial approach to LG finance The matter of local functions: >50 laws together with a number of bylaws. In addition, LGs are excluded from the processes of creating policies and legislation.

21 8. Findings and conclusions on municipal sources of revenues: Transfers (grants): The system of non-earmarked grants suspended in mid-2009; Since then, complete non-transparency and unpredictability; The formula used to calculate these grants - not adequate and based on objective criteria; The system of earmarked grants a complete lack of transparency. Shared revenues: The existing distribution of the PIT between the central and LGs - unsustainable, jeopardising the fiscal stability of the country; The changes in the wage tax regime triggered a series of further ad hoc regulatory changes leading to instability and the collapse of the LG finance system; A question of shared charges for the usage of common and natural goods.

22 Responds to the third research question: What are fiscal effects of the analysed regulatory changes on LG budgets in Serbia? Fiscal data non-transparency problem special issue. Only aggregate data is available through the Statistics Office and the MoF, meaning only total LG revenues and expenditures without any further details on specific budget items; Only two LG provided in-depth statistics Belgrade and Paracin.

23 Nivo decentralizacije - prihodi HEUR Konsolid. prihodi Republike Prihodi LS Udeo prihoda LS u kons. Prihodima RS Prihodi RS Udeo prihoda LS u prihodima RS BDP Udeo prihoda LS u BDP ,770,997 1,584, % 5,871, % 24,421, % ,089,233 1,960, % 7,245, % 29,446, % ,654,840 2,244, % 7,997, % 33,705, % ,787,934 1,692, % 6,986, % 30,671, % ,424,133 1,719, % 6,921, % 29,807, % ,363,774 1,921, % 7,304, % 33,418, % ,022,814 2,097, % 6,975, % 31,707, % ,599,976 2,062, % 7,180, % 34,276, % ,823,305 1,923, % 7,514, % 33,335, % ,036,557 1,966, % 7,849, % 32,904, %

24 Nivo decentralizacije - rashodi HEUR Konsolid. rashodi Republike Rashodi LS Udeo rashoda LS u kons. rashodima RS Rashodi RS Udeo rashoda LS u rashodima RS BDP Udeo rashoda LS u BDP ,137,755 1,573, % 6,213, % 24,421, % ,652,323 2,060, % 7,237, % 29,446, % ,539,428 2,219, % 8,580, % 33,705, % ,141,906 1,853, % 7,972, % 30,671, % ,794,559 1,829, % 7,921, % 29,807, % ,967,103 2,072, % 8,635, % 33,418, % ,191,823 2,098, % 8,860, % 31,707, % ,475,404 2,005, % 8,957, % 34,276, % ,024,851 1,848, % 9,620, % 33,335, % ,271,685 1,947, % 8,801, % 32,904, %

25 Beograd (od ukidanja transfera i povećanja poreza na zarade) HRSD Transfer 9,560,196 10,567,776 3,825,805 4,341,717 3,837, Projektovano 11,049,667 10,644,078 10,150,544 10,532,473 10,206,367 10,779,766 Porez na zarade 21,884,843 23,211,096 22,398,060 21,274,313 23,969,537 33,139,588 28,676,101 26,041,323 Projektovano 17,432,391 18,936,908 16,386,343 14,880,756 Gubitak/Dobitak (7,223,862) (6,302,361) 224,023 3,670,208 2,083, ,801 Paraćin (od ukidanja transfera i povećanja poreza na zarade) HRSD Transfer 364, , , , , , , ,824 Projektovano 391, , , , , ,289 Porez na zarade 264, , , , , , , ,798 Projektovano 206, , , ,899 Gubitak/Dobitak 158, ,001 36, , ,810 83,433

26 MEUR Total public assets Structure of total public assets 2% 2% 7% 1% 4% 12% 4% 8% 10% 11% 4% 7% 9% 5% 5% 5% 1% 3% 6% 11% 8% 2% 3% 18% 19% Transfer 51% 73% 77% 71% 70% 56% 51% 43% 42% 40% 35% 43% 54% 54% 57% Primanja od zaduživanja i prodaje finansijske imovine Primanja od prodaje nefinansijske imovine Ustupljeni prihodi 46% 25% 16% 28% 26% 28% 36% 40% 38% 37% 41% 41% 37% 36% 38% Izvorni Prihodi

27 Budžet Beograda HEUR Ukupna javna sredstva 60, , , , , , ,647 Promena u % 100% 307% 542% 703% 757% 756% 1,056% Beograd vs. Paraćin % ukupnih tekućih prihoda Beograd Paraćin Beograd Paraćin Beograd Paraćin Porez na imovinu 4.6% 6.3% 4.2% 5.8% 5.2% 7.6% Firmarine 1.3% 4.5% 1.0% 3.7% 1.2% 3.6% Naknade za uređenje građevinskog zemljišta 19.5% 4.7% 24.6% 3.1% 22.3% 4.6% Porez na dohodak građana 38.0% 36.2% 33.4% 25.2% 36.3% 29.6% Izvorni prihodi 38.0% 27.8% 42.9% 28.3% 41.3% 26.6% Ustupljeni prihodi 53.7% 55.6% 46.5% 42.7% 46.7% 41.2% Transferi 8.3% 16.6% 10.6% 29.0% 12.0% 32.2%

28 MEUR Share of transfers in total current revenue Loans - Belgrade 8.3% 16.6% 10.6% 29.0% 12.0% 32.2% 21.8% 5.7% 5.8% 24.7% Beograd Paraćin Procentualne promene naknada % Beograd Paraćin Beograd Paraćin Beograd Paraćin Naknada za korišćenje građevinskog zemljišta 100% 100% 128% 320% 201% 145% Naknada za uređenje građevinskog zemljišta 100% 100% 69% 227% 54% 111% Naknada za zaštitu i unapređenje životne sredine 100% 100% 103% 148% 88% 82% Izvorne naknade 100% 100% 83% 211% 106% 155%

29 Structure of total public assets - Belgrade Structure of total public assets - Paraćin 5% 5% 1% 6% 3% 11% 8% 3% 2% 19% 54% 57% 43% 54% 35% 23% 19% 22% 22% 25% 5% 11% 3% 9% 2% 2% 12% 34% 39% 49% 38% 36% 41% 41% 37% 36% 38% Transfer Primanja od zaduživanja i prodaje finansijske imovine Primanja od prodaje nefinansijske imovine Ustupljeni prihodi Izvorni Prihodi 37% 31% 24% 29% 27% Transfer Raspored viška prihoda Primanja od zaduživanja i prodaje finansijske imovine Primanja od prodaje nefinansijske imovine Ustupljeni prihodi Izvorni Prihodi Procentualne promene poreza na zarade % Beograd 100% 96% 88% 111% 152% 141% 124% Paračin 100% 90% 84% 124% 221% 177% 150%

30 Procentualne promene % Beograd Paraćin Beograd Paraćin Beograd Paraćin Beograd Paraćin Beograd Paraćin Beograd Paraćin Beograd Paraćin Firmarina 100% 100% 97% 119% 136% 147% 189% 128% 161% 104% 113% 101% 106% 89% Taksa za držanje motornih vozila 100% 100% 32% 330% 120% 386% 280% 381% 412% 326% 251% 183% 192% 183% Administrativne takse 100% 100% 79% 22% 119% 93% 116% 107% 108% 64% 107% 125% 80% 72% Izvorne takse 100% 100% 101% 161% 133% 182% 187% 167% 181% 140% 125% 104% 117% 104% Procenat ukupnih tekućih prihoda % Beograd Paraćin Beograd Paraćin Beograd Paraćin Beograd Paraćin Beograd Paraćin Beograd Paraćin Beograd Paraćin Izvorne takse 3.0% 6.0% 3.0% 9.7% 4.0% 10.6% 5.0% 8.9% 5.0% 6.2% 4.0% 4.6% 4.0% 5.5% Firmarina 1.0% 3.6% 1.0% 4.3% 2.0% 5.1% 3.0% 4.1% 2.0% 2.7% 2.0% 2.7% 2.0% 2.8% Taksa za držanje motornih vozila 0.05% 1.30% 0.02% 4.50% 0.06% 5.10% 0.14% 4.60% 0.21% 3.20% 0.14% 1.80% 0.12% 2.20% Administrativne takse 0.15% 0.40% 0.15% 0.10% 0.21% 0.10% 0.19% 0.10% 0.18% 0.00% 0.19% 0.00% 0.16% 0.00%

31 MEUR HRSD Property tax - Belgrade Property tax per capita Beograd Paraćin Procentualne promene poreza na imovinu % Beograd 100% 107% 124% 141% 138% 142% 271% Paraćin 100% 78% 123% 115% 126% 167% 219%

32 RSD Beograd Porez na imovinu fizičkih lica 3,365,414,469 3,531,350,135 5,669,897,000 Porez na imovinu pravnih lica 2,635,628,048 2,293,989,687 5,542,565,000 Naknada za korišćenje građevinskog zemljišta 9,169,347,551 8,704,982,494 1,201,589,000 Paraćin Porez na imovinu fizičkih lica 51,101,268 60,133, ,345,139 Porez na imovinu pravnih lica 46,771,832 60,413,110 61,353,764 Naknada za korišćenje građevinskog zemljišta 74,298, ,454,163 17,364,752

33 MEUR Total public expenditure 8,000 7,000 6,000 5,609 6,656 6,997 6,410 6,846 7,333 6,767 6,005 5,000 4,000 4,123 4,112 3,829 3,000 2,000 3,161 1, Structure of total public expenditure 9% 2% 7% 1% 2% 1% 1% 1% 2% 3% 4% 7% 20% 23% 29% 27% 34% 37% 31% 37% 29% 20% 39% 38% 52% 78% 62% 76% 70% 72% 65% 62% 61% 58% 66% 74% Tekući rashodi Kapitalni rashodi - izdaci za nefinansijksu imovinu Izdaci za finansijsku imovinu i zaduživanje

34 MEUR Total public expenditure Structure of total public expenditure 15% 16% 15% 10% 12% 15% 19% 11% 10% 85% 84% 85% 90% 88% 82% 80% 89% 90% Tekući rashodi Kapitalni rashodi - izdaci za nefinansijksu imovinu Izdaci za finansijsku imovinu i zaduživanje

35 MEUR Current expenditure Structure of current expenditure % 3% 2% 2% 46% 66% 28% 17% 13% 10% 15% 17% 16% 19% 15% 12% 10% 10% 3% 3% 3% 3% 4% 4% 3% 10% 8% 5% 4% 4% 4% 7% 5% 6% 3% 10% 5% 10% 27% 27% 41% 33% 30% 33% 22% 32% 25% 31% 1% 1% 1% 2% 1% 1% 1% 3% 4% 5% 29% 27% 29% 24% 28% 26% 26% 29% 30% 29% 19% 11% 14% 15% 14% 13% 15% 19% 17% 18% 18% 19% Rashodi za zaposlene Korišćenje roba i usluga Otplata kamata Subvencije Izdaci za socijalnu zaštitu Ostali rashodi Dotacije i Transferi

36 MEUR Current expenditure Structure of current expenditure 19% 19% 18% 18% 10% 7% 7% 13% 1% 2% 1% 1% 12% 12% 10% 7% 1% 1% 18% 23% 19% 19% 24% 7% 7% 8% 6% 2% 2% 2% 9% 2% 10% 13% 14% 2% 12% 4% 1% 1% 1% 1% 2% 31% 36% 33% 34% 32% 34% 31% 31% 32% 29% 23% 28% 27% 26% 24% 26% 25% 28% Rashodi za zaposlene Korišćenje roba i usluga Otplata kamata Subvencije Izdaci za socijalnu zaštitu Ostali rashodi Dotacije I Transferi

37 MEUR Capital expenditure Procentualne promene kapitalnih rashoda % 112.6% 146.1% 147.8% 155.2% 176.8% 123.0% 73.1% 100.0% 101.2% 106.2% 121.0% 84.2% 50.1% 100.0% 69.6% 41.4% Share of capital expenditure in total public assets 38% 31% 29% 27% 23% 20% 34% 37% 37% 37% 39% 29%

38 HEUR Capital expenditure , ,406 1, ,384 1, Procentualne promene kapitalnih rashoda % 145.1% 131.6% 80.1% 86.8% 142.8% 196.7% 113.2% 80.8% 100.0% 60.9% 66.0% 108.5% 149.4% 86.0% 61.4% 100.0% 137.7% 79.2% 56.5% Share of capital expenditure in total public assets 19% 15% 16% 15% 15% 10% 12% 11% 10%

39 EUR Capital expenditure per capita Beograd Paraćin Share of capital expenditure in total public assets 29% 27% 34% 37% 37% 37% 39% 29% 15% 16% 15% 10% 12% 15% 19% 11% Paraćin Beograd

40 The share of both LG revenues and expenditures in GDP was ~7.0% at the peak of FD. In 2015, it was ~ %. Central govt lack of planning created vertical imbalance in local budgets. More than a dozen significant changes impacting the revenue side, all resulting ultimately in reductions in LG budgets; On the exp side: delegation of new mandates and costs: central govt s decisions characterised by inconsistency and opportunism; uninformed, without any foundation in financial analyses. Functional and financial decentralisation two divorced processes.

41 Other negative effects and consequences reflected in local government budgets and policies: o substantial volatility of city and municipal revenue and expenditure; o frequent liquidity problems; o LGs forced to consider capital investments in a rather restrictive way and, in fact, reduce their capital budgets drastically jeopardised local economic development; o pressure to increase re-current expenses (operating costs); o accumulated arrears and debts to creditors; o reduced creditworthiness and borrowing capacity; o compromised delivery of local public services to citizens; o inability to focus on any kind of long-term planning