Download Strasbourg, October 11

LOCAL GOVERNMENT
FINANCE SYSTEM
IN SERBIA
How to get through the crisis ?
Aleksandar Bućić
Strasbourg, October 11-12, 2010
LAW ON LOCAL GOVERNMENT
FINANCE (LGFL)
– main results before the crisis
• Intergovernmental transfers anchored to GDP (1.7%)
• Equalization component based on shared revenues
• PIT becoming most important shared revenue
(40% for local governments)
• Annual Property tax as own source revenue for LGs
• Establishment of so called “Local Tax Administrations”
• Institutionalized dialogue between the National
government and local governments – through the
Intergovernmental Finance Commission
Strasbourg, October 11-12, 2010
2
LOCAL GOVERNMENT REVENUES before and after the new law
2006.
LG REVENUES BEFORE
AND
AFTER THE NEW LAW
(in 2009 RSD, inflation
adjusted)
TOTAL REVENUE
REVENUE FROM THE
NON-EARMARKED
TRANSFER AND
AS % OF TOTAL REVENUE
Revenue
178,366,565,756
24,659,748,831
2007.
Per Capita
Revenue
23,789 194,982,628,935
14%
41,622,462,259
Per Capita
%
Change
26,005
109%
21%
154%
Source of data: Treasury Administration, Ministry of Finance
Prepared by: Anthony Levitas - Sharing the burden statistical brief, 2010.
Exchange rate on October 8, 2010: 1 EUR = 105.9 RSD
Strasbourg, October 11-12, 2010
3
LOCAL GOVERNMENT REVENUES before and after the suspension of the LGFL
LG REVENUES BEFORE
AND AFTER THE
SUSPENSION OF THE
LGFL
(in 2009 RSD, inflation
adjusted)
TOTAL REVENUES
REVENUES FROM THE
NON-EARMARKED
TRANSFER AND AS % OF
TOTAL REVENUE
2007.
Revenue
194,982,628,935
41,622,462,259
2009.
Per Capita
Revenue
26,005 165,452,711,110
21%
28,157,725,905
Per Capita
%
Change
22,006
-15%
17%
-20%
Source of data: Treasury Administration, Ministry of Finance
Prepared by: Anthony Levitas - Sharing the burden statistical brief, 2010.
Exchange rate on October 8, 2010: 1 EUR = 105.9 RSD
Strasbourg, October 11-12, 2010
4
IS THE BURDEN OF THE CRISIS SHARED EQUALLY
BETWEEN THE CENTRAL AND LOCAL LEVEL
2007
2008
2009
1. GDP
2. CONSOLIDATED GENERAL GOVERNMENT
REVENUES
3. CONSOLIDATED GENERAL GOVERNMENT
REVENUES AS % of GDP
4. CENTRAL GOVERNMENT REVENUES
2,302.2
2,722.5
2,815.0
2009 /
2008
103.4%
1,002.0
1,143.6
1,146.5
100.3%
43.5%
42.0%
40.7%
96.9%
577.6
621.7
624.2
100.4%
5. LOCAL GOVERNMENT REVENUES (current)
153.8
175.8
156.4
88.9%
6. TRANSFERS TO LOCAL GOVERNMENTS
7. LOCAL GOVERNMENT REVENUES AS % of
GDP
8. LOCAL GOVERNMENT REVENUES AS % of
CONSOLIDATED REVENUES
9. TRANSFERS AS % of GDP
10. TRANSFERS AS % of CENTRAL
GOVERNMENT REVENUES
29.7
36.1
25.7
71%
6.7%
6.5%
5.6%
86.1%
15.4%
15.4%
13.6%
88.3%
1.6%
1.3%
0.9%
69%
6.3%
5.8%
4.1%
71%
(IN BILLION RSD, nominal)
Sources: Statistical Office of the Republic of Serbia
Ministry of Finance, Republic of Serbia and Treasury Administration
Exchange rate on October 8, 2010: 1 EUR = 105.9 RSD
Strasbourg, October 11-12, 2010
5
LOCAL GOVERNMENT REVENUES –
Structure and trends during the crisis
Own revenues:
•
•
•
•
•
•
•
•
Importance during the crisis
Property tax devolution
Local tax administrations (2007 – 2009)
Most important buffer for local government budgets
Property tax assessment, collection, control, enforcement
Poor administration in previous period
Challenges regarding the collection
Role of the Association of Local Governments (SCTM)
Strasbourg, October 11-12, 2010
6
PROPERTY TAX REVENUES, sample of local
governments, 2006-2009 period, in 000 RSD nominal
BELGRADE : total (1+2)
1. Property tax – natural persons
2. Property tax – legal entities
KRAGUJEVAC : total (1+2)
1. Property tax – nominal persons
2. Property tax – legal entities
VRANJE : total (1+2)
1. Property tax – natural persons
2. Property tax – legal entities
VRNJACKA BANJA : total (1+2)
1. Property tax – natural persons
2. Property tax – legal entities
ZABARI : total (1+2)
1. Property tax – natural persons
2. Property tax – legal entities
TOTAL
GROWT (%) - nominal
2006
2.439.025
1.333.135
1.105.890
110.885
59.812
51.073
37.131
16.317
20.814
20.611
9.349
11.262
2.068
1.109
959
2007
2.625.351
1.385.060
1.240.291
138.320
77.326
60.994
37.517
16.118
21.399
18.640
9.293
9.347
2.104
1.153
951
2008
3.694.474
1.553.422
2.141.052
184.520
44.625
17.197
27.428
23.906
11.495
12.411
2.997
1.579
1.418
2009
4.792.940
2.581.750
2.211.190
180.042
80.509
99.533
54.376
23.962
30.414
28.702
11.184
17.518
3.871
2.114
1.757
2.609.720
-
2.821.932
8,13%
3.950.522
39,99%
5.059.931
28.08%
Source: Ministry of Finance – Treasury Administration
Notes: Selected sample represents 5 local governments being the only one to take over the property tax collection in 2007.
Also, these 5 local governments took over relevant databases from central tax administration in late August 2007 thus
full effect is exhibited in 2008.
Strasbourg, October 11-12, 2010
7
LOCAL GOVERNMENT REVENUES –
Structure and trends during the crisis
What happened during the crisis?
• Total own revenues declined by 10% (real terms)
• Specially revenues related to investments, real estate market and
income from local assets (land development charge, lease income)
• Compensation of losses through more aggressive administration of
local taxes, fees and charges
• Property tax revenues and revenues from land use charge
increased by 15% and 18%, respectively
• “Notorious” business sign fee revenues declined by 1%
• Wage tax (local share of 40% collected) was most stable local
revenue during the crisis
Strasbourg, October 11-12, 2010
8
STRUCTURE OF LG OWN REVENUES 2007 -2009
(in 2009 RSD, inflation adjusted), in 000
Self-Contribution Fee
PROPERTY TAX*
of which Physical Persons
Legal Entities
Communal Fees and Charges and other local
income
Business Sign Fee
LAND USE CHARGE
Land Lease Fee and Lease Income
Land Development Charge
Fines, Penalties, Interest and Dividends
Total own revenues
OWN REVENUES as a % of total
2007
1,895
7,989
3,576
4,414
2009
% Change
2,047
8%
9,148
15%
4,387
23%
4,761
8%
11,178
3,280
9,733
9,437
24,698
2,213
70,425
37%
12,369
3,261
11,439
7,099
15,124
2,565
63,052
40%
11%
-1%
18%
-25%
-39%
16%
-10%
Source of data: Treasury Administration, Ministry of Finance
Prepared by: Anthony Levitas - Sharing the burden statistical brief, 2010.
Exchange rate on October 8, 2010: 1 EUR = 105.9 RSD
Strasbourg, October 11-12, 2010
9
STRUCTURE OF LG REVENUES
2007-2009
Strasbourg, October 11-12, 2010
10
STRUCTURE OF LG EXPENDITURES BY
FUNCTION:
2007 and 2009 (in 000, 2009 RSD)
2007
2,3,7 Defense, Safety, Health
5 Environment
0 Social Protection
8 Sport
9 Secondary Education
6 Housing
9 Primary Education
8 Culture
9 Preschools
4 Economic Activity
4 Transport and Road
1 General Services
6 Community development
TOTAL
Source of data: Treasury Administration, Ministry of Finance
2,094,594
3,651,918
6,583,703
5,161,065
5,611,134
8,502,126
10,390,510
12,375,479
12,673,965
14,051,464
31,880,677
40,949,003
48,164,290
202,089,935
Prepared by: Anthony Levitas, Sharing the burden statistical brief, 2010.
Exchange rate on October 8, 2010: 1 EUR = 105.9 RSD
Note: numbers in front of the functions represent coding of functional classification
Strasbourg, October 11-12, 2010
% of
Total
1%
2%
3%
3%
3%
4%
5%
6%
6%
7%
16%
20%
24%
100%
2009
1,452,254
4,242,111
8,174,937
6,117,118
3,854,593
7,339,756
8,716,929
11,221,516
16,177,759
10,261,512
22,769,877
36,787,811
38,045,743
175,161,921
% of
Total
1%
2%
5%
3%
2%
4%
5%
6%
9%
6%
13%
21%
22%
100%
%
Change
-31%
16%
24%
19%
-31%
-14%
-16%
-9%
28%
-27%
-29%
-10%
-21%
-13%
11
LOCAL GOVERNMENT EXPENDITURES
What happened during the crisis?
• Significant fall of investment spending by 16%
• Reduced capital and operating subsidies to PUC and local
communities (MZ)
• PUCs running large amounts of payment arrears
• Functions: steep decline in community development (-21%),
transport and roads (-29%) and general economic activity (-29%)
• Functions: preschools increase (28%), social protection (24%)
• Share of investments in overall expenditures fell from 39% in
2007 to 29% in 2009
• Rapid growth of payment arrears on the local level
Strasbourg, October 11-12, 2010
12
Outstanding payment arrears of LGs, public utility companies
(PUCs) established by LGs and institutions and organizations
founded by LGs
on December 31, 2008, in 000 RSD
To Oil
Industry of
Serbia
(NIS) –
fuels,
petroleum
To State
Public
Company
“Srbijagas” –
supplier of
natural gas
for heating
97.276
15.049
5.136
733.125
446.284
1.296.872
709.757
465.957
897.211
5.549.629
1.048.937
8.671.493
60.116
13.061
1.234.447
217.058
1.638.094
To State
Public
Company
(EPS) –
electric
power
1. City / Municipal
administration
2. PUCs
3. Institutions and
organizations
(including schools)
113.409
To other
suppliers and
service
providers
(construction
companies)
TOTAL (1 + 2 + 3)
Source: Standing Conference of Towns and Municipalities, survey, 2010
Exchange rate on October 8, 2010: 1 EUR = 105.9 RSD
Strasbourg, October 11-12, 2010
Other (to
employees,
etc)
Total
11.606.460
13
Outstanding payment arrears of lGS, public utility companies
(PUCs) established by LGs and institutions and organizations
founded by LGs,
on April 30, 2010, in 000 RSD
To State
Public
Company
(EPS) –
electric
power
1. City / Municipal
administration
2. PUCs
3. Institutions and
organizations
(including schools)
To State
To Oil
Public
Industry of
Company
Serbia (NIS) “Srbijagas”
– fuels,
– supplier of
petroleum
natural gas
for heating
To other
suppliers and
service
providers
(construction
companies)
Other (to
employees,
etc)
Total
208.711
10.849
14.216
2.079.206
522.294
2.835.277
1.060.525
467.357
2.524.579
5.813.831
1.697.901
11.564.196
209.545
51.048
52.288
1.800.066
412.810
2.525.759
TOTAL (1 + 2 + 3)
Source: Standing Conference of Towns and Municipalities, survey, 2010
Exchange rate on October 8, 2010: 1 EUR = 105.9 RSD
Strasbourg, October 11-12, 2010
16,925,233
14
LONG TERM LGs BORROWING
2006 - 2009 (in 000 RSD)
Source: Public Debt Administration, Ministry of Finance
2006
TOTAL AMOUNT
AMOUNT PAID OFF
OUTSTANDING DEBT
OUTSTANDING DEBT
GROWTH (%, nominal)
Strasbourg, October 11-12, 2010
2008
2009
27,016,111
36,136,906
46,720,706
1,293,936
4,689,781
5,507,318
25,718,823
31,447,125
41,213,388
22%
31%
15
WHAT HAS TO BE DONE ON THE
POLICY LEVEL?
• Need to intensify the dialogue between the National
Government and local governments
• Strengthening the role of Intergovernmental Finance
Commission
• Restoring transfers up to the amount existing before
the crises
• If not restoring, then redefining allocation formula
• Reconsidering formula for equalization transfer
• Revenue capacity and standards for expenditures?
Strasbourg, October 11-12, 2010
16
WHAT HAS TO BE DONE ON THE
POLICY LEVEL?
• Improvement of legal framework and administrative
procedures for property tax
• Lifting caps (ceilings) on utility prices and bringing
them to full cost recovery level
• Regulatory regime for efficient and better quality
service provision of local utilities
• Benchmarking the public services of local
governments (Ministry of finance & Standing
Conference of Towns and Municipalities)
Strasbourg, October 11-12, 2010
17
WHAT HAS TO BE DONE BY LGs
THEMSELVES?
• Improvement of administration and collection of own
revenues
• Reduction of operating costs
• Improvement of asset management
• Prudent use of debt and to maintain investment
efforts
• Considering alternative ways for capital finance (PPP,
municipal bonds)
Strasbourg, October 11-12, 2010
18
MAYORS MARCHING ON
THE NATIONAL GOVERNMENT IN BELGRADE:
RESTORE THE LAW!
October 8, 2010
Strasbourg, October 11-12, 2010
19
MAYORS MARCHING ON
THE NATIONAL GOVERNMENT IN BELGRADE:
RESTORE THE LAW!
October 8, 2010
Strasbourg, October 11-12, 2010
20