Download Intergovernmental finance system in Serbia

Author: Branislav Stipanović
INTERGOVERNMENTAL
FINANCE SYSTEM IN SERBIA
- Status and next steps -
Belgrade, November 01, 2006
Legal Basis
• LAW ON LOCAL GOVERNMENT
FINANCING
• COMING INTO EFFECT: January 01, 2007
• Drafted in collaboration with:
–
–
–
–
SCTM – formed “Working group”
SLGRP – DAI
GTZ
Nongovernmental Organizations
In harmony with European
Legislation
• In harmony with solution presented in
“EUROPEAN CHARTER ON LOCAL
SELF-GOVERNMENT”
• Council of Europe Recommendations
• Best practices of other countries
• Got excellent critiques from experts of:
– Council of Europe
– World Bank
RESONS FOR ADOPTION OF
THE NEW LAW
• 2001-2005 – Intergovernmental finance system
reform
• Outcomes:
– Realistic growth in local government revenues:
revenues more than doubled
– With no significant changes in responsibilities
– 2004-2005 – Tax Reform:
• Moving from sales tax to VAT
• Elimination of pay roll tax
• Increased share in wage tax + deficit transfer
– Horizontal equalization – discrepancies brought from
16 times to 9.5 times
BASIC GOALS
• 4 BASIC GOALS:
1. Increased transparency, stability and
predictability
2. Better horizontal equalization
3. Stronger local government autonomy
4. Institutionalized dialogue between central
and local authorities
1. Increased transparency, stability
and predictability of the system
• Transfer pool – fixed percent of GDP
(1,7%)
• Types of transfers – defined and regulated
by the Law
• Criteria, distribution methodology (formula
based)– defined by the Law
2. More efficient horizontal
equalization system
• Serbia – notable discrepancy in fiscal capacities
• Goal- to allocate bigger transfers to fiscally
poorer jurisdictions
• Equalization – at 90% of the national average
(shared taxes)
• Reallocation – from fiscally richer jurisdictions to
poorer ones ( Robin Hood method)
• Discrepancies – brought down from 9.5 to 5.6
times
3. Stronger local government
autonomy
• Property tax – original tax
– Introduced by ordinance
– Rate set up to the ceiling proscribed by law
• Local tax administration
– Collection of all original revenues
• Increase of amount and share of local
government
4. Institutionalized dialogue
between central and local
authorities
• Intergovernmental Finance Commission
– Joint working body of the Government of RoS
and local government units
– 11 members – 5 representatives of ministries,
5 representatives of local government and
chairman – who is appointed by the
Government
Role of the Commission
• Analyzes intergovernmental finance
system, vertical and horizontal balance of
the system
• Provides recommendations for changes
and improvement of the system
• Supervises the implementation of the Law
and calculation of transfers for individual
local government units
Basic changes in the transfer
system
• Setting the total amount of transfer pool
– Transfer pool – fixed percent of GDP
– Base line was the existing amount of transfers
(for 2006) = 1,175%
– Increase to compensate for losses incurred
when wage tax rate went from 14% to 12%
– Total non earmarked transfer = 1,7% GDP
Basic changes in the transfer
system (2)
•
Introduction of several types of transfers:
– Two basic groups:
1. Non earmarked transfers / unconditional
2. Earmarked transfers / conditional
Basic changes in the transfer
system(3)
•
Non earmarked transfers / unconditional:
1.
2.
3.
4.
5.
Equalization
General
Compensation
Transitional
Reallocation – Robin Hood methodology
NON EARMARKED TRANSFER
1. Equalization transfer:
Who is receiving it:
- <90% of national average (shared taxes);
How much:
- proportional to shortfall of jurisdictions
NON EARMARKED TRANSFER(2)
2. General transfer:
- Distributed to all local government units (LGs)
- Criteria and Methodology defined by the Law
- Each LG receives the same amount of funds per:
- capita,
- size,
- number of classes in primary and secondary schools,
- number of children in kindergartens,
- number of facilities of primary and secondary education and child
welfare
General Transfer (2)
• Scores – importance of each criteria:
–
–
–
–
–
–
–
–
65% - number of inhabitants
19,3% - size
4,56% - number of classes in primary schools
2,0% - number of classes in secondary education
6,0% - number of children in kindergartens
1,14% - number of facilities in primary education
0,50% - number of facilities in secondary education
1,5% - number of facilities in child welfare
NON EARMARKED TRANSFER(3)
3. Compesantion transfer:
- compensation of the share of revenues
lost due to tax legislation changes;
- of permanent nature
- distributed only to those LGs which were
not reimbursed for their losses in any other
way
NON EARMARKED TRANSFER(4)
4. Transitional transfer:
- of temporary nature
- goal: make transitional period easier (3 years)
- during that period – compensation for loss in
revenues ( share above 5%), occurred due to
changes in transfer distribution system
- dynamics – 2007=100%, 2008=50%, 2009=25%
and 2010=0%
NON EARMARKED TRANSFER(5)
5. Reallocation of transfers (Robin Hood
methodology):
- between fiscally richer and poorer
jurisdictions
- provides more efficient redistribution
system
Reallocation of transfers ( Robin
Hood methodology)
Who are the donors:
– Average amount of shared taxes 50% (index
150) above the national average
– This condition meet only Belgrade and Novi
Sad
How much:
– 40% of funds above the proscribed amount of
shared taxes (index 150) = 2,6 billion
Robin Hood methodology (2)
• Distribution:
– according to criteria for distribution of general
transfer
Who is receiving it:
- all LGs but the donor units
EARMARKED TRANSFERS
Reasons for introduction:
- Financing functions and responsibilities
Republic delegated to local government
- Republic is able to finance concrete local
government programs and projects
EARMARKED TRANSFERS(2)
Types of transfers:
1. Block- for financing particular functions
such as:
• Health care
• Education
• Social assistance...
2. Categorical in a narrower sense– for
financing specific purpose within a
function
EARMARKED TRANSFERS(3)
– The amount of transfers set by relevant
ministries
– During the Memorandum preparation
procedure - relevant ministries submit to
MoF:
• Criteria and standards for setting the amount of
transfers
• Statistics
• Amount of earmarked transfers for individual units
NEXT STEPS
• Non earmarked transfers are entirely
regulated in terms of the way they are set
and distributed – no particular problems in
implementation
• Implementation of EARMARKED
transfers – practical solutions need to be
fine tuned– which is the goal of this
Program
NEXT STEPS (2)
• Determine the current status:
– Which ministries are providing earmarked
transfers
– Types of transfers LGs are provided with
– Methodology for setting the total amount of
these transfers
– Criteria and methodology for distribution of
the transfers and their budget calendar
– Planned amounts for 2006 and transferred
amounts for the period January-October 2006
NEXT STEPS (3)
• Collect and analyze best practices from
other countries
• Propose efficient and transparent model
for distribution of earmarked transfers
• All interested stakeholders must be
included in the Program :
– Relevant ministries
– Local government
– Local and foreign experts