0w2010 01 RESUM EJECUTIVO 03 DEFcarta ang
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Second Global Report on Decentralization and Local Democracy. GOLD 2010 EXECUTIVE SUMMARY
as a result of the growth of unemployment. [See figure 5]
Main issues and policy challenges for local government finance In spite of the fact that local self-government in the Eurasian countries shared a common environment and starting conditions in the early 1990s, each of the eight countries under review responded to challenges in its own way and built its own model of local self-governance and intergovernmental fiscal relations in the years that followed. Thus, today they differ in the number of local government tiers, the ways in which powers are granted to the executive and representative authorities, the assignment of revenue sources and expenditure responsibilities, as well as in their systems of intergovernmental transfers. Common features of however be drawn out:
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In all the countries under review, expenditure responsibilities are assigned to different levels of government by legislation, but this assignment is not always clear. Sometimes the same tasks are assigned to different levels (e.g. Moldova), also some responsibilities are still assigned according to the property delineation (e.g., in Belarus). Sometimes de facto assignment differs from that outlined in the legislation, and can even result in local governments financing responsibilities that are not within their authority (e.g. Georgia).
central government laws define the number of local staff (e.g. Kazakhstan, Belarus, Kyrgyzstan, Moldova) or impose limits on certain expenditures of local governments (e.g. Russia). In Russia, according to the President’s decree, regional governments must evaluate the performance of municipal raions and city governments. Personal income tax is the main source of local government revenue. Property and land taxes make up only a small part of local budgets except for Armenia where property taxes are the only taxes assigned to local budgets. All countries under review have restricted lists of local taxes that limit local governments’ autonomy to propose new taxes. Some countries (Belarus, Kazakhstan, Kyrgyzstan) set the rates of shared taxes in the budget law. In some countries tiers exist that do not have own taxes (e.g. raions in Russia). In many situations, central (federal) governments mandate tax benefits that reduce amount due to local budget (e.g. Georgia, Russia). Delegation of tax powers is not common. Local governments can only collect local taxes in Moldova, Armenia, and Kyrgyzstan. The experience of Armenia has shown that tax collection by the local level increases tax efforts and as a consequence tax compliance. The inverse was also found to be true, where the centralization of tax collection (for example that of sales tax in Kyrgyzstan) has reduced the amount of revenue collected.
Unfunded mandates have been significantly cut. In many Eurasian countries, unfunded mandates are forbidden by the legislation, but legislative decisions of higher level governments still can result in additional financial burdens to the local level and a reduction in their expenditure autonomy.
Significant improvement in the design of equalization grants has been made. Most countries under review have legally adopted formula-driven methodologies for allocating equalization grants from the central/regional budget, but local experts note that negative transfers in Belarus, Kazakhstan, Moldova, and Ukraine create disincentives for local tax base development.
Central and regional government controls on local governments. In some countries, the
Lack of transparent allocation rules for earmarked grants in most countries. At best,
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