The local authorities in Bulgaria want back what was looted from them by the central government. What was plundered is the tax on the income of individuals who work, earn and pay taxes at the local level, but at this level there is nothing that is left to the official authorities. Resources are concentrated in a few large centres such as Sofia, Plovdiv, Varna, Burgas, Ruse and the periphery of the country has long fallen into ruin and stagnation.
And now the beginnings of a different kind of stat tax policy may have just emerged. The central government is ready to give the municipalities at least 530 million levs back from the tax on personal income as of the next year. This is the equivalent to 20% of the personal income taxes as an estimated revenue in 2014. This year, the state treasury is waiting for over 2.6 billion levs from income tax paid by the citizens. Currently the more accurate estimates for each municipality are being made, the Finance Ministry told the BANKER.
The first meeting in this respect between the central and local government happened several days ago.
The government proposes to give 2 percentage points out of the 10, which are the full extent of the income tax, but the municipalities want 3 percentage points of the income tax, said the head of the National Association of Municipalities in Bulgaria Ginka Chavdarova. This would mean the allocation of 800 million levs per year to municipalities.
Acquisition of part of the personal income tax is in the priorities n the programme of the National Association of Municipalities in 2014 that is to be endorsed at the general meeting of the organization. For the period up to 2017 local authorities will try to get for themselves also part of other taxes such as the corporate taxes.
The request of the National Association of Municipalities in the Republic of Bulgaria was announced in the middle of August last year. Then Mrs. Chavdarova said: „Our representatives in the Council on Decentralization will leave the meetings if these gatherings are still only pro forma. We want a roadmap what we are going to do in the budget area.“ Now there is some clarity. Promise is not as something already given, but it is still a public commitment. Because until now there nothing of the kind.
„We asked Prime Minister Oresharski for 30% of the revenue from the income tax on individuals to be given to the communities where the people who pay it live those. Prime Minister accepted our arguments and started working on a comprehensive reform in the financing of municipalities,“ says Emil Savov, the deputy chairman of the Association. In his words, the current model to determine the available subsidy, which the state budget uses to cover deficits in the budgets of municipalities will change completely.
But then the enthusiasm I this respect was almost killed by silence.
So was it until November, when the country’s budget for 2014 was adopted without a word on fiscal decentralization. The fact that this year the thinking in this respect begins much earlier, is some kind of a guarantee that the request for more money for local communities can be heard.
Ministry of Finance explained that no agreement was reached, and also pointed out that against the pie of the proceeds from the state, municipalities will have to bear part of the responsibilities of the central government.
According to the independent expert, associated Professor Stefan Ivanov, the launched decentralization process went awry after 2009. Then the resources began being centralized. As a proof he shows the fact that in 2008 the cost to municipalities accounted for 7.5 percent of gross domestic product; in 2009 – they were 6.9 percent; in 2010 – 6.1 percent; in 2011 – 5.6 percent, etc. For the period 2001-2008, local governments have cut costs by 600 million while revenues went down by a billion. As a result, reserves melted and the municipalities began to accumulate arrears.
According to sources from the Ministry of Finance the reform of municipal budgets will be completed by year-end. If agreement is reached, the financial institution will prepare a three-year budget forecast and a convergence programme in which the calculations will be based on decentralization.
Many experts, however, pointed out the one essential element – that this move will very likely make the richer municipalities even richer and the poor ones – much poorer. With this motive the GERB government washed its hands in 2011.
The Association of Municipalities, however, made calculations on the effect of the changes. Preliminary calculations indicated that depending on the options for 2% or 3% municipal rate of the 10-percent flat tax, the municipalities would attract between 460 and 700 million levs (according to data for 2013) – i.e. the current levels of municipal tax revenue would be doubled.
Such a change, no matter how important it may be, is only a step towards a qualitative change in the degree of decentralization. Even with the option for a 3-percent rate going to municipalities, the share of the personal income tax will increase from 4% to just under 9% of all tax revenue for municipalities, whereas on average for the EU the proportion is 25 percent. (If one adds the additional shared taxes received by the municipalities in Europe, their share reaches 42%.) Under the other two main indicators, municipal budgets in GDP and the consolidated fiscal programme. the Bulgarian municipalities will reach the levels of 2008, and the lagging behind from the EU average would exceed two-fold one.
According Ginka Chavdarova 230 out of 264 municipalities will double their own revenue, assuming 30% of the income-tax revenues remain with them. The remaining ones can be helped with the available subsidy from the Treasury. The latest idea of Chavdarova however, is to register not the employers, but workers, i.e. those who are employed according to their permanent address. This will disperse the concentration of funds from the income tax returned to municipalities and will covered larger areas around the biggest centres – cities, towns and villages, where real people live and where they commute to and from every day. In her words, up to April 5, the concept will be polished and presented to the government. For this purpose, the municipalities are waiting for the decisive support of the National Revenue Agency.
The BANKER
