Transcript Hungarian Local Government System

KATALIN PALLAI
THE HUNGARIAN
DECENTRALIZATION
www.pallai.hu
The Hungarian LG System
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OUTLINE
The basic framework
Elements of the fiscal decentralization
framework
Expenditure assignment
Revenue assignment
Borrowing
Design trade offs and problems in the
system
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THE BASIC FRAMEWORK
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1990. Act on Local
Governments
The system created on the model of the
European Charter of Local Governments
on the principles of Subsidiarity
Independent self-government
Local government decision can be attacked only at court
or Constitutional Court on the basis of its legality
Strong decentralization
Two main frameworks of public administration (CG&LGs)
Public expenditure 54 to 39 % of GDP (1994-97)
Local expenditure 17,4 to 10,58 % of GDP (1990-2002)
Accountability
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SYSTEM OF PUBLIC
ADMINISTRATION
CENTRAL GOVERNMENT and its
organs at the local and terriotorial
levels
LOCAL GOVERNMENTS at two levels
Municipalities as basic units organized by
settlements
GENERAL OBLIGATION
county governments (not EU regions)
not
RESIDUAL ROLE: services that settlements are
capable to perform or have a regional
character
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EXPENDITURE
ASSIGNMENT
WHO DOES WHAT?
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FUNCTIONS OF LOCAL
GOVERNMENTS
Physical Services
Transport
Public Works
Social services
Education and Culture
Welfare and Health Care
Public Administration and local management
Urban regulation and planning
Protection of the natural and built environment
Citizens’ administration (birth, death, marriage)
Local business and Tax administration
Asset management
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SERVICE TASKS OF
LOCAL GOVERNMENTS
OBLIGATORY TASKS
OPTIONAL TASKS
Drinking water
Basic health and welfare
services
Kindergarten and
primary school education
Public roAds & lighting
Cemeteries
Protection of the rights
of minorities
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Depending on size and
financial capacities
Only on extent not
endangering delivery of
the mandatory tasks
Fire brigades&rescue
Welfare services
Public transportation
Secondary education
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LOCAL GOVERNMENT
EXPENDITURES IN HUNGARY
1992
1997
Education
33
36
Health
20
22
Social security and welfare
6
7
Housing and water
5
6
Transportation and
communication
6
2
79
19
100
74
17
100
Current expenditures
Capital expenditures
Total expenditures
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PHYSICAL INFRASTRUCTURE
SERVICES (own responsibilities)
Gas, district heating, water, waste, local public transport,
cemeteries, etc
TRANSFER TO LGs:
Responsibility as compulsory task to local
governments
1991. Law on property transfer as core assets
(actual transfer till 1993)
1994. Price setting authority transferred (except
for gas, and veto right of CG on public transport charges)
Revenue collection and receipt
Investment grants and operation subsidy available
Freedom how to organize the service delivery
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HUMAN SECTOR SERVICES,
except health
(shared responsibilities)
PRIMARY AND SECONDARY EDUCATION
TRANSFERRED TO LGs:
Responsibility as compulsory task to local
governments
1991. Law on property transfer of assets used by the
institutions (actual transfer till 1993)
Employer rights of staff involved
Normative grants on the basis of tasks supplied
Investment grants on request
General revenues to supplement grants
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1993-97 new sectoral laws regulating service
delivery andThe
universal
quality standards (in
Hungarian LG System
education basically output regulation)
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HEALTH CARE – hospitals
Mixed system (not shared !)
National level - financing of operations
Specification of financing rules for activities
Operation contract as basis for transfers

Specification of type and amount of services to be
covered (and up-dated every year)
Local level - capital investments
Construction and renovation of buildings
Purchase of equipment
Competition for national grant system
Producing dubious incentives
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REVENUE ASSIGNMENT
WHO LEVIES WHAT TAXES
AND COLLECTS LOCAL
NON-TAX REVENUES?
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REAL VALUE OF REVENUES
(on 1991 value)
450000
400000
350000
300000
250000
200000
150000
100000
50000
0
TOTAL
transfers
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2001.
1999.
1997.
1995.
1993.
1991.
own revenues
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LOCAL REVENUES
Annual revenue transfers
 Shared revenues
 Normative operational grants
grants
Addressed and targeted investment
 Deficit grant
Own-source revenues:
 Local taxes
 Fees, charges, contributions
 Revenues on Property (Lease and sale)
Borrowing (loan and bond)
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Role of local taxes
16%
14%
12%
10%
8%
6%
4%
2%
0%
100%
80%
60%
40%
Share of local taxes in
local government
revenues
Share of local business
tax in local taxes
20%
0%
91 92 93 94 95 96 97 98 99 00
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Local business tax revenue
(per capita in 1998, thousand HUF)
49
50
31
40
30
13
20
10
0
Budapest
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Cities, towns
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Villages
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Basically normative system
Proportional to tasks
Normative grants for operation
Addressed and targeted investments grants
Revenue localization
lease
Own revenue – tax, fee, privatization, property
and sale
Shared taxes
Revenue capacity
subsidies
Different forms of operation and development
capacity
Equalization grant, based on local tax and PIT
calculation
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LOCAL BORROWING
Who and How can
Generate Local Debt?
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LOCAL BORROWING
Borrowing is an independent decision of
the local council, mayor, financial chief
Macro-economic risks of local
Borrowing is reduced by Laws and
regulations
Regulation of Municipal borrowing (debt service
pegged to own current revenues ‘96)
Municipal bankruptcy and Debt Settlement
Procedure (‘96)
Law: Central Government is not responsible for
local borrowing (no bail-out)
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PROBLEMS AND
CONFLICTS IN THE
SYSTEM
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PROBLEMS AND CONFLICTS
IN THE SYSTEM
Lack of predictability:
Annual decisions of central transfers within
the State Budget
 flexibility for central Government vs. Insecurity for
Local Governments and Overwhelming fiscal
dependency
Structural deficit of the national budget:
deficit
Central government strategy can „push down” the
to the LG level
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GDP SHARE OF LG AND
CG BUDGET
1991
1996
2000
CENTRAL
GOVERNMENT
47%
40%
45%
LOCAL
GOVERNMENTS
15%
14%
12%
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Local and Central budgets
compared to the change of GDP
125
120
115
110
105
GDP
local governments
central government
100
95
90
85
%
80
1992 1993 1994 1995 1996 1997 1998 1999
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LOCAL REVENUES AS
(%) SHARE OF GDP
18
17
16
15
14
13
12
11
10
1
1
9
9
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1
2
9
9
1
3
9
9
1
4
9
9
1
5
9
9
1
6
9
9
1
7
9
9
1
8
9
9
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9
9
9
2
0
0
0
2
1
0
0
2
2
0
0
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PROBLEMS AND CONFLICTS
IN THE SYSTEM
Decreasing local government revenues:
The possible problems:
Un-predictable process, insecurity for LG planning
Inadequacy of LG funding
Interest of local governments:
Predictable system: to peg transfer pool to GDP or National
Budget
 More own revenues and financial independence (CG must
offer not only right, but make also room for local revenue
collection)
 Better representation of the interests of LGs
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Regulation of PIT sharing
60
50
40
PIT shares on the
origin bases
30
PIT shares
redistributed
20
PIT shares total to
LG
10
0
91 992 993 994 995 996 997 998 999 000
9
1
1
1
1
1
1
1
1
1
2
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Shared PIT and local taxes
(in nominal HUF)
250 000
200 000
Local taxes
150 000
Shared PIT (on origin
bases)
100 000
50 000
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2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
0
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OWN AND SHARED
REVENUES
(AS SHARE OF TOTAL REVENUES)
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own revenues
shared on origin
base
01
20
99
19
97
19
95
19
93
PIT to LGs
19
19
91
45
40
35
30
25
20
15
10
5
0
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TRANSFERS
PROPORTIONAL TO TASKS
(AS SHARE OF TOTAL REVENUES)
60
normative grants
for opeartion
50
investment
grants
40
30
from PIT on task
basis
20
total task
related transfers
10
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2001
1999
1997
1995
1993
1991
0
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PROBLEMS AND CONFLICTS
IN THE SYSTEM
Weaknesses of the normativity of the
intergovernmental financing system
Decreasing task related financing
Shared tax revenue has decreased
Inadequacy of the own revenue sources
Revenue capacity calculation for
equalization considerably decreased the
incentive for own revenue production
No calculation of revenue dynamics
Increase of discretionary elements
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PROBLEMS AND CONFLICTS
IN THE SYSTEM
Difficulties caused by the Public Sector
Reform
Uniform quality standards:
changing tasks for local governments
Un-funded mandates ?
Sector policies vs. Inter-sectoral bargains
Central planning advantage vs. micro
adjustments and synergies of local policies
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PROBLEMS AND CONFLICTS
IN THE SYSTEM
Fragmentation
In 1990 it was logical to create a system based on
the settlement level for reinforcement of
communities and participation
Differences in capabilities
Externalities and economy of scale
Certain functions shifted to weak middle level
Incentives to cooperation of LGs
Privatization and out sourcing encouraged
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IMPORTANCE OF LOCAL
GOVERNMENTS
Division of monolithic state
New methods in governance
Participation and local democracy
POPULARITY OF LOCAL
GOVERNMENTS
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Satisfaction with
achievements
60
national
local
40
20
szept.97
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may
jún.99
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Satisfaction with
institutions
60
50
40
30
local governments
20
central government
10
0
1995 1996 1997 1998 1999
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Role in improving your life
100
90
80
central government
70
parliament
mayor
60
local assembly
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1999
1998
1997
1996
50
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Katalin Pallai
www.pallai.hu
[email protected]
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RIGHTS OF LOCAL
GOVERNMENTS
LGs autonomously act on public affairs
in local interests
Responsibility and authority exercised
by elected body
The office has strictly administrative and
preparatory tasks
Autonomously select the mix and forms
of services delivered
Autonomous decision on organization
and rules of procedure
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INSTITUTIONAL
FRAMEWORK OF FD
Legislative Framework: Constitution, Local
Government Act, Act on Local Budgets, State
Budget Act, Sector Laws and Decrees, Act on
Municipal Debt Resolution
Organizational Framework for Conflict Resolution
Surveillance: Parliament, State Audit Office, Local
Administrative Notary, sector ministries (compliance
with sector rules)
Citizens’ control: transparency, public hearing,
referendum, polls, NGOs & private sector representation
Dispute resolution: regular Courts, Constitutional Court,
No Administrative Court only departments of judges
specialized on administrative cases
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OWN REVENUES
(as % of local budgets)
50%
40%
User charges
30%
Local taxes
20%
Revenue from
property
10%
0%
1995 1996 1997 1998 1999 2000
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Revenues in Budapest as
% of total revenues
100
80
own source
revenues
60
40
transfers
20
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2001.
1999.
1997.
1995.
1993.
1991.
0
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