PERSPECTIVES OF LOCAL GOVERNMENT

PROVISION AND FINANCING OF DECENTRALIZED

SERVICES IN CROATIA

Vojko Obersnel, M.Sc.

President of the Association of Croatian Cities

EUROPEAN CHARTER OF LOCAL SELF-GOVERNMENT

– The Croatian Parliament in 1992 adopted the Decision on acceptance and compliance with the principles and the institute of the European Charter of Local Self-government, implemented only since 1 January 1998 Croatia is considered bound by the following provisions (paragraphs) of the Charter:

• Constitutional and legal foundation for local self-government• Concept of local self-government• Scope of local self-government (sub-paragraphs 1,2 and 4)• Protection of local authority boundaries• Appropriate administrative structures and resources for the tasks of

local authorities• Conditions under which responsibilities at local level are exercised• Administrative supervision of local authorities' activities (sub-

paragraphs 1 and 2)• Financial resources of local authorities (sub-paragraphs 1,2 and 3)• Local authorities’ right to associate (sub-paragraphs 1 and 3)• Legal protection of local self-government

LOCAL AND REGIONAL GOVERNMENT SYSTEM IN

CROATIA

• No. of counties - 20 + City of Zagreb• No. of cities -123 + City of Zagreb• No. of municipalities – 426

• Association of Cities and Municipalities:– Organization of cities– Organization of municipalities

• CROATIAN UNION OF COUNTIES

ASSOCIATION OF CITIESAND MUNICIPALITIES

• projects and programs• activities• proposals of amendments to

Laws• cooperation with USAID• cooperation with EU cities

ACHIEVED LEVEL OF DECENTRALIZATION IN

CROATIA• primary and secondary schools,• health care,• social welfare,• culture

LARGE CITIES AND COUNTIES in the New Law:• transport in their area• maintenance of public roads,• issuing construction and location permits,

other by-laws regarding construction

CITIES AND TAXESCITY OR MUNICIPAL TAXES • INCOME TAX SURTAX• CONSUMPTION TAX • TAX ON VACATION HOMES• TAX ON COMPANY OR NAME• TAX ON THE USE OF PUBLIC SURFACES• TAX ON IDLE LANDS• TAX ON UNUSED ENTERPRENEURIAL REAL PROPERTY• TAX ON VACATION PLOTS

SHARED TAXES • PROFIT TAX• INCOME TAX• CAPITAL TRANSFER TAX

INCOME AND PROFIT TAXDistribution of realized income tax and surtax and profit tax by level of public authority

Source: Drezgić Saša, M.Sc., Faculty of Economics RijekaData: Ministry of Finance

38

9

53

34

9

57

68

4

28

69

3

28

0

10

20

30

40

50

60

70

80

2003 2004 2003 2004

Income tax and surtax Profit tax

state

county

city/municipality

GDP PER COUNTIES IN 2003

Note: for calculation of GDP per capita the average foreign currency rate in 2003 was used; HR/EUR – 7.56

County Population 2003 (thousand)

Total Share in GDP (%)

GDP per County (in HRK bil.)

HRKGDP p.c.

EURGDP p.c.

Krapina-Zagorje 140.5 2.3 4.4 31,322 4,141

Sisak-Moslavina 182,8 3.3 5.3 34,439 4,553

Karlovac 139.1 2.5 4.7 34,105 4,509

Varaždin 183.2 3.9 7.4 40,576 5,365

Koprivnica-Križevci 123.2 2.7 5.3 43,081 5,696

Bjelovar-Bilogora 130.8 2.3 4.3 33,456 4,423

Međimurje 118.4 2.1 4.1 34,567 4,570

Zagreb 316.0 5.3 10.2 32,202 4,258

City of Zagreb 780.0 31.4 6.1 77,682 10,271

Primorje-Gorski kotar 305.1 8.0 15.5 50,668 6,702

Lika-Senj 53.0 1.3 2.4 45,673 6,038

Zadar 165.8 3.0 5.8 35,001 4,628

Šibenik-Knin 113.6 1.8 3.5 30,379 4,017

Split-Dalmatia 471.00 7.9 15.3 32.568 4,306

Istra 208.6 6.2 12.0 57,757 7,636

Dubrovnik-Neretva 123.9 2.5 4.8 36,542 5,096

Virovitica-Podravina 92.2 1.6 3.0 33,030 4,367

Požega-Slavonija 85.4 1.4 2.7 31,661 4,186

Brod-Posavina 176.2 2.3 4.4 25,234 3,336

Osijek-Baranja 328.8 5.7 11.0 33,235 4,394

Vukovar-Srijem 202.5 2.7 5.2 25,783 3,409

GDP PER COUNTIES IN 2003 31.6%

31.4%

8.0%7.9%6.2%

5.7%

5.3%

3.9%

City of Zagreb Primorje-G.kotarSplit-Dalmatia IstriaOsijek-Baranja ZagrebVaraždin Other

TOTAL REVENUEStructure of generated revenue of the state, county and city/municipal budget

Source: Drezgić Saša, M.Sc., Faculty of Economics RijekaData: Ministry of Finance, Tax Administration

# Title of budgetary revenue 2003 2004

- mln. HRK

% - mln. HRK

%

1 State budget own revenue 38481,0 64.1 40191,1 63.3

2 State budget shared revenue 6597,2 11.0 6749,0 10.6

3 State budget total revenue (1+2) 45078,2 75.1 46940,1 74.0

4 Own county revenue 1440,5 2.4 1450,9 2.3

5 Shared county revenue 989,6 1.6 1125,4 1.8

6 County budget total revenue (4+5) 2430,1 4.0 2576,4 4.1

7 City/municipality own revenue 6241,0 10.4 6648,7 10.5

8 City/municipality shared revenue 6302,9 10.5 7281,6 11.5

9 City/municipality total budget rev. (7+8) 12543,9 20.9 13930,3 22.0

10 Total generated revenue (3+6+9) 60052,2 100.0 63446,8 100.0

TOTAL REVENUE

74%

4%

22%

State budget total revenue

County budget total revenue

City/municipality budget total revenue

Structure of public expendituresGeneralpublicservices

Defense Public orderand safety

Education Health-care SocialWelfare

Housingsector

Leisure,culture,religion

Other

C L C L C L C L C L C L C L C L C L

Albania (1998) 75 25 100 0 100 0 20 80 70 30 81 19 68 32 65 35 98 2

Bulgaria (2001) 76 24 100 0 97 3 41 59 84 16 90 10 38 62 70 30 94 6

Croatia (2001) 56 44 100 0 98 2 84 16 99 1 99 1 49 51 42 58 81 19

Czech Rep. (2001) 54 46 100 0 92 8 61 39 98 2 95 5 37 63 40 60 78 22

Denmark (2000) 72 28 100 0 88 12 54 46 5 95 45 55 71 29 46 54 84 16

Estonia (2001) 72 28 100 0 96 4 33 67 97 3 91 9 0 100 54 46 88 12

France (1993) 74 26 92 8 23 77 63 37 98 2 91 9 18 82 27 73 84 16

Hungary (2000) 60 40 100 0 91 9 36 64 54 46 89 11 27 73 55 45 95 5

Ireland (1997) 92 8 100 0 0 100 78 22 52 48 94 6 30 70 51 49 84 16

Latvia (2001) 44 56 100 0 94 6 28 72 95 5 93 7 16 84 41 59 91 9

Lithuenia (2001) 79 21 100 0 97 3 32 68 99 1 90 10 0 100 61 39 91 9

The Netherlands (1997)

71 29 100 0 75 25 67 33 95 5 86 14 21 79 17 83 82 18

Poland (2001) 55 45 100 0 53 47 28 72 7 93 94 6 29 71 29 71 85 15

Romania (2001) 68 32 100 0 97 3 44 56 100 0 94 6 29 71 52 48 88 12

Russia (2001) 71 29 100 0 78 22 18 82 12 88 87 13 3 97 26 74 58 42

Slovakia (2001) 80 20 100 0 95 5 100 0 100 0 100 0 36 64 75 25 94 6

Slovenia (2001) 79 21 99 1 94 6 77 23 99 1 99 1 35 65 54 46 81 19

Great Britain (’98) 78 22 100 0 48 52 33 67 100 0 80 20 59 41 41 65 87 13

Structure of public expenditures of European unitary economies

Source: Drezgić Saša, M.Sc., Faculty of Economics Rijeka; Data: IMF (2002), Government Finance Statistics

INDEBTEDNESS OF GENERAL GOVERNMENT

HRK million % GDP

Central government total debt 84,647.50 38

Extra-budgetary funds total debt 14,616.00 6.6

Local government total debt 1,524.70 0.7

GENERAL GOVERNMENT TOTAL DEBT 100,788.20 45.3

SITUATION WITH DEBT OF THE GENERAL GOVERNMENT – without granted guarantees as at 31 October 2005

Source: Ministry of Finance, NBS for GDP

FISCAL CAPACITY OF CITIES

0

1000

2000

3000

4000

5000

6000

7000

8000

općine gradovi županije

0,0

10,0

20,0

30,0

40,0

50,0

60,0

70,0

80,0iznosizdataka (umil. kn)

udio uukupnimizdacimanižih razinajavne vlasti(%)

Comparison of total expenditures of the Croatian local public sector in 2001

Source: Drezgić Saša, M.Sc., Faculty of Economics, RijekaData: Ministry of Finance

FISCAL DECENTRALIZATION

a) increase in own tax revenuesb) non-tax revenues – in part used as

earmarked revenue, and in part for other activities from the self-government scope

c) borrowing – the level of borrowing to be adjusted to the value of local unit’s assets, i.e. budget capacity

d) not to set up new units of local government without ensured resources

ANALYSIS OF FUNCTIONAL RESPONSIBILITIES OF LOCAL

GOVERNMENT AND RECOMMENDATIONS FOR FURTHER DECENTRALIZATION (1)

From the standpoint of local government:

• current division of functions is not in compliance with the principle of subsidiarity

• some of the basic functional responsibilities prescribed by laws are not appropriately implemented

• specific discrepancies and inconsistencies exist, as well as a high level of imbalance of current legislation

ANALYSIS OF FUNCTIONAL RESPONSIBILITIES OF LOCAL GOVERNMENT AND

RECOMMENDATIONS FOR FURTHER DECENTRALIZATION(2)

CONCLUSIONS:• further transfer of competences for primary schools to cities and large

municipalities• transfer of competences of social welfare centers to large and medium-

size cities• transfer of concessions for agricultural land to all units of local

government• transfer of competences for roads to large and medium-size cities• transfer of the tasks of issuing operating permits for hospitality industry• enhancing the level of adjustment and coordination between the local

government and service providers in health-care and social welfare• introducing more equitable distribution of shared profit tax so it is

shared to areas where profit was actually generated• introducing a real “Equalization Fund”

FINAL CONSIDERATIONS1. Inadequate level of decentralization2. Ratification of other provisions of the

European Charter of Local Self-government3. There is no developed and strong local

government without fiscal decentralization as a precondition for the decentralization of functions

4. Need to adopt the Law on Local Civil Servants and Employees

5. Need to set up a Local Government Academy6. Direct election of leaders of units of local and

regional government