belgrade, november 01, 2006
DESCRIPTION
Aut h or: 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 : S CTM – for med “ Working group ” - PowerPoint PPT PresentationTRANSCRIPT
![Page 1: Belgrade, November 01, 2006](https://reader037.vdocuments.net/reader037/viewer/2022110211/5681316a550346895d97e1e1/html5/thumbnails/1.jpg)
Author: Branislav Stipanović
INTERGOVERNMENTAL FINANCE SYSTEM IN SERBIA
- Status and next steps -
Belgrade, November 01, 2006
![Page 2: Belgrade, November 01, 2006](https://reader037.vdocuments.net/reader037/viewer/2022110211/5681316a550346895d97e1e1/html5/thumbnails/2.jpg)
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
![Page 3: Belgrade, November 01, 2006](https://reader037.vdocuments.net/reader037/viewer/2022110211/5681316a550346895d97e1e1/html5/thumbnails/3.jpg)
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
![Page 4: Belgrade, November 01, 2006](https://reader037.vdocuments.net/reader037/viewer/2022110211/5681316a550346895d97e1e1/html5/thumbnails/4.jpg)
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
![Page 5: Belgrade, November 01, 2006](https://reader037.vdocuments.net/reader037/viewer/2022110211/5681316a550346895d97e1e1/html5/thumbnails/5.jpg)
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
![Page 6: Belgrade, November 01, 2006](https://reader037.vdocuments.net/reader037/viewer/2022110211/5681316a550346895d97e1e1/html5/thumbnails/6.jpg)
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
![Page 7: Belgrade, November 01, 2006](https://reader037.vdocuments.net/reader037/viewer/2022110211/5681316a550346895d97e1e1/html5/thumbnails/7.jpg)
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
![Page 8: Belgrade, November 01, 2006](https://reader037.vdocuments.net/reader037/viewer/2022110211/5681316a550346895d97e1e1/html5/thumbnails/8.jpg)
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
![Page 9: Belgrade, November 01, 2006](https://reader037.vdocuments.net/reader037/viewer/2022110211/5681316a550346895d97e1e1/html5/thumbnails/9.jpg)
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
![Page 10: Belgrade, November 01, 2006](https://reader037.vdocuments.net/reader037/viewer/2022110211/5681316a550346895d97e1e1/html5/thumbnails/10.jpg)
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
![Page 11: Belgrade, November 01, 2006](https://reader037.vdocuments.net/reader037/viewer/2022110211/5681316a550346895d97e1e1/html5/thumbnails/11.jpg)
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
![Page 12: Belgrade, November 01, 2006](https://reader037.vdocuments.net/reader037/viewer/2022110211/5681316a550346895d97e1e1/html5/thumbnails/12.jpg)
• Introduction of several types of transfers:– Two basic groups:
1. Non earmarked transfers / unconditional
2. Earmarked transfers / conditional
Basic changes in the transfer system (2)
![Page 13: Belgrade, November 01, 2006](https://reader037.vdocuments.net/reader037/viewer/2022110211/5681316a550346895d97e1e1/html5/thumbnails/13.jpg)
Basic changes in the transfer system(3)
• Non earmarked transfers / unconditional:
1. Equalization
2. General
3. Compensation
4. Transitional
5. Reallocation – Robin Hood methodology
![Page 14: Belgrade, November 01, 2006](https://reader037.vdocuments.net/reader037/viewer/2022110211/5681316a550346895d97e1e1/html5/thumbnails/14.jpg)
NON EARMARKED TRANSFER
1. Equalization transfer:
Who is receiving it:
- <90% of national average (shared taxes);
How much:
- proportional to shortfall of jurisdictions
![Page 15: Belgrade, November 01, 2006](https://reader037.vdocuments.net/reader037/viewer/2022110211/5681316a550346895d97e1e1/html5/thumbnails/15.jpg)
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
![Page 16: Belgrade, November 01, 2006](https://reader037.vdocuments.net/reader037/viewer/2022110211/5681316a550346895d97e1e1/html5/thumbnails/16.jpg)
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
![Page 17: Belgrade, November 01, 2006](https://reader037.vdocuments.net/reader037/viewer/2022110211/5681316a550346895d97e1e1/html5/thumbnails/17.jpg)
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
![Page 18: Belgrade, November 01, 2006](https://reader037.vdocuments.net/reader037/viewer/2022110211/5681316a550346895d97e1e1/html5/thumbnails/18.jpg)
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%
![Page 19: Belgrade, November 01, 2006](https://reader037.vdocuments.net/reader037/viewer/2022110211/5681316a550346895d97e1e1/html5/thumbnails/19.jpg)
NON EARMARKED TRANSFER(5)
5. Reallocation of transfers (Robin Hood methodology):
- between fiscally richer and poorer jurisdictions
- provides more efficient redistribution system
![Page 20: Belgrade, November 01, 2006](https://reader037.vdocuments.net/reader037/viewer/2022110211/5681316a550346895d97e1e1/html5/thumbnails/20.jpg)
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
![Page 21: Belgrade, November 01, 2006](https://reader037.vdocuments.net/reader037/viewer/2022110211/5681316a550346895d97e1e1/html5/thumbnails/21.jpg)
Robin Hood methodology (2)
• Distribution:– according to criteria for distribution of general
transfer
Who is receiving it:
- all LGs but the donor units
![Page 22: Belgrade, November 01, 2006](https://reader037.vdocuments.net/reader037/viewer/2022110211/5681316a550346895d97e1e1/html5/thumbnails/22.jpg)
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
![Page 23: Belgrade, November 01, 2006](https://reader037.vdocuments.net/reader037/viewer/2022110211/5681316a550346895d97e1e1/html5/thumbnails/23.jpg)
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
![Page 24: Belgrade, November 01, 2006](https://reader037.vdocuments.net/reader037/viewer/2022110211/5681316a550346895d97e1e1/html5/thumbnails/24.jpg)
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
![Page 25: Belgrade, November 01, 2006](https://reader037.vdocuments.net/reader037/viewer/2022110211/5681316a550346895d97e1e1/html5/thumbnails/25.jpg)
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
![Page 26: Belgrade, November 01, 2006](https://reader037.vdocuments.net/reader037/viewer/2022110211/5681316a550346895d97e1e1/html5/thumbnails/26.jpg)
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
![Page 27: Belgrade, November 01, 2006](https://reader037.vdocuments.net/reader037/viewer/2022110211/5681316a550346895d97e1e1/html5/thumbnails/27.jpg)
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