Transfers from the state budget make up around 6% of the local authorities’ own revenue, which last year amounted to roughly RON30 billion. The total revenue of local authorities amounted to RON50 billion in 2010, including RON15 billion from VAT transfers and RON5 billion from subsidies, allotted at the Government’s discretion.
Through this new decision, the monthly share transferred to local authorities from income taxes will be reduced by the Government by 5.5 percentage points, from 77% to 71.5%, and earnings from taxes on pension income will go to the state budget in their entirety.
The changes have been prepared by the Government in an emergency ordinance, which amends the Law on local public finance, and will be approved along with next year’s draft budget.
The Executive reasons that the budgetary balance will be affected next year, when the state budget takes over funding of public schools (specifically from VAT transfers), which have so far been financed from the local budgets. Another argument raised in defense of the ordinance is the existence of “discrepancies” in the allocation of these shares: the Government explains that shares from income and pension tax collections are allotted only to the administrative-territorial units where the taxpayers carry out their activity, i.e. only county seats, where the county pension houses are located, although pension beneficiaries live all over the county.
Currently, the 77% share is transferred to the local budgets of communes, towns and cities where income tax payers carry out their activity (44%), to the county’s local budget (12%) and into a separate account, opened for the county public finance departments with the county seat treasury, in order to balance the local budgets of the communes, towns and cities, as well as the county’s budget (21%).
After the 77% share is reduced, the pieces destined for communes, towns and cities will also be changed (to 40.5%), as will the county’s allowance (to 11%) and the share destined to balance the local budget (to 20%). In Bucharest, the shares will be reduced from 44.5% to 43.5% for the General City Hall, from 22.5% to 19% for the sector halls, and from 10% to 9% for budget balance.
The ordinance states that local budgets will lose about RON835 million from the share of pension income taxes that will no longer be transferred and RON1 billion through the changes to income tax transfers. The act points out, though, that the RON1 billion will be provided from other state budget sources of revenue, to finance public school expenses.
Nevertheless, the change eliminates a definite, legally-provided source of revenue for local authorities, plus the Government’s prerogative to distribute the RON1 billion only to certain town halls, according to certain criteria.
Past experience shows that the current administration, as well as past governments, has directed funds from VAT collections mainly to town halls led by members of its political party.
The draft ordinance includes a chapter concerning consultation with non-governmental organizations, research institutes and other relevant structures in developing the legislation. In this section, the Government wrote “not applicable.”
(EUR1=RON4.3479)