To what extent does the central government ensure that tasks delegated to subnational self-governments are adequately funded?

The central government enables subnational self-governments to fulfill all their delegated tasks by funding these tasks sufficiently and/or by providing adequate revenue-raising powers.
Canadian subnational governments deliver key public services, notably healthcare and education. Their share of government spending has risen dramatically over recent decades and now accounts for roughly 78%, compared to an OECD average of 32% (2016 data).

Canada’s federal government typically ensures that tasks delegated to subnational governments are adequately funded. The federal government transfers funds earmarked for both healthcare and education through the Canada Health Transfer (CHT) and the Canada Social Transfer (CST). In addition, Canada has a system of Equalization and Territorial Formula Finance (ETFF) payments in place, which are unconditional transfers to the provinces and territories designed to equalize the level of public service provision nationally. The block-funding structure is intended to give provinces and territories greater flexibility in designing and administering programs.

Starting in 2017 – 2018, total CHT funds have grown in line with nominal GDP, though several provinces have negotiated their own deals with the federal government to secure higher levels of funding. Both the CHT and the CST programs will be reviewed in 2024; however, this may be too late, as a recent Parliamentary Budget Officer (PBO) projection forecasts that provincial debt levels will start to increase in the mid-2020s and climb rapidly thereafter. On the current trajectory, therefore, fiscal policy at the subnational level is unsustainable, and federal transfer programs will prove to be insufficient to fund the large-scale increases in healthcare spending that will result from an aging population.
Department of Finance, Canada, Canada Health Transfer, retrieved Nov 25 2019 from

Parliamentary Budget Officer of Canada, Fiscal Sustainability Report 2018, posted at
New Zealand
New Zealand is one of the most centralized jurisdictions in the OECD. More than 90% of government workers are employed by central government organizations, and almost all citizen-facing public services – including policing, fire services, education and health – are central government activities. Almost all local regulation is undertaken by an agent of central government, with little locally initiated regulation. In addition to their relatively narrow task profile, local governments are not permitted to tap into other commonly used sources of subnational revenue such as sales and/or income taxes. Local governments therefore raise a relatively large proportion of revenue from rates (taxes on real-estate holdings and charges). They have full discretion to set rates, subject to a general balanced budget requirement. Other revenue sources include user charges, such as vehicle fuel charges (since 2018), and fees. Local government officials have been lobbying central government for the right to raise revenue from additional sources, including road tolls. To date, their lobbying has been largely unsuccessful. There are no block grants from central to local government, but the central government contributes funding to specific local government functions, in particular transportation as well as road construction and maintenance. The previous National Party-led government reformed the Local Government Act with the aim of limiting local services to their core tasks to keep costs under control.
The New Zealand Productivity Commission 2018. Local government funding and financingIssues paper -November 2018.
In Switzerland, cantons and municipalities levy most of the country’s tax revenues. They determine local tax rates and decide how tax revenues will be distributed. Between 2004 and 2007, Switzerland passed a rather successful reform of its financial federalism, which has now taken effect. The basic idea was to establish a clear division of tasks between the federation and cantons as well as create transparency with regard to the flow of resources between the federal state and cantons. In this reform, the basic principle of fiscal equivalence was strengthened. This means that communes, cantons and the federation each are responsible for the funding of their own tasks, and for the balance of their own budgets. The fiscal equalization scheme has been retained, as it is necessary to reduce certain geographical, economic and social disparities, but the danger of providing badly aligned incentives through earmarked subsidies is eliminated through the use of grants. Funds thus continue to flow vertically (from the federal state to the cantons and vice versa) as well as horizontally (between communes and cantons). Nonetheless, it remains to be seen whether the new fiscal equalization scheme will help cantons that have serious problems in fulfilling their tasks or in meeting their goals due to their small size, lack of resources or other reasons. In any case, there is a divide between those cantons that pay more and those receiving payments.
The central government enables subnational governments to fulfill most of their delegated tasks by funding these tasks sufficiently and/or by providing adequate revenue-raising powers.
Under Austria’s federal system, individual states (“Länder”) are constitutionally weak as compared with individual states in other federal systems. Yet politically, the states enjoy significant power due to the principle of federal or indirect administration and the federal structure of all major parties. Successful party leaders on the state level often determine the fate of their party’s national leadership.

In part because of this ambivalent power structure, responsibilities shift and are shared between levels. In some cases, this functions well: In the case of the most recent health reform, for example, state administrations and the federal government, working closely with the umbrella organization of public insurance companies, together developed a formula that is expected to limit increases in care costs. In other fields, such as the school system, the conflicting structures and interests of the state and federal governments have led to inefficiencies and finger-pointing. Concerning the need to determine the amount of subsidy states must provide asylum-seekers, the states responded in contradicting ways.

A significant aspect would be to allow the states to independently raise some taxes. However, the states themselves oppose such a reform. The states seem satisfied to be financed by the federal authorities, decided by a negotiated compromise between the federal government (“Bund”) and the states.

The Austrian constitution mandates that tasks delegated to regional or municipal governments must be adequately funded, although this does not always entail 100% national funding. This principle is in most cases effectively implemented, with some exceptions on the municipal level.

In 2018 and 2019, nothing changed significantly. However, a debate has been started by the governor of Lower Austria concerning the powers of the nine federal states to collect taxes. This idea has occasionally been articulated over the years, although only to be quickly forgotten. If such an idea were implemented, the structure of the Austrian political system would become more decentralized. However, any substantive policy to empower the states will have to wait until a new coalition government is established in 2020.
Part of the income tax paid in Denmark is a municipal tax and municipalities have discretionary powers to set the taxes. The municipalities also receive funding from the state (bloktilskud), and there is an equalization arrangement that reallocates funds from richer to poorer municipalities. There are annual negotiations with both the municipalities and regions about the financial framework agreement. Since municipalities act independently – though coordinated via their organization (Kommunernes Landsforbund) – the budget decisions of the municipalities have not always been consistent with the overall targets set by the Ministry of Finance. This implied for some years that expenditure growth exceeded targets. As consequence the budget law (effective as of 2014) stipulates tight expenditure control, including possible financial sanctions of municipalities. The sanctions have both an individual and collective element. If the sum of expenditures exceeds the agreed target, the “bloktilskud” is reduced by an equivalent amount. This reduction is levied 60% on the municipalities which exceeded expenditure targets and 40% on all municipalities (distributed according to population size). The new system has been very effective and municipalities have been well within targets in recent years. Since 2002, municipalities have been part of a so-called tax freeze implying that taxes (e.g., income and building sites) cannot increase. If one municipality increases some tax it should be matched by a decrease in another municipality.

Many municipalities face a very tight financial situation, and have had to reconsider resource use on core activities, such as child- and old-age care, and schooling. The new Social Democratic government has in response increased transfers to municipalities and regions targeting welfare and education to make it easier for local authorities to fulfill expectations.
Jørgen Grønnegård Christiansen et al., Politik og forvaltning, 4. udg., 2017.

Andersen, T.M., J. Bentzen, S. E. Hougaard Jensen, V. smith and N. Westergaard-Nielsen, The Danish Economy in a global perspective, Copenhagen: DJØF Publishing, 2017.

Finansministeriet, Velfærd først. Finanslovforslaget 2020, Oktober 2019.. (accessed 18 October 2019).
Municipal governments have a right to assess taxes, collecting more than twice as much as the central government in income taxes. A government grant system additionally enables local governments to continue to provide public services even when experiencing a funding gap. In essence, a portion of locally collected taxes is put into a common pool, from which transfers are made to financially weak local governments. The central government establishes strict standards and service-provision requirements intended to cover all citizens. However, local governments are tasked with providing these services, which means that some municipalities are unable to meet the standards without increasing taxes. Given that local government units differ greatly in size and resources, they are in unequal positions in terms of capacity and performance efficiency. A large-scale reform of municipalities and services, started in 2006 has led to a considerable reduction in the number of municipalities. Among other goals, the reform aims to secure sufficient financing and an efficient provision of services across the country. The Sipilä government also introduced an additional, much contested reform project (SOTE) aimed at creating larger entities tasked with providing social and healthcare services in a more efficient way. As of the time of writing, the fate of the reform under the succeeding governments was unclear.
The issue of grant-based funding has been a constant source of conflict between the local and central government levels. Meanwhile, the division of responsibilities between the central government and local governments has changed, but not radically. In 1996, full responsibility for primary education was transferred from the central government to local governments. In general, this transfer of responsibilities has been achieved without imposing a heavy financial burden on local governments. However, some of the smallest municipalities have experienced fiscal difficulties as a result of these transfers, and have either been forced to amalgamate or cooperate on service provision with neighboring municipalities. Full responsibility for services for disabled individuals was transferred to local governments in 2010 and took effect in January 2011, without conflicts concerning funding arrangements arising between the central government and local governments. Further transfers of responsibility have been planned – though without any dates set, including responsibility for elderly care. Negotiations on the transfer of elderly care have been repeatedly postponed due to disagreements over funding arrangements between central and local governments. The negotiating and preparation committee with representatives from state and local levels has in fact had no formal meeting since August 2013 (
Eythórsson, Grétar Thór (2017), “Bigger and stronger together. How Icelandic municipalities solve their lack of capacity and scale economy,” in Teles, Filipe and Swianiewicz, Pawel (Eds.), Inter-Municipal Cooperation in Europe Institutions and Governance. Palgrave MacMillan. DOI: 10.1007/978-3-319-62819-6.

Eythórsson, Grétar Thór (2012), “Efling íslenska sveitarstjórnarstigsins: Áherslur, hugmyndir og aðgerðir,” in Icelandic Review of Politics and Administration, Vol. 8, No. 2. Accessed 22 December 2018.
There is a constant tension between central and local government over the funding of responsibilities imposed on local governments. As welfare policies move more toward ensuring universal rights, the financial and administrative demands placed on the various local units have become more challenging, particularly for some of the smaller units. As a result, local government funding has been increased. This policy was initially met with great satisfaction by local authorities; however, these bodies rapidly adapted their activities to these new financial flows and relaxed budget discipline which, in turn, led to growing public debt at the local level. Local governments later again began asking the central government for additional funds. In general, regional governments and municipalities are adequately funded, but there have been efforts to promote voluntary structural reforms that would create larger units. However, these reforms have been slow and some have been rejected by voters in local referendums.
The United States has a federal system in which the 50 states are independent sovereign governments, although the federal constitution is “the supreme law of the land.” States have unrestricted power to raise their own revenue, although the federal government takes full advantage of their more productive sources, such as the income tax. There is no general presumption of uniform standards for public services. Rather, the federal government imposes standards or seeks to induce certain levels of performance in varying degrees on different issues.

State officials have often complained that federal mandates required substantial expenditures without providing the necessary funds. In 1995, the Republican Congress passed the Unfunded Mandates Reform Act. The act provides incentives for Congress and regulatory agencies to identify potential unfunded mandates in the legislative or rule-making process but does not prevent them from setting mandates. As a result, complaints from state officials have subsided. The Trump administration has increased the states’ discretion in the use of funds for food stamps, medical care for the poor (Medicaid), and cash assistance to the poor.
The regional tier within the Czech system of governance retains importance following a process of consolidation of various administrative functions. The budgetary allocation of taxes, tax autonomy, and financial decentralization have enabled regional governments to exhibit independence in fulfilling governing duties and managing necessary infrastructure. European structural funds constitute an important resource for regional development, though this will change significantly as of 2020 and involve a decrease in spending. All negotiations over regional budgets remain complicated by opposing political majorities on the central, regional and municipal level.
Over the past 30 to 40 years, the powers of communes, provinces (départements) and regions, delegated by central authorities or de facto taken over by local entities, have increased considerably. Normally a delegation of powers was accompanied by corresponding funding. However, as formerly centralized policies were notably badly managed or insufficiently funded, local units had to face huge expenditure increases that were not fully covered by the central government. Thus, more than two-thirds of non-military public monies are spent by local/regional actors, a figure comparable to the situation in federal political systems. While local authorities in theory act as agents of the central government in some areas, they in fact have substantial autonomy. The recent regional reform reducing the number of regions from 22 to 13 has had quite an important consequence: the new regions will benefit from a fraction of the VAT. Previously, they did not receive their own tax revenues, depending instead on transfers from the central government. The goal of the merger was to generate efficiencies and thus save on resources. However, a recent Court of Accounts report shows that the new consolidated regions in aggregate spend more than those which were not combined.

On the other hand, piecemeal and ad hoc local taxation reforms, such as the elimination of the local business tax (taxe professionnelle) and its compensation by national state allocations in 2009, have not improved the situation. Growing tension between the central government and local authorities has been fueled by President Macron’s decision to exempt all local taxpayers from paying (by 2022) the “taxe d’habitation” (a rather unfair tax paid by all local residents, owners and tenants). The local tax will be replaced by property-tax revenues that currently go to the provinces, while the provinces will benefit from a new tax or transfer, the details of which were still to be decided as of the time of writing. The various levels of local government fear that they will lose resources, with the uncertainty contributing to discontent and protest. Moreover, local authorities fear that the state subsidies or new taxes will not evolve over time according to needs. Finally, further cuts have been imposed, forcing local authorities to consolidate budgetary policies. The government has passed a law obliging local authorities to apply the 35-hour working week regulation, as many local governments had offered even further reductions of weekly working times in concession to the unions. The expected savings from this change are said to correspond to 30,000 jobs (though this is probably an overoptimistic estimate).
The delegation of tasks from the national to the subnational level without commensurate funding has been a sore point of German fiscal federalism. For instance, municipalities suffer under the weight of increasing costs of welfare programs. However, a number of adjustments over the last years have substantially rejuvenated municipalities and states. For example, in July 2016, the federal government increased the flat-rate payment for the integration of migrants by about €8 billion until 2018, which was an exceptional improvement.

With respect to the future of the fiscal equalization system, an important compromise on the new system (in effect from 2020 onward) was achieved in October 2016. In this compromise, the Länder receive higher shares of VAT revenues and a system of exclusively vertical equalization payments (from the federal to the state level) is replacing the current horizontal system (where richer states pay to poorer states).

In March 2019, a digitalization pact (Digitalpakt) was adopted. Under this policy, the federal government will invest about €5 billion in upgrading the digital infrastructure of schools – an area that has previously been the exclusive domain of the Länder. The Länder will invest an additional €500 million into the program.
Bundesministerium für Bildung und Forschung (2019):
Local authorities have three main types of income: local taxes (property tax, fines, tolls) earmarked to finance local services, government funds designated for social and educational services, and governmental balancing grants for basic services that poor local authorities are unable to fund. The government’s budgeting procedure for local government is clearly articulated and includes progressive budgetary support. However, one major problem in the government’s budgeting procedure, which was mentioned in the State Comptroller’s report from 2015, is that there is no regular procedure in the Ministry of the Interior regarding the development of budgets for local authorities.

Over the past few years, local authorities have called for a redistribution of education budget allocations according to cities’ socioeconomic ranking. A report made by Taub Center in 2017 argued that the budget system between local authorities leads to inequality between rich and poor authorities, perpetuating the situation in which poor authorities receive insufficient funds. While the redistribution plan was promoted by poor local authorities, it was resisted by rich municipalities and for a while was not approved by the Finance Ministry.

The plan was promoted again and approved as part of the 2017 – 2018 budget under the responsibility of the Ministry of the Interior. The plan consists of four points. First, providing a grant to balance and support poor local authorities that face an income shortage and experience difficulties in providing services. Second, providing recovery schemes for authorities that are facing a budget deficit. Third, supporting authorities with low tax income. Lastly, supporting local authorities with a special fund.
Ben Basat, Avi and Dahan, Momi, “The political economy of local authorities,” IDI website 2009 (Hebrew)

Ben-Bassat, Avi, Dahan, Momi, and Klor, Esteban F., “Representativeness and efficiency in local government,” Jerusalem: IDI 2013, introduction summary in English: Representativeness-Abstract.pdf

Ben Basat, Avi and Dahan, Momi, “Strike in local authorities,” IDI website 15.1.2012 (Hebrew)

Dahan, Momi, “Why do local authorities hold back pay?,” IDI website 15.11.2009 (Hebrew)

“Instructions for local authorities’ budget frame proposal for the year 2012,” Ministry of Interior website (Hebrew)

Ministry of Interior budget of 2017-2018, Ministry of Interior website (Hebrew)

Ministry of Interior Work Plan, 2017-2018, Ministry of Interior Website (Hebrew)

Saada, Aria, “Ombudsman’s report 57ב: Budgeting social services for local authorities equality lacking,” Abiliko website 9.7.2010 (Hebrew)

“The State discriminates in welfare budgets between rich and poor authorities,” Ynet News, 6.12.17 (Hebrew),7340,L-5052419,00.html
Since 2018, the Ministry of the Interior has overseen 102 municipalities in Luxembourg. This supervision is paired with substantial financial transfers from the central government to local entities, which, apart from a substantial share in corporate-income-tax revenues, lack autonomous sources of revenue. Two-thirds of local entities have fewer than 3,000 inhabitants, a size which is believed to be far too small to handle modern political, administrative and technical matters. The government had planned to reduce the number of local municipalities to 71. However, the present government has weakened this objective, as it does not correspond to a top-down strategy for municipal mergers. The aim is to have no municipality under 3,000 inhabitants, thus reducing operational costs and improving administrative and technical efficiency. Municipalities frequently complain that funding from the central government is insufficient. The government has used financial transfers to overcome local resistance to municipality mergers. Municipal associations (syndicats intercommunaux) exist in fields such as culture and sports, with the aim of improving the quality of local government. In December 2016, parliament voted in favor of a reform of the municipal finance system. Since 2017, due to the full budgetary assumption of teachers’ salaries, grants to local budgets have been increased, providing municipalities with greater financial and planning security.
Schlammes, Marc: “Leitartikel: Kommunale Quellen.” Luxemburger Wort, 12. Dezember 2018. Accessed 20 Oct. 2019.

Halsdorf, Jean-Marie (2013): “Die Kommunal- und Verwaltungsreform im Großherzogtum Luxembourg – Grundzüge und Perspektiven,” in: Martin Junkernheinrich/Wolfgang H. Lorig (eds.) Kommunalreformen in Deutschland, Nomos, Baden-Baden, pp. 445 – 462.
Portugal is one of the most centralized countries in Western Europe, with autonomous self-governing areas in the island regions of the Azores and Madeira. A total of 308 municipalities represent the main subnational level of government. Few tasks are decentralized, which is reflected in very low levels of subnational public expenditure overall. According to available OECD figures for 2017, subnational government expenditure in Portugal accounts for 12.6% of total public expenditure (compared to an OECD average of 40.4%) or 5.7% of GDP (compared to an OECD average of 16.2%). Eurostat data for 2018 indicates that local government expenditure in Portugal accounts for 5.8% of GDP, the sixth lowest in the European Union (behind Malta, Cyprus, Greece, Luxembourg and Ireland) and almost half the EU average (10.6% of GDP).

The 21st constitutional government approved, in July 2018, a deal with the National Association of Portuguese Municipalities, which involves a greater delegation of tasks and increased funding for local governments. Implementation of this decentralization program began in 2019, with municipalities able to selectively adopt elements of the decentralization process between 2019 and 2020. Though all elements of the decentralization package will become mandatory in 2021. According to the government’s data, 64.7% of municipalities chose to take on some additional responsibilities in 2019.
Diário de Notícias (2018), “Acordo de descentralização fechado. Municípios recebem 7,5% do IVA,” available online at:

Governo de Portugal (2019), “Cerca de dois terços dos municípios aderem à Descentralização,,” available online at:

Governo de Portugal (2019), Portal Autárquico – Transferência de Competências, available online at:

Eurostat (2019), “Government revenue, expenditure and main aggregates,” available online at:

OECD (2018) “Regions and Cities at a Glance 2018 – PORTUGAL” available online at:
Tasks are delegated to the states and territories not by choice, but by constitutional requirement, yet the states and territories are highly reliant on the federal government to finance the myriad services they provide, including primary, secondary and vocational education, policing, justice systems, public transport, roads and many health services. This dependence has been a source of much conflict, and many would argue it has led to inadequate provision of public services.

The federal government’s commitment to pass all revenue raised by a broad-based consumption tax introduced in 2000 on to states only marginally reduced the tension between the two levels of government. Certainly, it has not helped that prices in education and healthcare have risen faster than general price levels in recent years, while the proportion of household expenditure subject to the consumption tax has declined from 61% in 2001 – 2002 to approximately 56% in 2016 – 2017.

In response, the Labor government serving early in the last decade attempted to address underfunding of healthcare and education, reaching funding agreements on healthcare with most jurisdictions in 2011 and making progress on agreements for school funding in early 2013. The coalition governments serving since that time have not shown the same commitment to increasing health and education funding, and indeed have indicated an intention to scale back federal funding. The current coalition government has committed to achieving budget surpluses (beginning in 2019 – 2020) and passing income-tax cuts. Consequently, the amounts provided for task funding re likely to fall rather than rise over the coming years. The notable exception is for the National Disability Insurance Scheme (currently in the process of being rolled out), which has had its funding secured by a 0.5% increase of the Medicare Levy (levied on taxable income) as of July 2019.
Parliamentary Budget Office report on trends in taxation:
Chile’s central government exercises strong control over municipal and regional budgets, and accounts for a significant proportion of local revenue. Currently, about 18% of the federal government’s budget is redistributed to the regional and local level (OECD average is about 45%). However, the assignment of new duties to the municipal level does not necessarily imply a corresponding allocation of adequate funds.

Municipal programs are monitored relatively closely by the central government, although spending overruns do sometimes occur, resulting in local-government debt. The quality of services (e.g., the public health and education systems) provided by less wealthy municipalities are sometimes below average as some municipalities are unable to raise the income required to effectively provide the services themselves. This challenge is characteristic of Chile’s centralized political system and must be regarded as a structural problem. The former government convened a commission to study decentralization, with the ultimate goal of addressing these ongoing issues. The commission’s proposal, which was presented publicly in October 2014 and supported by the then President Bachelet, included several proposals designed to strengthen regional governments. Two such measures originally slated for implementation by the end of 2017 were delayed until 2020:

1. Regional governors (Gobernadores Regionales) will replace the current regional mayors (Intendentes Regionales) and be directly elected, enabling citizens to hold them accountable for promises made in their political campaigns.

2. Regional governors (Gobernadores Regionales) will be given responsibility for regional and urban planning, the administration of the National Fund for Regional Development, and implementation of social and economic policies at the regional level. The regions will create three new divisions for this purpose: Industrial Advancement (Fomento e Industria), Human Development, and Infrastructure and Transport. During the period under review, these new divisions were being piloted in some regions, with the aim to upscale the experience in 2020.

By the close of the review period, no decision had been made on a possible increase in the amount of federal funds provided to regional governments, or regarding changes to the underlying administrative and financial mechanisms.

The current scenario points to a less extensive implementation of the reform proposals by 2020. Currently, Chile and Turkey are the only OECD member countries in which regional authorities are appointed by the central government rather than being democratically elected.

About the implementation of regional governors:

Democratic election of regional governors:
Estonian local governments are heavily dependent on financial resources from the central budget as local tax revenue is negligible. Central government defines 83% of municipal revenues and, although funds are allocated on a universal basis, the system produces large inequalities in the financial capacity of municipalities. The merger of municipal authorities in 2018 created larger scales of economy and increased the financial sustainability of municipalities. In addition to administrative measures, the funds allocated by the central government to municipal authorities have been increased and regulations on using targeted transfers have been relaxed. Revision of the land tax rates is also expected to strengthen municipal revenues. More broadly, the government aims to increase local government expenditure as a proportion of total public expenditure.
One of the motivations for the creation of Irish Water in 2013 was to remove responsibility for the provision of water services from local governments, many of which had failed to provide a reliable supply of high-quality water to their populations and had seriously under-invested in water infrastructure over the years, perhaps largely due to inadequate funding from the central government. Due to strong populist reaction, the funding mechanism for Irish Water, namely the imposition of household water charges, was strongly resisted. As a result of this resistance, this funding mechanism was abolished and household water charges were repaid in 2017. The water initiative paralleled the 2005 decision to remove the provision of public-health services from regional health boards, centralizing this power instead in the Health Services Executive. As we have seen, this has not resulted in a smoothly functioning healthcare delivery system.

The functions and services that remain the responsibility of subnational units of government are largely funded by the central government rather than from local resources. In 2013, grants from the central government accounted for 43% of the current revenue and 90% of the capital revenue of subnational governmental units. Local taxes accounted for only 28% of their current receipts. While the introduction of the local property tax raised the proportion of funds coming from local sources, subnational units of government remain heavily dependent on the central government for resources. This dependence is proportionately greater in the case of smaller and poorer local units.

The receipts from the new local property tax (LPT) are to be distributed as follows: in 2015, 80% were to be retained locally to fund vital public services, while the remaining 20% were to be redistributed to provide top-up funding to certain local authorities that have lower property-tax bases due to variance in property values. The Local Property Tax Exchequer Receipts at the end of September 2017 amounted to €362 million.
Citations: tax/index.aspx
Local governments – prefectures and municipalities – strongly depend on the central government. Local taxes account for less than half of local revenues and the system of vertical fiscal transfers is fairly complicated. Pressures to reduce expenditures have increased, as local budgets are increasingly tight given the aging of the population. In 2019, the Ministry of Finance issued proposals to reduce the local-government workforce accordingly.

Other measures have included a merger of municipalities designed to create economies of scale, and a redefinition of burdensome local-agency functions. Since 2014 – 2015, special regional vitalization zones and special economic zones (tokku) where national regulations have been eased have served as field experiments for improved policymaking. Many observers have criticized this approach as being insufficiently bold. In late 2018, the government unveiled a plan to designate 82 regional cities as core urban centers and support them with special assistance.
Takuji Okubo, The truth about Japan’s tokku special zones, JBpress Website, 02.07.2014,

Promoting local autonomy, The Japan Times, 9 January 2017,

Eric Johnston, Abe’s plan to battle Japan’s regional brain drain draws mixed reviews, The Japan Times, 9 January 2019,

Japan’s Finance Ministry proposes cuts to local government workforce as population drops, The Japan Times, 23 May 2019,
Local governments enjoy a comparatively high degree of autonomy. The local government share of public expenditure was 24.3% in 2015, slightly above the EU average of 24.1%. In 2019, the government approved the 2020 budget with local governments receiving only 19.6% of Latvia’s total tax revenue.

Local governments have autonomous tasks, delegated tasks and legally mandated tasks. Each type of task is meant to be accompanied by a funding source. In practice, however, funding is not made available for all tasks. The President’s Strategic Advisory Council has described local governments as having a low degree of income autonomy and a relatively high degree of expenditure autonomy.

Nevertheless, local governments suffer from a lack of capacity in financial management. The State Audit Office has repeatedly noted that local governments ignore accounting standards and requirements. In the absence of proper local and national approval procedures for government transactions, violations range from petty issues, such as covering entertainment costs out of the municipal budget, to large scale fraud, such as a municipal official signing a €200 million bond.

Public sector reform is ongoing. The goal of the reform is to increase the quality and efficiency of central administration. However, local authorities are not covered. Furthermore, there is a lack of oversight and incentives for local authorities, which would improve efficiency. In 2019, the government came to an agreement to reduce the number of municipalities from 119 to 39. The legislative amendments are due to be voted on in the spring of 2020, and would in part address the current issues of municipal governance and financial difficulties.
1. The President’s Strategic Advisory Council (2013), Management Improvement Proposals, Available at (in Latvian):, Last assessed: 05.11.2019.

2.Freedom House (2016). Nations in Transit: Latvia 2016. Available at: Last assessed: 05.11.2019.

3. European Comission (2017), Country Report: Latvia, Available at:, Last assessed: 05.11.2019.
Lithuanian municipalities perform both state-delegated (funded through grants from the central government) and independent (funded through a national tax-sharing arrangement and local sources of revenue) functions. Lithuania has a centralized system of government with powers and financial resources concentrated at the central level. The central government provides grants for the exercise of functions delegated to the local level, as local authorities have minimal revenue-raising powers. In 2018, the Congress of Local and Regional Authorities reported that the overall environment for local self-government in Lithuania was generally positive. However, its rapporteurs expressed a concern that despite the country’s quick economic recovery from the financial crisis, and despite increases in local budgets, local authorities’ financial resources were still not commensurate with their responsibilities. This limits municipalities’ ability to deliver the services that are within their area of responsibility.
Congress of Local and Regional Authorities (2018). Local democracy in Lithuania, Report, CPL35(2018)02prov. Available at:
In Slovakia, the degree of decentralization is relatively high. However, funding for subnational governments has been precarious. About a third of the revenues come from state transfers. While the shares of both municipalities and regional self-governments in personal income tax revenues have substantially risen since 2014, subnational governments have continued to complain about unfunded mandates. Their strong reliance on personal income tax has made their revenues highly dependent on the performance of the economy. Nonetheless, the Association of Towns and Communities of Slovakia (ZMOS) is a powerful player and has been relatively successful in articulating the interests of municipalities vis-à-vis the central government. Nevertheless, due to limited financing, municipalities – 70% of which have less than 1,000 inhabitants – are often restricted to providing basic public services and infrastructure, thereby diverting resources from social services, education, land planning and construction permits.
Nemec, J. (2018): Slovakia, in: N. Thijs, G. Hammerschmid (eds.), Public Administration Characteristics and Performance in EU28. Luxemburg: European Union, 891-894 (
Spain has a very decentralized political and administrative structure, with 17 autonomous communities controlling over a third of public spending, including services such as healthcare and education. The system has also been occasionally associated with deficiencies in the process by which tasks are delegated to autonomous communities without adequate funding sources. As a result, some autonomous communities have been incapable of adequately fulfilling their delegated tasks without help. The debate over the criteria for allocating funding to autonomous communities continued in 2019, with most autonomous communities seeking a profound revision of the general funding system. Moreover, there is widespread demand for a further revision of the distribution of revenue, so that all autonomous communities can fulfil their tasks with adequate funding sources. In 2017, two expert commissions were appointed – one for regional financing and the other for local financing – which produced reports that same year presenting a diagnostic of the main problems and offering reform proposals. Although the PSOE government announced plans for a long-awaited reform of the territorial financing model in 2018, the reform had to be postponed in 2019 due to the political deadlock, which forced the autonomous communities to make budget cuts.
April 2019, La Vanguardia, Andalucía defiende un modelo de financiación “equilibrado” para las CCAA, l

August 2019, El Pais “Spanish regions forced to make budget cuts as political deadlock continues”
Since 2009, transfers from the central government to municipalities via the Bank of Provinces have taken into consideration the number of inhabitants and the locality’s relative position on development indices. However, the new model has not eased the difficult financial situation of Turkey’s municipalities, which are seriously indebted to central-government institutions. According to Turkish Court of Accounts’ reports, most metropolitan municipalities have substantial debts. Therefore, most local projects in major metropolitan municipalities are run by the central government. Financial decentralization and reform of local administration have been major issues during the review period. The central administration (mainly through the Bank of Provinces) is still the major funding source for local governments through regional development projects (e.g., GAP, DAP and DOKAP). The central government is continuing transfers to the village infrastructure project (KÖYDES), the Drinking Water and Sewer Infrastructure Program (SUKAP) and the Social Support Program (SODES).

The recent change in regulations governing metropolitan municipalities was designed to generate funds for municipal governments. While existing competencies will continue in general, it may be necessary to expand local government powers, diversify local needs, broaden service requirements, and promote public interest in such services in order to ensure their effective and efficient delivery. However, the new presidential system, which is based on the centralization and unification of decision-making, leaves no room for decentralization.

According to the Law No. 5393 on Municipalities (Article 37), mayors make appointments in municipal companies. Shortly after the local elections on 20 May 2019, the Ministry of Trade granted this authority to the municipal councils. Moreover, the Ministry of Environment and Urbanization prepared a draft law that will terminate the powers of the Istanbul Metropolitan Municipality (İBB) and the four district municipalities regarding the Istanbul canal project. Additionally, the new Bosphorus Directorate and the two boards (Boards of Protection of Bosphorus Cultural and Natural Heritage) will have a say about the Istanbul canal project and the members of the board will appoint the president, all of which clearly limit the principle of subnational self-government. Claiming that some mayors maintain links to the opposition HDP or support terrorist organizations, the government has since 2014 begun replacing elected with “trustee” mayors.
2019 Yılı Yatırım Programı, (accessed 1 November 2019)

“Yerel yönetimlere yeni yılda 114.3 milyar lira kaynak,” 28 October 2018, (accessed 1 November 2018)

“Sayıştay Raporlarında Dikkat Çeken Usulsüzlükler,” 6 November 2018, (accessed 1 November 2019)

“İmamoğlu ve Yavaş’a yetki darbesi,” Cumhuriyet daily newspaper, 25 June 2019, (accessed 1 November 2019)

“Boğaz’daki imar yetkisi Cumhurbaşkanlığı’na mı devrediliyor?” 30 October 2019, (accessed 1 November 2019)

O. Değer and I. Kurnaz, “Yerel Kamunun Gaspla İdaresi: Hükümet Gücünün Serbest Bırakılması Olarak Kayyım Darbesi,” 15 October 2019, (accessed 1 November 2019)
Within the United Kingdom, Scotland, Wales and Northern Ireland have devolved governments, which have responsibility for major public services, such as healthcare and education. England has no devolved government, though local authorities in England have responsibility for a more limited range of public services, including schools. The central government exercises tight control over the finances of the devolved governments and local authorities in England. The bulk of local authority revenue in England comes from central government grants, even the rate of property tax is controlled centrally. As a result, local authorities have been among the hardest hit by government spending cuts. Social care is an especially problematic area, but local authorities are also highly constrained in dealing with basic services, such as filling potholes in roads. Increased task funding for subnational governments was announced in the 2017 budget, but it does not go far enough to offset funding gaps.

Given the absence of a written constitution, there is no mechanism to govern the allocation of funds to finance these devolved tasks. As such, any decisions about funding is subject to political and administrative negotiations through formula-based need assessments. Agreements such as the “Barnett Formula” for Scotland, Wales and England provide some stability of funding, while for historical reasons Northern Ireland has a distinctive form of financing. However, despite their recent reaffirmation, these agreements could change if a future government decides that fiscal consolidation requires severe spending cuts.

The Scotland Act 2012 gave the Scottish government new taxation and borrowing powers. After the close outcome of the Scottish independence referendum and as a result of the Smith Commission’s report, the new Conservative government announced the devolution of further tax powers – including income-tax powers – to the Scottish Parliament. The details of additional borrowing powers for the Scottish Parliament were laid down in the Scotland Act 2016, which allows the Scottish government to borrow £450 million a year for infrastructure investment, such as on schools and hospitals, up to a total of £3 billion.

The National Assembly of Wales has far less fiscal discretion, but central government has agreed that further borrowing powers should also be devolved to the Welsh Assembly and agreed on a fiscal framework.
A new settlement for the Northern Ireland Assembly has also been under discussion for some time. However, after the Northern Irish parties were unable to form an executive after the regional election in 2017, Northern Ireland has de facto fallen back under the direct control of Westminster. Moreover, a quid pro quo for the Northern Irish DUP’s support for the May government was extra funding for the province.

The growing number of devolved administrations in England has led to the rise of several self-confident new political actors (e.g., the Greater Manchester Combined Authority and the Liverpool City Region Combined Authority), whose fiscal relation to the central state is expected to become a major political topic in the subsequent post-Brexit devolution debate. However, central government funding for local governments was one of the areas most heavily cut during the years of public spending retrenchment. The cumulative effect of these cuts has been considerable, with many councils obliged to run down already slender reserves, and a number of local governments have struggled to maintain even statutory services. Notably, special measures were imposed on the Conservative-run Northamptonshire County Council – in effect a declaration of the council’s insolvency,
Scully, Roger/Jones Richard Wyn 2011: 7. Territorial politics in post-Devolution Britain, in: Heffernan, Richard et al.: Developments in British Politics 9, Basingstoke and New York

Smith Commission Report:

Autumn Statement 2016:
The central government sometimes and deliberately shifts unfunded mandates to subnational governments.
Local governments in Bulgaria receive most of their revenues from the central government and have a very limited revenue base of their own. Municipalities receive funding from the central government in three ways: a portion of the revenues from some general taxes are designated for municipal budgets; the central government subsidizes municipal budgets; and the central government delegates some tasks (mostly responsibility for managing schools and hospitals) to municipalities, transferring the associated financing to them (known as delegated budgets). The National Association of Municipalities claims that the central government routinely leaves delegated functions underfunded. There have also been allegations that the central government favors municipalities headed by the parties governing at the national level. While the topic of fiscal decentralization – which would significantly increase municipal revenue sources at the expense of the national budget – features in the public discourse, a reform to this effect does not look very likely.
The division of competencies between central and subnational governments has been relatively stable. By far the most important revenue source of subnational governments is the personal-income tax, which contributes about 90% of all tax revenues and slightly more than half of total revenues. The remaining taxes account for only around 6% of total revenue, the most important being the property tax (approximately 3.3% of total revenue). The second most important source of revenue is the various types of administrative fees (user charges being the most significant among them, as they collectively make up approximately 17% of total subnational revenues). Grants from the central government (often administered via counties) and various assistance funds from abroad rank third. Finally, about 8% of subnational governments’ revenues derive from the various types of property they own (business premises, apartments).

Strong regional and local differences have long hindered subnational governments from being properly financed. Many municipalities and towns, most of them in rural areas, are poor and therefore face severe difficulties in providing public services. In addition, due to a lack of consistent long-term policies, the allocation of central government grants is complex, unclear and subject to sporadic alteration. Although local government units have substantial autonomy in providing services related to economic activity, preschool education, and culture, sports and religious activities, they have limited autonomy in financing such responsibilities because the proceeds from tax sharing and central government grants are earmarked. Moreover, many public services depend on financing from both central and local government levels, undermining their coherent delivery. In 2018, the Plenković government decided to give up income tax revenue in favor of municipalities and cities. This has enhanced municipalities’ and cities’ fiscal capacity.
Koprić, I., A. Musa, V. Dulabić (2016): Local government and local public services in Croatia, in: H. Wollmann, I. Koprić, G. Marcou (eds.), Public and social services in Europe: from Public and municipal to private sector provision. London: Palgrave Macmillan, 201-215.

Bajo, A., M. Primorac (2018): Croatia: instruments of fiscal equalisation, in: W. Bartlett, S. Kmezic and K. Djulic (eds.), Fiscal Decentralisation, Local Government and Policy Reversals in Southeastern Europe, Cham: Palgrave Macmillan, 53-80.
In recent years, a double and to some extent contradictory trend has taken place in the relationship between central government and local administrations (regions, provinces and municipalities). On the one hand, constitutional reforms and normal legislative and administrative changes transferred broader tasks to local governments. This has particularly been the case for regions where the devolution of functions in the field of healthcare has been particularly extensive, for example. On the other hand, however, because of budgetary constraints and strong pressure from the European Union and international markets, the central government has increasingly reduced transfers to local governments in order to balance its own budget. Local governments have tried to resist this fiscal squeeze without great success and have had to increase local taxation. At the same time, the government has reduced the autonomy of municipalities to levy property taxes. As a result, functions delegated to subnational governments are now often underfunded, and local authorities have been forced to cut services.

The first Conte government did not devotee much attention to this issue. Moreover, as some of its preferred national policies (e.g., the pension reform and the citizen’s income) were extremely expensive, it was not keen to increase funding for local authorities.
Task funding remains a contentious issue. Although many new schemes have been put in place, funding remains inadequate. Local councils in Malta are primarily municipal bodies, and cannot raise revenue through local taxes; however, as they are an integral part of the political system, and under party control, they come under pressure to carry out tasks beyond their remit. Nearly all funding for local-government activities comes from the central government, with a small fraction sourced from local traffic fines. The funding formula for local councils is based on geography and population, but – despite legal provisions – local councils run budget deficits, both because of inadequate funding and mismanagement by the councils themselves. At the beginning of 2015, the government launched a fund for local councils’ capital projects however it remains inadequate. Regional committees were generating revenue from contraventions through the local enforcement system, however, this task was taken over by a central government agency in 2014. There has been a steady, though not particularly substantial, increase in the overall budget. In 2018, direct funds allocated by the government to local councils totaled €36.5 million. An additional adjustment fund of €504,782 was created with the intention of remedying imbalances in the distribution of funds. These funds were distributed to 25 local councils that either faced specific exigencies and/or had experienced a decrease in funding as compared to preceding years. Meanwhile, in line with prior years, a further €102,772 was allocated to the Local Councils Association (LCA). As of 2019, the regional committees were allocated a fund containing more than €3 million. These committees have now been relieved of all expenses relating to local tribunals, as these related costs are now borne by the Local Enforcement System Agency (LESA).
44 local councils request devolution of government property Malta Today 11/09/2015
Money for local councils Times of Malta 14/02/2015
Local government culture fund 2018 – 2020
35.5 million budget for 68 local councils in 2017 The Malta Independent 04/07/17
The Independent 12/12/18 A total of 30 local councils benefit from the capital projects fund
Financial Allocations to local councils January -December 2018
Mexico has three levels of government – central, state and municipal. In Mexican federalism, state governments are politically and economically more powerful than municipalities. The state governors’ association is a powerful lobby group that bargains effectively with the central government. In general terms, Mexico’s intergovernmental transfer system must reduce vertical imbalances and discretionary federal transfers. The latter are distributed from the center across states with political, rather than policy goals in mind and constitute a substantial share of government spending. Moreover, Mexican states need to increase their own revenues in order to become less dependent on central government transfers.

Due to government austerity, which has been a central issue of the AMLO administration, underfunded mandates and insufficient resources are a challenge for the successful completion of many government tasks and undermine the realization of the principle of subsidiarity in Mexico’s fiscal federalism.
South Korea
While South Korea remains a unitary political system, a rather elaborate structure of provincial, district and neighborhood governments has been in place since 1995. Local governments play an important role in providing services to citizens and respectively account for about 35% of government spending in 2017. However, local and state governments have relatively little ability to raise their own revenue and thus depend on central-government support. The fiscal self-reliance ratio in over 90% of the local governments (220 out of a total of 243) was under 50% in 2016. In addition, local administrations are understaffed, and central-government employees are often delegated to subnational authorities. President Moon has highlighted the importance of decentralizing state power in order to allow local municipalities and provinces to be run more autonomously. Under the 2018 budget proposal, KRW 3.5 trillion ($3.1 billion) in subsidies was to be provided to provincial governments. The question of who is responsible for funding the mandatory high-school education system continues to produce conflict, with the provincial and central governments each trying to shift responsibility for costs to the other. The Ministry of Education and the Ministry of Economy and Finance have also been at odds over the issue.
OECD, Government at a Glance Database,
“High welfare-related costs stymie local governments,” Korea JoongAng Daily, Oct 14, 2014
Korea Herald. Moon vows efforts for greater local autonomy. June 14, 2017.
Several core responsibilities of the Belgian central government have been delegated to regional or subregional levels over the recent decades: to the three regions (Flanders, the Brussels region and Wallonia), to the linguistic communities (Flemish, French and German), and to the municipalities (communes/gemeenten; a city may be subdivided into several communes). Due to recurrent political stalemates between the Flemings and Francophones, the Brussels region has been chronically underfunded. Municipalities in rich areas are typically funded sufficiently, but this is often not the case in poorer areas. Reductions in unemployment benefits have also had spillover effects on these municipalities, since they are financially responsible for minimum income support for the poor.

Likewise, the government agreement also implies serious cuts in financial transfers from Flanders to Wallonia in the coming years. But since Wallonia is a post-industrial region with unemployment levels twice as high as those in Flanders, it is difficult to see Wallonia not continuing to suffer from chronic underfunding.

The government agreement also envisioned a decentralization of taxation. However, the main sources of state financing (direct taxes and VAT) will remain centrally controlled and collected, with the funds redistributed according to pre-agreed sharing rules. Redistribution issues remain a point of conflict between the main regions and communities, with the recent financial crises having heightened tensions.
Local government bodies receive substantial state subsidies, amounting in some cases up to 40% of their budget. In addition, the Council of Ministers, in particular the ministers of interior and finance, have extensive powers to manage the finances and assets of municipalities. Efforts to reform municipalities were renewed in 2019 after long debates and disagreements that began in 2014. Existing plans for mergers and reorganizations aim to address the main challenges facing local governments by making them more efficient (including financially), improving management, fighting corruption and upgrading service quality.
1. Petrides: We want to create a new kind of local authority, Cyprus Mail, 25 September 2019,
Since 1999, Poland has supported three tiers of subnational governments: municipalities, districts and regions. Since the 2015 elections, the relationship between the central government and the majority of local governments still controlled by parties of the previous government has been strained. As heavily criticized by local offices, the reform of the school system has been associated with a strong shift of costs to the local level. PiS distrust of the politicians running the 50 biggest Polish cities has led to selective support for other localities, thus sending a strong clientelistic signal to local authorities that funding and support will be distributed not on merit, but on political grounds. Subnational governments’ fiscal problems have been exacerbated by a decrease in the availability of EU funds at the local level. In the October 2018 local elections, the PiS failed to increase its vote shares in the larger cities; thus, tensions between the central government and local governments are likely to remain strong. This became visible in May 2019 after changes were made to the tax system, such as abolishing income taxes for people under 26 years old. Local governments, which receive a proportion of tax revenues, have calculated that their losses could be PLN 6.6 billion. An additional burden for local governments is the increase in teachers’ salaries, which is not sufficiently covered by the government education subsidy. There were discussions between 12 of Poland’s larger cities about suing the government due to the government’s failure to ensure adequate task funding.
Unfunded, or insufficiently funded, mandates have been a long-standing issue in Sweden; indeed recent studies show an almost complete unanimity among local governments with regard to their frustration of insufficiently funded mandates. Subnational governments enjoy extensive autonomy in relation to the central government in Sweden. Local governments and their national association, Swedish Association of Local Authorities and Regions (SALAR), have insisted that all tasks placed upon them by central government must be fully funded.

SALAR has made this claim an overarching principle, which it emphasizes whenever the central government delegates tasks to local authorities. Instead of fully funded mandates, though, the central government frequently negotiates the funding aspect of delegated tasks with the local governments and SALAR. From the local authorities’ perspective, this problem has become more significant as central government has increased its control over local authorities during the past couple of years, as Statskontoret (the Swedish Agency for Public Management) recently showed.

As a reaction to the large number of asylum-seekers in 2015 and 2016, the former red-green government (2014 – 2018) to a great extent funded the additional work required of local authorities. However, this additional funding does not change the fact that in more routine exchanges between the central government and local government, funded mandates remain usually insufficient. In 2017, much of the central government’s support to local authorities to assist their work with asylum-seekers was terminated; it is now up to local authorities to fund these activities. As a result, almost half of local authorities report budget deficits and service cutbacks for 2019, with this situation predicted to continue in 2020.
Pierre, J. (2014), Globalization and Governance (Cheltenham: Edward Elgar).

Statskontoret (2018) Utveckling av styrningen av kommuner och landsting 2018 (Stockholm: Statskontoret).
Decentralization and integration subsidies comprise 14% of all income from the general fund (Gemeentefonds). Policy-related national subsidies have decreased as a proportion of total income (falling from 62% in 1990 to 34% in 2011) and in number (from over 400 in 1985 to less than 50 at present). As of 2015, the national government has pursued a far-reaching decentralization of policy tasks (in youth work, chronic patient care, social benefits, worker-activation employment programs). However, local-government budgets are supposed to contribute to meeting the European Monetary Union 3% government-deficit norm by accepting a decrease in their total budget. In 2014, local governments on average received €1,091 per inhabitant. In 2017, this amount has increased to €1,645. Nevertheless, in the social-policy domain, municipal governments still ran a very considerable deficit in 2018 –2019.

Local governments will be expected to “do more with less” in the coming years. The Center for Economic Policy Analysis recently proposed that local governments expand their local tax base; combined with a decrease in national taxes, this would simultaneously be good for the national economy and local democracy. The Association of Dutch Local Governments (Vereniging Nederlandse Gemeenten, VNG) has installed a special advisory commission to look into the issue. The national government and VNG appear to be locked in a continuous round of negotiations over structural measures concerning the Gemeentefonds. Meanwhile, in the background, there is a political discussion concerning the future of municipal government: Should municipal governments deliver services to citizens that transcend present municipal boundaries, or should municipalities remain governance hubs of low-threshold accessibility and participatory governance? This l atter path is exactly what has been proposed in the youth-care sector, the only field in which the national government has conceded the failure of decentralization and the current task funding model. Similar problems are evident across the entire educational sector, especially with regard to a shortage of teachers due to low salaries, task overload, large class sizes and a lack of professional freedom. These issues have yet to be recognized by the government in spite of a general teachers’ strike.
VNG, De wondere wereld van de gemeentefinanciëen, 2014 (, consulted 9 November 2016)

CPB, Waarom zijn de gemeentelijke investeringen sinds 2009 zo sterk gedaald?, 30 October 2018 (

M. Allers, Naar één gemeente?, Symposium 25 Jaar Centrum voor Onderzoek van de Economie van Lagere Overheden, 4 October, 2018 ( accessed 1 November 2018)

NRC-Handelblad, 8 May 2019. Meer geld voor jeugdzorg na noodkreet gemeenten.

NRC-Handelsblad, 8 November 2019. Gemeenten: kabinet moet jeugdzorg niet weer verbouwen.

NRC-Handelsblad, 8 November 2019. Bond houdt achterban niet meer bij.
After the onset of the economic crisis in 2010, it was revealed that subnational authorities, working on a “soft-budget” mentality, had contributed to the fiscal derailment of the Greek state through lax control of their own expenditure and hiring of excessive personnel in municipal agencies. Since then, such practices have been curtailed, while the government has imposed strict control over local government expenditure. Subnational authorities effectively have no funding sources of their own. For the Syriza-ANEL government, functioning within the constraints of the Third Economic Adjustment Program (2015 – 2018), achieving a large budget surplus was a major priority. Thus, subnational authorities along with many other state agencies were pressed to cut spending. For the New Democracy government (in power since July 2019), the priority is to stimulate economic growth primarily through incentives provided to investors, along with some relaxation of budget austerity. It remains to be seen whether this shift in priorities will translate into any change in the distribution of funding between the central and subnational governments.
Subnational governments suffer from a lack of revenues and thus remain dependent on central government funding. As the governing coalition has done little to secure sufficient funding for subnational governments, the quality of public services has remained low. Central government funding has been tainted by party bias, with subnational governments controlled by the PSD recieving more money. Moreover, the funds from Bucharest have come late, so that subnational units have scrambled to keep projects alive during the first months of each calendar year. The financial dependence of subnational governments has contributed to an unwillingness to implement larger-scale projects for fear of losing funding as a result of political changes.
Municipal governments – the sole tier of subnational self-government in Slovenia – have suffered substantial fiscal difficulties for some time. The Cerar government focused on reducing the bureaucratic burdens without reducing the number of municipalities. However, the measures taken were not effective, and municipalities suffered from the government’s decision to postpone the re-introduction of the property tax. Government proposals to lower central government transfers met resistance by the Association of Municipalities and Towns of Slovenia (SOS), the Association of Municipalities of Slovenia (ZOS) and the Association of City Municipalities (ZMOS). In 2017 and 2018 alike, the three municipal associations and the Cerar government failed to reach an agreement on the financing of municipalities. The Šarec government has come closer to reaching an agreement. While it has provided additional funds for the municipalities, the funds have largely been eaten up by the wage increases in the public sector conceded by the government.
The central government often and deliberately shifts unfunded mandates to subnational self-governments.
The transfer of competencies from the subnational to the national level has gone hand in hand with an even stronger reduction in subnational governments’ revenue sources. As a result, the latter have fewer resources for the remaining tasks than before. As financial resources have been curtailed, many municipalities have lacked the financial resources to carry out basic functions, such as garbage collection. Moreover, central government grants have been discretionary and unpredictable. Municipalities and counties with an influential Fidesz leader have been in a better position to get additional funding; the other have been confronted with the newly introduced “solidarity tax” imposed upon rich municipalities. A good case in point of the problems associated with the discretionary budgeting of the central government is Budapest, which has suffered from funding conflicts between the government and the city, it has been perceived by Fidesz leaders as a left-liberal stronghold. The gains of the political opposition in the municipal elections in October 2019 are likely to increase political conflicts over the financing of subnational governments.
Hajnal, G., K. Kádár, É. Kovács (2018): Hungary, in: N. Thijs, G. Hammerschmid (eds.), Public Administration Characteristics and Performance in EU28. Luxemburg: European Union, 426-459, 434-435 ( 1-11e8-8bc1-01aa75ed71a1/language-en).
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