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What municipalities miss when making decisions about local taxes
submited on 31.01.2008 in category Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
submited on 31.01.2008 in category Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
The Plovdiv municipality made an example how a municipality must not make decisions on the local budget. We do not expect many municipalities to approach discussions on local taxes in 2008 with ultimate transparency.
This year is important to tax decentralization in Bulgaria, because municipalities can already determine local taxes on their own. Their success would pave the way for further transfer of tax decisions from the central authorities to municipalities.
As we already wrote at the time of discussions on law changes 3 months ago, a successful start of decentralization would mean at least 2 things:
1/ pursuing a balanced budget,
2/ clear efficiency on expenses for “local public services”.
During the week the municipality in Plovdiv showed that it is determined to raise taxes in the second biggest city. This decision requires considerably higher level of transparency and broader debate. The arguments for higher taxes are for now exhausted with inflation.
The new municipalities’ rights must be accepted with higher responsibility. So far reports of the local authorities in biggest cities were tragic. The website of the Plovdiv municipality does not provide data on programs, on which taxpayers’ money will be spent. What is more, there is no cost benefit analysis of services, financed by the municipalities.
Plovdiv is not an exception. The Varna municipality also does not provide data on its budget on the Internet. From the leading 10 municipalities – in which 3 million people are living – only Sofia, Burgas, Stara Zagora and Pleven provide information on their budget.
The only public argumentation for raising taxes is inflation.
The faster municipalities learn their lesson, the easier will be the way for tax decentralization. Now we are in the very beginning of the process – in 2008 barely 1% of GDP will be accumulated in the form of local taxes and fees, which is negligible with regard to revenues in the consolidated budget of Bulgaria (44% of GDP).
Some failures of municipalities under new regulations of local budgeting must not turn into an argument against fiscal decentralization. Although limited, new tax freedom for municipalities is a step in the right direction. This will help establish tighter connections between “public services” and their financing. What is more, tax competition between municipalities will increase opportunities for civil choice.
This year is important to tax decentralization in Bulgaria, because municipalities can already determine local taxes on their own. Their success would pave the way for further transfer of tax decisions from the central authorities to municipalities.
As we already wrote at the time of discussions on law changes 3 months ago, a successful start of decentralization would mean at least 2 things:
1/ pursuing a balanced budget,
2/ clear efficiency on expenses for “local public services”.
During the week the municipality in Plovdiv showed that it is determined to raise taxes in the second biggest city. This decision requires considerably higher level of transparency and broader debate. The arguments for higher taxes are for now exhausted with inflation.
The new municipalities’ rights must be accepted with higher responsibility. So far reports of the local authorities in biggest cities were tragic. The website of the Plovdiv municipality does not provide data on programs, on which taxpayers’ money will be spent. What is more, there is no cost benefit analysis of services, financed by the municipalities.
Plovdiv is not an exception. The Varna municipality also does not provide data on its budget on the Internet. From the leading 10 municipalities – in which 3 million people are living – only Sofia, Burgas, Stara Zagora and Pleven provide information on their budget.
The only public argumentation for raising taxes is inflation.
The faster municipalities learn their lesson, the easier will be the way for tax decentralization. Now we are in the very beginning of the process – in 2008 barely 1% of GDP will be accumulated in the form of local taxes and fees, which is negligible with regard to revenues in the consolidated budget of Bulgaria (44% of GDP).
Some failures of municipalities under new regulations of local budgeting must not turn into an argument against fiscal decentralization. Although limited, new tax freedom for municipalities is a step in the right direction. This will help establish tighter connections between “public services” and their financing. What is more, tax competition between municipalities will increase opportunities for civil choice.
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