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Protecting local government financial autonomy: the cases of Moldova and Slovenia

Protecting local government financial autonomy: the cases of Moldova and Slovenia

On 21 November 2013, South East Europe got one of its key development documents, SEE 2020 Strategy, expected to bring growth and prosperity to the region. This Strategy puts an emphases on the subsidiarity principle and the role of local governments in promoting economic growth. Unfortunately, in parallel, some SEE countries undergo processes that decrease the fiscal autonomy of the local government and by doing so, jeopardize economic development.  

Moldova recently faced an attempt of the central government to postpone the reform of the local government, by avoiding implementation of the new legislation on local public finance. The Congress of Local Authorities from Moldova (CALM), said a strong "no" to the degradation of public administration system and decisive "yes" to local and national democracy in Moldova. Their actions included many meetings and negotiations attempts. After this did not give results, the Association organized protests of Mayors and put the financing issue in the focus of national media and the international community. CALM warned about “the consequences of non-approval of the legislation and further deterioration of local government in Moldova” extending to “all connected domains such as public administration, local and national democracy, corruption, justice and human rights".

This was not a painless process: in pursuing their mission, CALM faced number of obstacles, such as  intimidation of mayors, direct threats, penal charges, populism and direct buying of local governments’ consent.

On 1 November 2013 the Parliament of the Republic of Moldova voted a new Law on Local Public Finances. The Law will come into force from 2015, being piloted in 2014 in 4 districts of the country: Basarabeasca, Ocnita, Riscani and Chisinau. The approval of the Law make the local self-governments hope that decentralization and local autonomy will become reality. As CALM insisted that the Law should come into force as of 2014, the struggle for democratization of Moldovan society, towards demolishing of corruption and towards significant improvement of public services is not over yet.

According to Mrs. Tatiana Badan, CALM President “The experience of the Republic of Moldova during the last twenty years proves that the lack of real fiscal decentralization represents one of the key issues and main cause of unsuccessful reforms in the field of decentralization and consolidation of local autonomy. We can speak a lot about EU values in the field of local democracy and decentralization, but without real reforms and changes in the field of local public finance, all this will remain just words without any practical relevance".

As for the new Law, Mrs. Badan emphasizes: "This law, developed during the last three years with large support of international partners and involvement of CALM, is a hope for all local governments that in Moldova things finally are moving in the right direction and decentralization can become a reality. Moreover, we think that this Law is less for local governments – it is crucial for the people of Moldova – being the single fundamental law considered by the Parliament of Moldova during last four years, which is starting the process of decentralization, radically consolidating both local and national democracy, cardinally improving the system of public administration and quality of public services in the country and essentially diminishing the level of corruption in society. Unfortunately, our politicians in the last moment and from the very narrow (political) interests, tried to stop the adoption of this extremely important law. Only due to CALM and its international partners’ pressure the law was adopted with implementation starting from 2015 and with pilot projects in 2014”, concludes Mrs. Badan.

Protecting local government financial autonomy: the cases of Moldova and Slovenia

 Two weeks ago, Slovenia got a new Law on Property Tax. The Law has been developed without participation of municipalities in the crucial phases of the negotiations and it is dramatically affecting one of municipalities' fundamental functions: the development function. Instead of being a fully local tax, with the new Law, property tax will be shared with the central government 50%-50%. 


Once the proposed Law has been made public, the Association of Municipalities and Towns of Slovenia reviewed it and mobilized its membership and the national media to raise the voice against the provisions which threat local government's financial independence. A petition was organized and in one week more than 6800 signatures were collected against the proposed law and handed to the President of the National Assembly. Despite this, the Law on Property Tax was adopted on 15 November 2013. The National Council, an advisory, non-party and independent body, on 20 November voted a suspense Veto on the Law and the legislative proposal was sent back to the National Assembly. However, this did not change anything. It just prolonged the entering into force of the law and did not solve the problem.

Slovenian Mayors insist that the Law on Property Tax must encompass the following:
• Property Tax must be completely local tax;
• Understanding the financial crisis the country is facing, municipalities might only accept time limited (3 years) tax revenue sharing between municipalities and the state (50/50), after which all the revenues will go to the local level;
• The Law must maintain the autonomy of municipalities in managing spatial policy;
•Exempt or zero rate of taxation of municipal and public infrastructure, for all municipal property.

As a next step, the Association will challenge the constitutionality of the Law on Property Tax, in front of the Constitutional Court, at it endangers the future of municipalities and the citizens' quality of life.

"The adopted Law further eliminates the financial autonomy of Slovenian municipalities, which is unacceptable and a strong reaction of Slovenian municipalities will be needed. We will use all legal means“, says dr. Ivan Žagar, President of the Association of Municipalities and Towns of Slovenia.

Slovenian local governments also face significant cuts of the transfers from the central government in the past years. Therefore, the Association appealed that in the state budget for 2014 and 2015, the Government keeps the amount of at least €536 per inhabitant.

As reported by NALAS members, similar tendencies of decreasing local financial autonomy are also noticed in Montenegro, Bulgaria, Serbia...

 

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