I.R.E.F
Ec-1
Fiscal Centralization in Central Europe
par
András Semjén Institute of Economics Hungarian Academy of Sciences H-1114 Budapest, Budaörsi út 41-43
[email protected]
László Szakadát Department of Microeconomics Budapest University of Economics and Public Administration H-1093 Budapest, Fővám tér 8
[email protected] Introduction
I.R.E.F
Ec-2
After the political changes in 1989-1990 Central- and Eastern-European countries went through significant political, judicial, economic and social changes. Although the political and economic transitions have been analized intensively, not too much attention has been devoted for a long time to some basic aspects of fiscal decentralization what can fundamentally determine the performance of economic and social institutions. Recently, the OECD and the World Bank conducted researches on fiscal decentralization and tried to initiate improving local governance. Although reforms of fiscal regimes have been continuosly on the political agenda no significant change has taken place in the region in certain fundamental respects. The basic criticism of socialist way of organizing economic and social life is in principal the same: since neither is decentralized a command economy is less efficient than a market economy, and the soviet type council system (one-party system) is not democratic. The key word in both cases is decentralization. If economic and social decision making is not allocated to the appropriate level, i.e., not decentralized (or centralized) appropriately, we may not expect allocative efficiency. We have to emphasize that decentralization is not complete even in democracies with market economy. Economists argue that there can be an optimal level of decentralization (or centralization) in an efficient economy because of the optimal provision and financing of public goods. Certain public and merit goods and services can be best provided at local level and others can be at intermediary or national levels. Furthermore, the global nature of certain externalities and public goods (like environmental demages and world peace) some supranational entities could probably best manage the given problems. The appropriate level of financing is a bit even more complicated but the conclusion is the same: some taxes must be levied and collected at local level by local authorities while others must be collected by national authorities. Unfortunately the optimal levels of provision and financing of public goods is even more complicated if voting by feet is also allowed. The economic literature of fiscal federalism focuses in principle on this problem. The findings of scholars working in this field is relevant for the very same reason not only to federal but also unitary systems. In the following paper we try to give a review on fiscal centralization in selected CECs: Czech Republic, Hungary, Poland, Slovakia and Slovenia. But still before the country reports first we review some aspects of economic transition from command to market economy that seem to be relevant for our subject. After the case studies - as one of the main goals of this analysis – we adopt an index for fiscal decentralization (IFD) constructed by a team and calculate the values for the countries analyzed in this paper.
I.R.E.F
1
Ec-3
Economic transition and fiscal decentralization: a macro view
In CECs significant institutional changes took place that were necessary for successful transformation of the economy. Table 1.1 shows that the countries in the region liberalized their economies in different speed and but now they are – although with some variations – more or less at the same level of development. Some countries started liberalization earlier and proceeded rather fast. Other started later but speeded up, and in some countries the liberalization was delayed for several years. Of course, during the whole process of economic transformation we can see some differences as well. Countries followed different privatization strategies, gave priorities to domestic or foreign ownership to different extent, temporarily used stringent or less stringent rules in some segments of economic policy, etc. During the transformation these differences had some impact and statistical relevance (see Table 1.2 for example). These differences however seem to be less important nowadays. These countries are similar not just in their overall development as they proceeded during transition. As far as fiscal centralization is concerned each CEC having a transition from former soviet type council systems to democratic (self-)government system also shows similarities to a large extent. The fiscal decentalization is getting interesting not just because of its direct political nature (i.e., local governance is the seedbed of democracy) but because of its economic importance. Moreover, during the process of EU enlargement regionalism is given priority but in CECs governance at regional level is rather backwarded if it exists at all. The inherited view of how a society should be organized, the transformation recession, permanent macroeconomic imbalances, the lack of assets, low value added and incomes, and other economic and social characteristics of these societies prevented a significant transformation of public finances. Transformation recession was significant all over the region between 1990-1992 as can be seen from figures in Table 1.3. One of the main consequences of this economic downturn was the dramatic change in employment. See Table 1.4 and 1.5. Although the rate of unemployment was the lowest over the decade in the Czech Republic, improved during the same period in Hungary, and is still rather high in Slovakia or in Poland, the activity rate of the population is rather low in general in the whole region. No doubt it has significant impact on fiscal problems. Nevertheless, the GDP per capita - a frequently used measure of economic development - has increased over the last decade as can be seen in Table 1.6. Mostly this improvement can be explained by the improving economic performance, but partially this was due to the decline in population. Economic growth, of course, could help to manage external debt. Interestingly it seems as if the foreign debt to GDP converged to the same level in the countries analyzed here. The variation of this ratio was larger in the early 1990s than at the end of the decade. See Table 1.7. Not only external but also internal debts also matter. Maastricht criteria request from candidate countries to have general government debt below 60 per cent of GDP. As figures in Table 1.8 show although all the five countries could get below the threshold by the end of the decade, the Hungarian government has still something to worry about.
I.R.E.F
Ec-4
As we will see below in country analysis debt financing is significant problem in most CEC. A large fraction of expenditures is spent for interest payment of the growing government debt. The permanent government budget deficit has increased the debt of general government in most countries over the whole decade. This features of transition as seen in Table 1.9 cast the question of balanced budget requirement. The macroeconimic management of these economies of course directly concerns fiscal centralization. Seemingly the centralization or redistribution of these economies has declined over the 1990s. Figures in Table 1.11 show some sort of convergence again in the ratios of revenues of general government to GDP. Although the data describe significant decentralization or smaller redistribution in Hungary at the end the decade than at the beginning, the authors do not have the feeling that this process reflects fundamental change in public finance in the country. The system of taxation has changed significantly during this period. The western type tax systems have been adopted in each country. Data in Table 1.12 show that in general there is a declinig trend in ratios of tax revenues to general government revenues. Corporate income taxes play less and less important role in revenues as can be seen in Table 1.13. The tax rates declined over the period. The tax base has fluctuated. The transformation recession of course reduced the tax base and the growing economy generated more revenues. But off-shore business activities, tax allowances for encouraging foreign direct investment and domestic businesses and tax evasion also resulted in declining corporate income tax revenues to GDP in these countries as well.1 Although personal income tax regimes are used everywhere it does not generate the most significant part of general government revenues as seen in Table 1.14. Payroll taxes provide huge resources for general government. Social expenditures are high in developed countries all over the world. The pension funds as well as the health care system and their expenditures are financed mostly from social security contributions paid both by employers as well employees also in CECs. The combined rates were very high in the case of all the five countries. Although pensions are rather low and the health care system provides services at low level the relatively high rates still put heavy burden on firms. As can be seen from figures in Table 1.15 the centralization in this sphere is the highest in the Czech Republic. Due to high effective tax rates on incomes tax evasion is widespread in each country. As can be seen from low values of figures in Table 1.16 property taxation is rather infant in the whole region. Taxes on consumption, however, represent stable sources for expenditures. VAT is a relatively easly manageable source of revenues and as economic growth started these sources are more and more relevant. See Table 1.17 for the changes. Although excise taxes have declinig share they still have significant impact on the budget as it seems from figures in Table 1.18. As one can see in Table 1.19 import duties were high in some periods but they seem to loose their importance. Trade liberalization and EU enlargement contributed to a large extent to this trend. As can be seen in the remaining Tables of 1.20 - 1.22 in the Appendix 1 subsidies and, in general, expenditures on economic affairs are much lower now than they were during the socialism. Subsidies were still relatively high in the Czech Republic and Slovakia. Poland has rather low values. As far ar expenditures on economic affairs are concerned it seems again that 1
. When we want to have a proper view on taxation of corporate sector we have to keep in mind that CIT per GDP ratio may underestimate the magnitude of tax burden of formal sector since GDP figures are usually corrected with incomes from informal sector in national accounts and taxes on capital income through personal income taxation are not included in calculation as notice by Bronchi and Burns (2002).
I.R.E.F
Ec-5
the value of ratios of these countries converge to the same value or fluctuates around it. The comparatively low values also suggest declining redistribution and therefore centralization of resources in this particular respect. But centralization of revenues can take place at varius levels of governments. In the following section we give an overview of subnational governance systems and tax regimes in these five countries. As you will see there is a rather high degree of centralization of revenues and expenditures in these accession countries. If we can believe in the positive correlation between fiscal decentralization and economic growth we can conclude that there is still some growth potential for these countries.2
1.1 Czech Republic The Czech Republic was established after the peaceful split of the former Czechoslovakia in 1993. There were changes in tax legislation already before the separation from Slovakia. In fact, still in 1992 important changes were implemented in the tax system. In this country it was also an urgent task to liberalize prices what usually meant the abolishment of negative turnover taxes. VAT and excise taxation have been in force since 1993. The negotiated revenue confiscation at the level of firms was quickly replaced with classical (rule driven) corporate taxation although in some important respects the legal infrastructure was not fully adjusted to western standards.3 Personal income taxation also started in 1993. We provide a bit more details below.
1.1.1 Taxation The tax reform was also an important part of whole economic transformation process in the Czech Republic as well. The Czech tax system showed the same similarities as tax systems in other socialist countries did all over the region. After the political change the democratically elected government changed some elements of the tax system in 1990 and then the tax rules were amended significantly in order to make it more compatible with market principles within a framework of a comprehensive tax reform in 1992. Income taxation was put into force. As a part of the changes VAT and excise tax systems replaced the former turnover taxation. But the tax code set a rather generously high ceiling for firms to become VAT taxpayers. For details of early Czech tax system see Venys (1995).
2
. The evaluation of tax system theoretically is rather complicated and difficult task. On the one hand tax revenues are collected in order to provide public goods that can enhance welfare of citizens in a given commuity. Public goods can increase the efficiency gains of markets though improving human capital, reducing transaction costs, enhancing the productivity of capital, limiting opportunistic bahavior what can result in faster economic growth. In addition transfers may reduce poverty and increase social cohesion. But taxes increase distortions, may reduce savings and investment and incentives to work hard. Perhaps these different impacts can be the resason why some studies could find negative and significant correlation between taxation and economic growth but others could not. Leibfritz et.al (1997) found that a ten per cent growth in ratio of tax revenues to GDP slows down economic growth by 0.5 per cent – a consistent result with the findings of King and Rebello (1990), Barro and Plosser (1992). Easterly and Rebello (1993), Levine and Renelt (1992) and Slemrod (1995) report insignificant or positive relationship between these variables. Others conclude that there can be therefore nonlinear relationship between taxation and economic growth. At low level there can be positive effect what turns to the opposite above a certain threshold. 3 . The essential accounting rules, for example, provided an opportunity for overtaxation of „paper” profit of state owned banks and firms.
I.R.E.F
Ec-6
In the Czech Republic taxes can only be imposed on the basis of tax codes. Similarly to the practice of the other CE countries only national legislation has the right to decide upon what to tax. The Parliament may also impose limits on tax rates. In sum, not only national taxes but also local taxes are determined by the state. Municipalities have only a limited freedom: they can set the tax rates within the bands set by the legislation or they may decide not to impose a given tax at all (or give allowances or exemption). The Czech tax system is administered by the Minister of Finance and the Central Financial and Tax Board. According to Bronchi and Burns (2002) operation costs of tax system is rather high in the country. (See also a paper by Vitek and Pubal about this issue.) Most taxes are administered and collected by the Czech state. Some of them are earmarked and can only be used for financing particular activities. Citizens at local level may not initiate referendum on fiscal matters at all. In case of disputes taxpayers may appeal to ordinary courts if they are not satisfied with the reply of supreme tax authorities on their complaints. Just like elsewhere in other CE countries there are no administrative or specialised court systems to solve disputes between tax administration and taxpayers. Parties must rely upon the service of ordinary courts – what are working rather slowly, although not only in the Czech Republic. Although the Czech tax system is in principle harmonized to EU requirements there are still a few things to be changed. During the accession phase and derogation period the country must reduce the number of goods taxed at lower preferential or zero rate. Just like in other cuntries the revenue base must be widened, and property taxation are expected to be extended. More efficient tax administration is also required. This must imply stricter law enforcement. By the end of 1998 tax arrears amounted to 6.4 per cent of GDP. They increased faster than the GDP. Just like in Poland tax evasion and avoidance are more serious problems than elsewhere. It is also the intention of the governemnt to change the rules and widen significanty the tax base – also for example for property taxation.
Structure of tax revenues in the Czech Republic The government finance statistics of IMF provides data only since 1993 for the Czech Republic. As can be seen in Table 2.1 in Appendix 2 the share of personal income taxes increased up to 1998 and then decreased. At the beginning of the period personal income taxes generated insignificant portion of revenues of general government. The share of these taxes increased close to six per cent and since then it has been practically around this value. The share of corporate income taxes dropped to less than half of the level in 1996 by the end of 2000. But in 2000 this revenue source still generated more to the consolidated budget than personal income taxes. Payroll taxes have been very important sources of the budget of the central government in the Czech Republic. As can be seen from figures in the table the share of social security contribution was almost 38 per cent in 1996, increased further to 45 per cent by 1996 and later it fluctuated around 46 per cent. This is a rather high value. The share of property or wealth taxes has been slightly incresasing but these taxes had shares above one per cent in two years only. Although this magnitude is measurable but not significant. VAT taxes imposed on consumption had a rather stable share between 20 and 23 per cent between 1993 and 2000. This share is similar to the value of other countries. We can give similar evaluation about the share of excise taxes except for that their share was about half of value added taxes. At the beginning and at the end of the period excise taxes had a share of 11.2 per cent from total tax revenues in the consolidated budget of general government. Indirect taxes on consumption have provided one third of the revenues for the general government. Payroll taxes (social security contributions) and consumption taxes provided seventy-eighty per cent of all tax revenues in the Czech Republic. The share of import
I.R.E.F
Ec-7
duties was less than five per cent already in 1996. In seven years this share was even lower - close to two per cent. Trade liberaliation is reflected in figures.
The structure of expenditures in the Czech Republic As can be seen in Table 2.2 relatively smaller amount has been spent on general public services in the Czech Republic in the second half of the decade. The share of these expenditures was above six per cent during the first four years but then it dropped back to less than half of that level and varied between 2.7 and 2.9 percentages between 1997 and 2000. Military expenditures had more or less stable share from the budget of general government between 1996 and 2000. Except for two year the government spent more than five per cent of the budget for defense. Spending on public order and safety had a similar share. From other studies we have the impression that the legal infrastructure does not work efficiently in the Czech Republic neither. The central government spent more on education in the first half of the period than in the second. The share of expenditures on education increased to 1996 but it has been declining since then. In 2000 already less then ten per cent was spent on educating people. Almost twenty per cent of all tax revenues are allocated to cover the health care budget. But even larger share was allocated to finance the welfare programs of social security and other welfare funds. Prior to 1996 still less than 30 per cent of the budget were spent for such purposes. In 1997 the share of these expenditures increases very much – almost by ten per cent. and in 1999 and 2000 the proportion of such expenses was already above 38 per cent. Not surprising that not too much has been left for financing culture. This subbudget has been always the smallest one. Expenditures on housing had a declining share between 1993 and 1996 but a relatively huge amount was spent for this ector in 1997. Since then almost three times more are spent for housing than financing culture. One of the main critique of the Czech transformation was that restructuring at firms’ level had been postponed for a long time. The relatively large portion of spending on economic affairs from the total amount of expenditures probably supports this evaluation. In 1997, 13.3 per cent was the share of such expenses. This ratio was just one per cent less in 2000. Transportation and agriculture received in each year significant support from the state. Compared to other countries transportation has been supported with more money than agriculture. Energy sector and coalmines did not receive significant subsidy comparatively. Compared to other countries a large part of these expenditures was always allocated to other sectors. After EU accession such direct and indirect subsidies must be ceased. It is not surprising that the share of subsidies has been also rather high in the Czech Republic. Even more is spent under this heading. The share of subsidies was 13.3 per cent in 1993 and 17.6 per cent in 2000. But the share of transfers to households and non-profit orgnizations has been also high. As can also be seen from the figures in Table 2.2 during the whole period the share of these expenditures grew above fifty per cent – one of the highest in the region. As you can also see from the same table the share of the transfers to subnational governments were rather low what show a very high degree of centralization of expenditures. Less than five per cent of all expenditures of central government were redistributed to local governments most of the time. There was on year when this value was outsanding compared to other years. In 1996 the share of these transfers was close to ten per cent. In 2000, slightly less than five cent of the budget was spent for financing the past but later these expenditures were even less significant.
I.R.E.F
Ec-8
Corporate income taxation A partial reform of corporate income taxation was implemented in 1991 although the CIT rate was still very high.4 In addition, the accounting system had not been appropriately adjusted to western norms at that time yet. At the beginning of transition there were no tax-free zones, but some tax holidays were offered for investors, and a rather small set of tax relieves were given for emerging domestic business sector in the Czechoslovak Republic. As a part of the tax reform package tax holidays were abolished as investment incentives. (Later temporary exemptions were offered combined with certain activity specific allowances and credits for capital expenditures.5) At the early period different tax rates were levied on profits depending upon the ownership and activity of businesses. For example, foreign firms had lower rate of 40 per cent while nonagricultural firms paid according to a rate of 55 per cent. During this period a wage tax (with rates between 10 to 30 percentages) was also imposed on corporate sector. Entrepreneurs had to pay these taxes according to a progressive scale ranging from 0 to 55 per cent. The double taxation rate of 25 per cent on dividend was abolished only from the beginnig of 1994. The profit tax rate was gradually lowered during the last decade as can be seen in Table 2.3. The CIT rate was one of the highest among the countries analysed by us. A further problem was in the late 1990s that investment and pension funds were taxed at a rate set ten per cent lower. Another problem of the Czech corporate tax system was that it did not permit consolidation of balance sheets of companies belonging to holdings. This difference in accounting might created distortion in size and organizational structure of Czech industries. We may expect that this rate will get closer to the rates of other countries if policymakers intend to maintain competitiveness and economic growth and all the firms will be taxed at uniform rate.
Social security constributions Employers and employees are obliged to pay payroll taxes as well in addition to their income taxes. Compulsory social security taxes were also introduced in 1993. The combined overall rate is one of the highest in OECD area. Especially employers’ rate is high now. See Table 2.3 Both parties have to contribute to several funds but only the contribution to the health care fund is earmarked. These taxes are very important sources of general government. Between 1993 and 1998 some part of the contributions was spent for different purposes than social security programs. In the Czech Republic contributions to social insurance system are divided among three funds. A smaller portion (altogether 4.4 per cent of gross wage) goes to sickness benefit fund. The combined contribution rate of pension fund is 26 per cent. In both cases the contribution is divided between employees and epmloyers in one to three. Unemployment benefits and other related expenses are covered from the revenues going to the Unemployment Fund. Here the rate of employers is relatively higher. A self-employed is supposed to pay according to total combined rate. But this high wedge on cost of labor makes evasion or underreporting too attractive.
4
. The corporate tax rate was 55 per cent in 1991. To see how relative things can be we also mention that this rate was 75 per cent in 1986. 5 . In 1998 a wider range of investment incentives were given for large investors but the emphasis was on different type of allowances than profit tax exemption. But some of them (like relieves from custom duties) also had direct tax revenue consequences. The Czech government changed the policy because of worrying the relatively low foreign investment prior 1998.
I.R.E.F
Ec-9
Personal income taxation The country introduced PIT system as a part of the tax reform package in 1992. The tax base has been rather narrow. Individual taxpayers have a wide range of opportunities to lower tax base. According to Bronchi and Burns (2002) deduction ranged from 18 to 58 per cent of the earnings of an awerage worker in manufacturing.6 According to their study the progressivity of personal income taxation corresponds to the average system but compared to most OECD countries rather few citizens are exposed to the top marginal rate. During the early period there were six brackets and the rates were set between 15 and 44 per cent. In 1993 the top rate was even larger as can be seen in Table 2.4 in the appendix. The first four rates have been kept but the highest rates were gradually eliminated. Now the top rate is 32 per cent what is the lowest among these five countries. A serious distortion was built into the tax system when self-employed were allowed to pay sigificantly less income taxes as well as social security contributions even if they earn much more than an average taxpayer. This biasedness of the tax regime can be explained propably by efficient self-interest representation of intellectuals and lawyers themselves since professionals belonging to these social groups have usually secondary jobs as self-employed. Capital gains are taxed separately from other incomes with a flat rate system but at differential rates between 0 and 25 per cent. Usually zero rate applies. This rate is lower than the top PIT rate – favorable for rich people who keep proportionately more capital investment in their portfolio. Dividend is also taxed according to the same rate of 25 per cent. Interest incomes are taxed at 15 per cent only. These taxes are withholdings.
Value added indirect taxes on consumption In the period of 1990-92 the wide range of turnover tax rates was significantly simplified.7 Instead of hundreds of different tax rates only four had been kept. Negative tax rates were completely abolished. In 1993 the VAT regime was introduced with three rates. An important feature of the VAT system in the Czech Republic is that the threshold for obligation to pay VAT is rather high. Zero rate is applied, of course, to exports. But in addition to financial and social security services small firms are also exempt for VAT. The preferencial rate fixed at 5 per cent is imposed to socially sensitive commodities and services (like medicines, telecommunication, heating and fuels for heating, construction work, and most services)8. Most of them are goods that must be taxed at standard rate according to EU requirements. The standard rate was first set at 23 per cent and two years later it was lowered by one per cent as shown in Table 2.5. Although the higher rate must be the standard one according to Bronchi and Burns (2002) only 47 per cent of goods consumed in 1998 were subject to this rate.
Excise taxes As in any other countries in CE the Czech government also impose excise taxes on consumption in addition to VAT. The set of goods that are subject to excise taxation are similar 6
. The most important deductibles were as follows in 1999: basic personal allowance of 34,920 Ck, additional 19,884 Ck for spouses under certain threshold, 21,600 Ck after each child, social security contributions, charity, 50 per cent of incomes from agriculture, 25 per cent of incme from trade or other entrepreneurial activities, etc. 7 . Rates were specified for about 1500 different commodity groups and varied between less than one percent and 733 per cent. Almost five hundred goods had negative turnover tax. That is, in fact a large group of goods was subsidized. 8 . According to some estimates referred by Bronchi and Bruns (2002) if the VAT rate on heating would be increased the standard rate could be reduced by three per cent.
I.R.E.F
Ec-10
to the ones in other countries. The consumption of hydrocarbon fuels and lubricants, alcohols and tobacco products are made even more expensive in certain respect in order to reduce consumption but in other cases simply just for collecting money for the central budget. Some rates were as follows in 1997: petrol (11 570 Ck per tonne), cigarettes (0.65 Ck per piece), beer (up to 430 Ck per hl), spirits (195 Ck per litre), wine (5.5 Ck per litre), etc.
Import duties The continous trade liberaliation and the impact of Uruguay Round are reflected in revenues from import duties. As we already mentioned their importance is declining. Just in case of many countries - not just in CE region – the Czech governments also protected agriculture with higher than average tariffs. These rates were set, for example in 1997, between 50 and 200 per cent. Tariffs on other industrial products were lower and in an increasing number imported goods enjoyed the preferential rates. The reduction and elimination of tariffs on a large volume of imports have been accelerated as EU accession brought the country closer to EU.
1.1.2 Subnational governments in the Czech Republic In the former Czechoslovak state the issue of fiscal federalism received more attention after the political changes due to the federal system in the country. The federal state was highly centralized before 1989. During the period of 1989-1992 the responsibilities and revenues sources were divided at various levels of governments. As far as the financing is concerned most revenues were still centralized. The main revenue sources were closely connected the control over firms. Important industries (like mining, energy, machinery, and electronics) were controlled by the federal government, some other ones by republics. Revenues from turnover taxes and import duties were not shared between republics because of the troubles in assigning appropriate tax base. Revenues from wages and cooperative and emerging private sector were channeled to the budgets of the republics. (Accordingly social transfers and public services were mostly financed from republican budgets.) As you will se below (subnational) local government have been mostly financed from sources at higher levels in the state hierarchy. Just like other countries in the region the Czech Republic has a unitary state. Till 2001 there was a three-tier administrative system. The territory of the country was devided into 77 districts. Districts were between central government and municipalities. Employees are officials of the central government. The Ministry of Interior was responsible for the administrative apparatus. Districts had their own assemblies where municipalities send their representatives to. Formally the assembly decided upon the district budget.9 Actually districts served as a lengthy arm of the central administration. They were supposed to be abolished at the end of 2002. They managed mostly secondary schools, social care facilities, road system, etc. They received „appropriate” funds from central government to cover costs. Recently district did not receive tax revenues at all. The organizations managened or owned by districts or the state will be transferred to regions or larger municipalities in the near future. Fourteen regions were set up in 2001 after the election held in November 2000. The responsibilities and financing of regions are provisional. These will be settled later only. The grants will be redistributed among regions probably on the basis of their population since - as the argument claims - each citizen must have the same service. But for huge capital investment costs 9
. In GFS of IMF budgets of districts are taken into account with the revenues and expenditures of local governments. OECD (2001) provides some data for the period between 1997-1999 with recalculation.
I.R.E.F
Ec-11
are expected to be due in the future OECD (2001) forecasts permanent bargaining over regional budgets regardless of the current redistributive system which is formula based. The Czech constitution also guarantees the right of citizens to self-govenance. The basic code and the Act on Municipailities protect the autonomy of municipalities. But this independence in financial respect in fact does not exist – similarly to the practice of other countries in CE. Local governments are independent and separated from the central government but they are linked closely to the state budget via grant system. Legally independent local governments have their own and delegated tasks just like elsewhere as you will see below. Each municipality has the same rights and obligation regardless of its size. The own responsibilities of municipalities at the lowest level are the following tasks10: preschools and elementary education, health care and social welfare services, culture, police service and public safety and order, cleaning of roads and public space, water and sewage system management, property management, urban planning, cemetery, etc. In addition to obligatory tasks and delegated duties, local governments may carry out voluntary tasks according to the demand of their inhabitants. As can be seen in Table 2.8 the size structure of municipalities is very dispersed, and very fragmented. There were more than 6 200 municipalities in the Czech Republic in 1994.11 As you can see almost thirty per cent of municipalities have less than two hundred inhabitants, and half of the municipalities have less then five hundred residents. These are very low values. Since around 17 per cent of the population live in small settlements it will be rather difficult to maintain the financing of the existing system. The revenue potential of municipalities are very different and for the „poor” municipalities it is more difficult to provide all the services and goods for their residents at appropriate level with significant diseconomies of scale. In addition after the creation of regions the divison of tasks among degions and municipailities must be still solved. Recently many tasks were still delegated to districts. Because many municipalities have micro size it is hard to imagine that tasks regularly being assigned to local governments at the lowest level can be shifted from districts downwards. Scale economies are important aspects of the decisions and economic considerations cannot be harmonized with political rights in this field. The basic administrative organ of a municipality - just like in other countries - is the local council elected by residents. Mayors are directly elected in local elections for four years. Citizens have the right for referendum to influence local decision making in most local matters except for budgetary issues.
Public finance at local level In the Czech Republic municipalities and other subnational governments have very limited power to tax and accordingly their autonomy in the decision over expenditures is also weak. The provision of educational, health care and social welfare services belonging to the responsibility of municipalities at local level is strictly regulated by branch ministries and financed from central sources. Own resources are negligible (mostly collected from property taxes). The principal revenue sources are the transfers from the central governments or related extrabudgetary funds. Transfers are based upon number of inhabitants and the location of businesses. 10
. Delegated tasks are among other the following ones: registration of birth, death, marriage, building permission, certain actions in environmental protection, sanitation, etc. 11 . Their number even grew during the decade. In 1999 there were nine more municipalities.
I.R.E.F
Ec-12
Because of the latter reason a kind of tax competition started to emerge among municipalities to attract firms to locate their accounting centers to their own municipalities. Tax analyst frequently lament on how harmful for the economy or society as a whole what is beneficial for a particular indivudual municipality because such practice can reduce overall tax revenues and creates distortions for spatial allocative decisions of firms. We could also, however, lament on what is good for the tax collector is bad for the taxpayer to make the picture more colourful. In sum, the state legislation and government exercise not only administrative but also financial control over local governments at any level. Reform efforts are targeted now to increase subsidiarity.
Revenue structure of local governments in the Czech Republic As one can see in Table 2.6 tax revenues of subnational governments varied between 40 and 53 percentages between 1993 and 2000. During this period regions did not exist. Shared income taxes were important for local governments in the Czech Republic as well. Before 2000 they received 20 per cent of corporate income taxes collected by the state on the basis of their population. Shared personal income tax revenues were distributed in a bit complicated way before 2000. Ten per cent of the wage taxes were left at the municipality where the firm was located. Municipalities in the district where the given municipaility belonged to received twenty per cent. This amount was distributed among these local governments on the basis of their population. The rest was kept for the central budget. Municipalities were left all the revenues from venture tax imposed on unincorporated small private businesses. Due to tax competition and costs of collecting these taxes this source was rather insignificant for local governments.12 Recetly - in line with establishing of regions - tax sharing rules were changed to some extent. The basic guideline of the change however was not to change fundamentally the distribution of funds among parties. Now value added taxes are also taken into account in tax sharing. In addition, unincorporated corporate income taxes are also covered by redistribution. The sharing rule is based on tax collection and population. But there is also some coefficient applied in calculation – favoring larger municipailites. Knowing the existing size structure of municipailites in the Czech Republic, the government will have hard time to resist or otherwise equalization will be extended with all the bad consequences. Regions are under even mor stricter control than municipalities. Central government fully controls the administrative operation of regions and they are financed almost exclusively through the grant system. Transfers from social security funds to finance welfare expenditures are also important but they go through redistribution channels of extra-budgetary funds and central governments. The share of own local taxes have been declining. The ratio of property taxes to total local tax revenues was rather low during the whole period. The share of tax on goods and servives was slightly increasing but fees are still less significant sources of expenditures. Non-tax revenues had a rather stable share after 1994 around 17-18 per cent. The share of grants decreased from 30.3 per cent in 1993 to 25.3 per cent in 2000. In the Czech Republic local governments may incur deficit and debt. They may freely borrow money from financial institutions on the market. No legal constraint may bind them – only economic ones. They may also issue bonds if they have the regular permit from Security Commission. 12
. District have been financed from shared taxes and transfers. They received 30 per cent of tax revenues collected in their own area. Municipalities did not contribute to the budgets of their districts. (largest cities being also districts could keep 40 per cent in addition to the other 30 per cent what they could keep as a municipality.
I.R.E.F
Ec-13
Of course, the basic right of internal control over municipalities is exercised by the councils. The budgets of municipalities are primarily audited externally by independent auditors at the expense of the municipalities. However, audit was free of charge if the district auditing office was asked for a control.
Local taxes Practically local taxation does not exist in the Czech Republic. Although municipalities may impose tax on various properties of their residents. Own local taxes over which municipalities can control is very limited. The share of these revenues were less 3 per cent. This fact assigns the direction of necessary changes. But it will be more than difficult to change this rigid structure in the future. Neverheless that is a good basis for change that according to the former sharing rules income taxes in fact were redistributed in the place of collection (that is, within the same district where tax incidence took place and distributed among municipalities within the district on the basis of the number of residents to a larger extent and the remaining part was left to a smaller extent in place of tax incidence at the lowest level).13 As mentioned already municipalities may impose some local taxes but just those ones determined by the central legislation and within the limits set by the same codes. Regions does not have even such limited rights. Czech municipalities may impose the following types of taxes: tourism tax on visitors and recreational units, vehicle and building tax, dog tax, etc. Most of the municipailites use these taxes but the proceeds are rather low. (Property taxes are usually not value based.) Recently municipalities may impose environment taxes but only on small polluters. Large ones are taxed by the central government. These tax revenues are also shared ones and they utilization is earmarked.
Local non-tax revenues A smaller room has been left for local governments to collect non-tax revenues. The Czech central government regulates even this activity of municipalities. The relevant act enumerates not oly what municipalities may charge fees for but also the upper limits of the charges. The most important fees (like rent and charge for water supply) are also still centrally regulated. From the figures in Table 2.6 we guess that prices were not fully adjusted to costs or market value. For more details on taxes and fees (or in general about nontax revenues) see OECD (2001a).
The structure of expenditures of local governments in the Czech Republic Table 2.7 describes the structure of expenditures of local governments between 1993 and 2000. General public services has similar share as we could see in the structure of government expenditure at national level.14 Expenditures on health care have been rather low during the 13
. The sharing rule is determined by the Parliament every year within the framework of the act on budget. Recently the share of local governments on the average was close to fifty per cent. From 2001 municipalities receive 20.6 per cent of all income taxes. They are given the same share of VAT revenues, 14.4 per cent of income taxes of unincorporated small businesses, and 30 per cent of income taxes of residents. 14 . Some of the duties of municipalities in this field are as follows: water supply and waste water disposal, supply of electricity and heating, or gas, treatment of municipal waste, cleaning land and municipality itself, maintenance of cemeteries, etc.
I.R.E.F
Ec-14
whole period suggesting centralization of resources and expenditures as well. Health care services are organized at the lowest and the highest level of government but obviously the paternalist state has a long survival in this field. Although municipalities are still reponsible for certain basic health care tasks but the system is basically administered and financed by the government. Other social security and welfare programs have a modest and relatively stable share around 10 per cent although in 1996 expenditures on welfare programs suddenly jumped to 23 per cent. No doubt that there is high demand at local level for such programs and we also expect relatively large variation of the demand depending upon structural economic changes or other social factors. Much more has been spent on housing between 1993 and 2000. These expenditures obviously also have rather significant welfare effects. In 1993 more than 35 per cent of all expenditures related to this heading of the budgets at local level. At the end of the period still more than one quarter of the budget was devoted for this purpose. Proportionately more is left for culture at the level of municipailities than how much had been spent from the central budget. A bit more than twice as much were spent on subsidizing local transportation. Czech local governments as a whole proportionally spent much more for supporting transportation then on education. This again reflect the high degree of centralization of resources and expenditures as well. In 1993 still 12.5 per cent was the share of expenses of education budget. In 2000 the share of expenditures from the total expenditures amounted to 7.5 per cent only. Really not too much has been left for public order and safety, even if services and goods supplied by municipalities in this field can have the highest public good nature. The public goods that could be financed from local budgets under this heading are fundamental for well functioning of local societies in addition to elementary education. Nevertheless in 2000 the combined budget of these two sectors was hardly above ten per cent. No doubt that fundamental reforms must be also encouraged in the Czech Republic as well. But from public choice perspective we can be sure that it will be obviously a very hard job to carry out radical changes.
1.2 Hungary In Hungary as an inherent consequence of earlier economic reform some important changes in taxation were carried out even under socialism. The personal income taxation was introduced in 1988. A year later some measures were also taken in order to adopt a more market type corporate income tax sytem. The reform of corporate tax system was completed in 1992 when accounting rules were to a very large extent adjusted to Western norms. Value added taxation (combined with excise taxes) was introduced in 1988 as well. As a consequence of trade liberalization tariffs are less significant barriers compared to earlier periods. In the middle of the decade the government reduced the burden of taxation on corporate sector in one respect. After cutting the rate to 18 per cent the profit tax rate is the lowest in Hungary in the region and even if it is measured by international standards it still can be considered low. But other taxes are, in general, still rather high what put heavy burden on businesses as well as on the population, or encourages evasion.
1.2.1 Taxation The tax system works in very similar ways in Hungary as it does in other countries. The common past obviously creates some path dependency as far as the socilist heritage is concerned. But the common legal infrastructure and legislation still before socialism bring these contries also relatively close to each other. Moreover, policy-makers and other social engineers took into account the experience of their neighbors and always paid attention what happened in other
I.R.E.F
Ec-15
countries. Unfortunately Hungary could serve not only good examples for other countries but also with bad ones. As far as public finances are concerned the latter one is true for sure in many respects - it the previous conjection is valid at all. You will see below why we think so. Taxes can only be imposed also in Hungary if they are listed in tax codes. No taxes can be levied without legislative approval. Even local taxes are limited in this respect by the national legislation. The tax code determines not only the tax base of municipalities but in most cases the upper limits of tax rates as well. The taxes are mostly administered and collected by the Tax and Financial Control Office. The Office is under the control of the Minister of Finance. Local taxes are administered and collected by local governments. Tax sharing is an important factor but to both directions. Not only municipalities have some share from centrally collected income taxes but the central government also receives some part of local taxes collected by municipalities. Disputes between tax authorities and taxpayers are solved by the ordinary court system. In Hungary administrative courts or other specialized court do not exist.
Structure of tax revenues in Hungary The government finance statistics of IMF provides data only since 1990 - but for some years there are no data published for some headings. As can be seen in Table 2.9 in Appendix 2 the share of direct taxes imposed on personal incomes was still rather low in 1990 but it almost doubled in a year. Since 1993 PIT gives a rather stable source of the government revenues. In 2000 the share of this source was 16.5 per cent. The share of corporate income taxes decreased and at the end of the period the share of profit tax was less than half of the level in 1990. If we consider these two revenues sources we can see that their share just turned to the opposite of each other. But their combined share was usually a bit more than twenty per cent. Social security contributions generated significant revenues for the central budget. Their share has never been below thirty per cent during the last decade. Property taxes are not important. Before 1997 the magnitude of these taxes was not even measurable. VAT had high share already in 1990 due to the early introduction compared to other countries. After 1993 the share of these taxes was always above 20 per cent. In 2000 it was already closer to thirty per cent. These taxes are relatively easy to calculate with during the planning of the annual budget and relatively easy to administer. But excise taxes are also important sources for the Ministry of Finance. The share of these taxes were usually above ten per cent. This implies as can be seen in Table 2.9 that recently indirect taxes on consumption are the most important sources of revenues of the central government in Hungary. Import duties generated proportionally less revenues for the government at the beginning and at the end of the period. They provided significantly more revenues for the government in 1995 and 1996. During this period a temporary import surcharge was imposed on import as a part of austerity measures in order to restore fiscal and monetary balances.
The structure of expenditures in Hungary As can be seen in Table 2.10 relatively small amount is spent on general public services in Hungary as well. The share of these expenditures varied between 4.0 and 7.5 percentages in the period between 1991-2000. Military expenditures had a stable share between 1991 and 2000 but at rather low level. There was just one year when spending on defense was above three per cent. Although it is true that in 1993 the share of these expenditures jumped immediately to above eight per cent of all expenditures. NATO membership will probably require and imply a higher share in the future. In a growing ecomomy military expenditures may also increase but there is raher strong resistance among politicians to bust military budget. Although a bit more have been spent on public order and safety but people are less satisfied with the efficiency of these
I.R.E.F
Ec-16
expenditures. Hungarian citizens would definitely prefer a better functioning of the state administration. The central government has never spent more than ten per cent of the budget for education. In 2000 the share of this heading from total expenditures was already 6.3 per cent only. Compared to other countries - especially in comparison with Poland – not too much is spent on healt care services. Compared to the state of health of most people in Hungary this small amount in the budget may seem even too low. Restructuring (reform) of the health care system is permanently on the agenda of politicians. Social security expenditures had a much larger share from the budget prior to 1997 than after 1997. In 2000 the share of this sub-budget was 22.1 per cent only - the lowest value in the whole region in this period analized. This reduction is in part a consequence of government strategies, but in part simple reflects the collapse of welfare state. More money was left for finance cultural life in the first part of the decade. Before 1996 the share of such expenditures of the budget was above three per cent. In 2000, the share of the same subbudget was 1.3 per cent only. Compared to other countries definitely much less was spent on housing. The government first passed the housing stock to municipailites in the early ninethies. But municipalities sold most part of their assets including apartments. This made of course easy to reduce this spending. Relatively more was devoted to economic affairs in the period between 1994 and 1997. The share of these expenditures was below ten per cent in 1991 and at the end of the period. Just like in other countries agriculture and transportation received the most support. recently other sectors were also financed from central budget to a large extent. The share of subsidies was also rather low comparatively – except for 1998 when exceptinally this value jumped over ten per cent. Compared to some other countries subnational governments receive more from the central budget but still there is significant level of fiscal centralization as we try to argue. Transfer to households were also larger in the first half of the decade than afterwards. The share of deficit financing is extremely high in Hungary. In 1997 almost a quarter of the whole budget was spent on financing the past. After having a look at these figures perhaps balanced budget requirements in Hungary seems quite reasonable.
Corporate income taxes (CIT) Under the socialism wages were kept artificially low and government practically imposed 100 per cent tax rate on state-owned enterprises, i.e. confiscated all the net revenues from corporate sector for a long time. Following the change in tax regime in the late 1980s, a new tax regime for corporations was introduced in 1989. But the accounting standards were adjusted to Western system in 1992 only. Since then corporate tax system more or less corresponds to market principles. Although at the beginning the tax rates were high, recently tax rate imposed on net revenues of businesses can be considered rather low. In the late 1980s, early 1990 the tax rate on corporate net income was 40-50 per cent. In 1994-95 (when foreign investments were rather significant) the rate was first reduced to 36 per cent and then halfened. The current rate of 18 per cent is rather low in European and international comparison. (See Table 2.11 in Appendix 2.) The reduction of the rate and the fluctuation in economic growth both explain the variation of the share of CIT in tax revenues and the rather low level of CIT revenues compared to GDP. At the beginnig of the economic transformation a wide range of tax exemption was provided for rather wide range of investmentors. As can be seen in Table 2.12 by 1994 the scope of tax allowances was reduced significantly an since then only large investors enjoy tax holidays and other allowances for shorter or longer period. In the accession agreement the Hungarian government successfully bargained to protect this tax preferences provided for foreign investments.
I.R.E.F
Ec-17
Social Security Contributions Although there were rather favorable changes in CIT, the high payroll taxes paid by especially employers put a heavy burden on corporate sector, and on taxpayers as a whole. These taxes make corporate sector - ceteris paribus - less compatitive. Social security contribution containts two elements paid by both employers as well as employees: a part of the contribution goes to the pension fund, and another portion to the health care fund. The changes in the rates can be followed in Table 2.11. Although the rates are set at rather high level, the pensions are still low, quality of services in health care sector is considered also poor. And, again, in addition to inefficiencies in provision of services, the high rates induces tax evasion or underreporting and makes registered businesses less competitive or make Hungary less attractive for foreign investors because of high labor costs. In 1997 a new pension system was introduced with three pillars. The contradictory and inconsistent decisions of consequtive governments drew back the development of fully founded private pension sytem to some extent in the last few years. The inherent financial problems of welfare programs in general are not solved in Hungary and it seems for us that the rigidities of the current systems make fundamental changes quite hopeless.
PIT Hungary was the first among CECs where the government switched to personal income taxation. It was in fact implemented still during the socialism in 1988. As it was already shown the share of PIT has increased in government revenues. Compared to GDP the ratio of PIT revenues seems to fluctuate around 4-5 percentages. This ratio had been above the Hungarian level only in Poland for many years. By the end of the century, however, it seems that the Hungarian government collects comparatively the largest amount from its citizens in the region. This is partially manifested in the tax rates and brackets. As described in Table 2.13, at the beginning there were rather many rates. Later this structure had been simplified and currently there are only three rates (set at 20, 30, and 40 percentages) but all the incomes are taxable and the brackets are set at rather low levels and have not been usually fully adjusted to inflation. This feature implies increasing tax burden on avarage people. This is also partially reflected in the figures in Table 2.14. The average PIT rate increased between 1988 and 1997 from 14.4 per cent to above twenty per cent.
VAT As a part of comprehensive tax reform in the late 1980s the system of turnover taxes was replaced with a more general, less complicated system of value added and excise taxes. At the beginning three were chosen by the government as can be seen in Table 2.15. The standard rate was rather high but at the early period there were many exceptions. Now the standart rate is the highest in Hungary in the whole region. This makes consumption very expensive – although provides stable and easily manageable sources for the central government. The rates were adjusted to EU requirements gradually. The current preferential rate is also rather high. For more details on VAT regime in Hungary and about the tax reforms in general see Vámosi-Nagy et.al. (1998).
Excise tax Compared to European average excise taxes are rather high in Hungary. The structure of excise taxes is rather simple. The whole system is easily manageable, and even if there were some
I.R.E.F
Ec-18
period when evasion and avoidance created serious problems, still it is easy the administer and collect excise taxes. Most revenues come from taxing consumption of fuels (what is very high compared to neighbors) alcohol, vehicle registration. In general these revenues are collected on the basis of consumption of a smaller set of goods and services than in other countries it is carried out. In the last phase of EU accession EU put high pressure also on Hungarian government to adjust tax rates on tobaccos and other product to reach EU level.
Import tariffs Just like in other countries tariffs serve two pruposes. On the one hand they generate monel for the government but they are also used to protect various sector of domestic economy. These revneus are less important sources of the budget but international agreements also forces the Hungarian governments as well to reduce or eliminate tariffs. In he middle of the decade when external and internal imbalances reached high level import surcharge was imposed on import to reduce import and improve current account temporarily. As the situation improved this excessive tax burden was removed.
I.R.E.F
Ec-19
1.2.2 Subnational government system In 1990 the old soviet type council system was replaced by a one-tier subnational government system. As a result of democratic local government election in late 1990 the system of 1,600 local councils was abolished and 3,115 new local governments were set up in stead. Tbhe new Constitution founded new subnational government system with a strong principle: each settlement can have its own local government. The Constitution restored the autonomy of local communities. Although the system of nineteen counties was maintained, these administrative intermediary units lost their importance and functions as powerful intermediate level in the hierarchy. Their role was reduced significantly. Later, especially in the light of EU accession, however, seven regions were created on statistical basis. According to the current plan of the government these regions will receive more functions, responsibilities and funds to meet these obligations from 2006, while counties will keep their role to maintain or manage organizations and certain insitutions being put or transferred under their control. The Act on Local Government - which sets the basic legal rules for the operation of municipalities - determines the functions and financing of local governments. In certain respects the Act only decentralized the state administration but in many important respects local communities have some authonomy. The legislation prescribed rather broad responsibilities in mandatory delivery of certain services and in connection to these obligations promised appropriate financing from central government or related funds. Because of the lack of sufficient central sources there has been permament tension between the government and municipalities. Redistributed funds have never been enough to cover all the costs. Underfinancing of local governments is typical also in Hungary.
More details Although the basic idea was in principle good the actual implementation of the reform and the distortions later resulted very quickly in a local government system what is far from being efficient - even if developments in this field as well were determined to very large extent with macroeconomic and fiscal imbalances. Regardless whether public goods or services are provided by the central or subnational governments private sector is also involved in the provision of local or regional public goods and services or the services of public utilities to a large extent from the mid-1990. Where private firms are interested in services the regulation and price control may play significant role because of its politically sensitive nature.15 Although in some fields (but especially in gas supply) price adjustment has been postponed and many problems have not been solved yet, neither they are openly discussed for political reasons, in fact, this sector still operated rather smoothly. It seems that during the short period of obtaining full EU membership the remaining tasks are manageable. Although NGOs play increasing role in administering local affairs and direct participation or involvement in running institutions at local level by common people are also getting more widespread there are still a lot to be done. Improving fiscal awereness of people could perhaps help.
15
regulation by national authorities
I.R.E.F
Ec-20
Local public finance The basic feature of local public finance and all the problems relate to the legislation and the size structure of settlements in Hungary: (1) The structure of settlement is very fragmented as can be seen Table 2.18. There are rather many small settlements (micro villages). (2) Any settlement may have is own municipality. (3) The Act on Local Governments prescribes mandatory obligations for settlements to meet. (4) Most of these small municipalities do not have sufficient own revenue base to finance expenditures stemming from mandatory tasks. (5) Politicians consider small settlements valuable and in any dimension of the wide range of responsibility for social services comparable standars are expected to be meet, i.e., politics does not tolerate significant inequalities among regions, settlements and individuals. (6) Intergovernmental transfers (grants) play owerwhelmingly significant role in local public finances. The equalization principle is in harmony with the recommandation of the Council of Europe stating that this redistribution of resources should „enable local authorities, if they wish, to provide a broadly similar range and level of services while levying similar rates of local taxation.” (Cited by Davey and Péteri (2000) p. 1.) Although a rather simple transfer system was adopted in 1990, the grant system has became not just complex and detailed but complicated. Ministries frequently issue decrees regulating the quality and management of services. Not only normative equalization soon became a very important aspect of decision making in the legislation and and gained significance in practice, but also deficit grants provided from central sources to financially distressed municipalities (or subnational governments). In fact, the transfer system is a combination of three types of grants: (1) general normative supports are provided for each municipality, (2) specific normative subsidies are given to authorities providing particular services, and (3) funds are redistributed to mucipalities in order to equalize revenues from PIT.
Revenues of local governments Table 2.16 shows the structure of revenues of local governments between 1991 and 1999. Tax revenues have an increasing share in the local budget. Shared taxes are important sources of local budget. Although the sharing rule in some sense worsened gradually during the whole period, nevertheless the the total amount of such transfers on the average at aggregate level is rather stable. The central government does not share social security contributions with local municipalites directly. However the operation costs of welfare programs at local level are mostly financed from the health care fund directly. Taxes on property are not important sorces of revenues at local level. However the share of taxes on goods and services gained more importance recently. Nontax revenues have also a stable share from total revenues. As you can see the table, grants provided the overwhelmingly largest part of revenues in the first part of the decade. Since 1994 the share of grants have reduced significantly. Municipalities must rely upon own sources or external financing. The regulation impose some constraints on borrowing but the market itself limits effectively indebtedness of municipalities. Neverheless some local government became insolvent in the 1990s what forced the government to passed an amendment on bankruptcy regulation. Some paragraphs were added to manage the procedures of financially distressed local governments. Books and fiscal management of local governments are audited by National Audit Office ergularly. A full, detailed audit is obligatory at least once in four years.
I.R.E.F
Ec-21
Local taxes Local taxes are limited in their scope and magnitudes as well but for some municipalities they are very important sources of the local budget. The reason is very simple. In addition to taxes commonly used by municipalities all over the whole region venture tax is intensively used and imposed on businesses. This tax is imposed on the basis of employment or turnover. Even if the rates are rather low, still they can generate relatively huge amount of money for a given municipality if a large firm is located there.16 Local governments are rather reluctant to impose taxes on property in large scale. Taxes are usually not value based and the tax base is also small. It is the task of local municipalities to collect local taxes including tax on vehicles. As far as th elatter one is concerned, local governments cannot keep the whole amount – differently from the practice of other countries – but they share these taxes with the central government. According to the Hungarian tax rules it is prohibited to tax the same income source or property more than once. This provision was built into the regulation to prevent overtaxation. But people have no rights to initiate referendum on budgetary issues at local level neither.
Other local revenues Just like governments in other CE contries nontax revenues are also important for local budgets. One of the main revenues sources was the sales proceeds from selling apartmants to current rentees. But this source was depleted rather quickly. Temporarily municipalitie could overcome their financial dificulties via selling their assets but it cannot be done in the future after selling all the valuable (marketable) assets. In Hungary municipalities can set rentt and other fees or charges whithin the general framework of pricing rules. These simply require usually cost pricing, but in certain cases solid normal profit can be also included into the margin.
Expenditures of local governments As can be seen in Table 2.17 the structure of expenditures of local governments is similar to division one can see in other countries in the region, although there are differences as well. General public services have higher share at local level than at national level. Although at the beginning of the period the shares of health care, social security and other welfare and housing expenses were rather different, these expenditures received almost equal share at the end of the period. Relatively large share of housing spending indicates that rents are probably not properly fixed. Comparatively small amounts are spent for supporting local transportation that can show some development in this field. Almost one third of the budget is used for financing shool system at local level. Insignifiant amount is left for public order and safety. On the one hand this shows high degree of centralization, but on the other hand this makes more understandable why there are so many problems in this field.
1.3 Poland The tax reform started in 1989. Changes in tax rules were elements of whole economic transformation package. Although one of the main target of the economic policy was to stabilize the economy, especially curbing the inflation, already at the beginning the strategic goal of EU accession put the target of implementing the tax reform in a way that makes Polish tax system 16
. Because spatial distribution of firms are rather uneven this tax revenues create huge differneces in revenue potential as well as in actual level of collection of own revenues. If a municipality has significant revenues form such business taxes than it does not use to receive certain normative grants from the central budget.
I.R.E.F
Ec-22
compatible with EU regulations. This required plenty of changes. Corporate income taxation was introduced already in 1989. Personal income taxes were first imposed in 1992. The major change in indirect taxation was in mid-1993 when value added and excise taxes were introduced instead of turnover taxes. In 1999 new pension system was adopted, and there were important changes also in health care system. Moreover, fiscal sources were provided to subnational governments within the framework of the reform of public administration. The problems of reforming fiscal system were the same as in other countries in general. Neverheless the most important aspect of any change was always to raise more money for the central government. Unfortunately taxation is not a simple matter. Direct taxes reduces own funds for self financing emerging private sector. Introduction of indirect taxes increases inflation. If the price increase is not compensated by wage increase, the impoverishment of the society increases. Of course, it is difficult to find a compromise among these factors working against each other. But these effects can explain why the tax reform was implemented gradually and why certain measures had been delayed or postponed. Nevertheless by now in many or most important respects the Polish tax system has been harmonized to EU norms as you will see below but in a few and rather important segments measures (restrictions) are still to be taken: (1) privileges must be abolished what can be difficult in case of agriculture due to its large share in employment and poverty in rural Poland, (2) further actions are still necessary in order to make taxation more compatible with participation and incentive constraints. Similarly to the practice of the other countries taxes can only be levied on the basis of tax codes and its amendments passed by the Polish Parliament. Only the legislation has this exclusive authority to determine the tax base and the upper and sometimes lower limits of tax rates. That is, not only national taxes but also local taxes are also determined by the Parliament. Local authorities cannot choose freely on what they would like to levy tax, neither the tax base. They can have only a limited freedom: they can set the tax rates within the bands set by the legislation or may provide exemption. Lenian and Bartoszuk (2002) claims that the tax code contains some paragraphs what are not clearly defined or at some point are in disharmony with some other rules. The Polish tax system is administered by the Minister of Finance. His obligation is to issue guidelines for dabated parts of the tax code. In case of disputes people may appeal to regional tax chambers within the same jurisdiction. Second appeal is also possible at ordinary courts as in the other countries. Most taxes are administered and collected by the Polish state. Some of them (like contributions to health care, pension, and labor funds) are earmarked and can only be used for the given purpose through the budgets of extra-budgetary funds. Citizens at local level may initiate referendum on fiscal matters however. The rules of such referendum is regulated in the Act on referendum on local fiscal matters.
1.3.1 Taxation The Polish tax system uses the same types of taxes one can see elsewhere in the developed world and the whole system in principle functions similarly to those system used in EU countries. During the ninetees there were several changes in the tax system and not always to the proper directions. Due to the tension in the system and their economic impacts in 1999 some reform package was passed by the Sejm. A medium run program was enacted to reduce corporate tax rates significantly over 5 years, and eliminate investment allowances. VAT burdens were however increased and the Polish government is expected to eleminate exemptions also in this segment of the tax system in the future. There were important changes also in social security programs and their finance. Neverheless there are still some differences featuring the Polish economy as you will see below.
I.R.E.F
Ec-23
In general, we can say that taxes are relatively high, epecially social security taxes. These revenues were necessary because the welfare system has been generous on the expenditure side. Tax revenues are generated from rather few and concentrated sources. The tax revenue sources are less diversified compared to developed OECD countries. Local taxes give rather low portion of tax revenues. Tax compliance17 and enforcement were rather weak during the 1990s and for these reasons tax arrears from various sources were rather high.
Structure of tax revenues in Poland Unfortunately the government finance statistics of International Monetary Fund releases data since 1994 in case of Poland. As can be seen in Table 2.19 in appendix the share of direct taxes imposed on personal incomes has been continously decreasing in the consolidated budget of central government. The share of this source was 22 per cent in 1994 but at the end of the decade the share of personal income taxes was only slightly above 12 per cent. However, the share of corporate income taxes is surprisingly stable and have fluctuated around eight and a half per cent of tax revenues. Payroll taxes have been always important source of the budget of the central government. As can be seen from figures the share of social security contribution increased by six per cent between 1994 and 2000. Although there are some taxes imposed on property of citizens the share of wealth taxes is almost not measurable and is practically zero. The other revenue source what has increasing share is the taxes imposed on consumption. The indirect taxes have more importance all over the world. The share of value added taxes increased by about fifty per cent during the period in question. These revenues are the second most important tax revenues sources of the central government after payroll taxes in Poland. These two sources provided sixty per cent of all tax revenues in Poland in 2000. The excise taxes had a stable share of about 11.5 per cent. This share has even increased further in 1999 and 2000. Since certain rates should be still increased during accession process on the basis of EU requirement the share of these taxes will not be probably dramatically decreasing – even if we take into account changes in consumption. The share of import duties was relatively significant in the early period. Although tariffs made consumption more costly for Polish citizens, but they generated almost ten per cent of the total tax revenues of the Polish government in mid-1990s. As Poland also gradually liberalized the economy and joined various free trade agreements this revenue source lost its importance by the end of the decade. In 2000 import duties gave only less than three per cent of tax revenues.
The structure of expenditures in Poland Relatively small amount is spent on general public services in Poland as well. The share of these expenditures has been around four per cent over the whole period analyzed. Although the military expenditures can always be considered high the amount that the Polish governments spent for defence have been less than five per cent in each year between 1994 and 2000. We may suspect that these expenditures will be a bit higher if NATO membership is to be taken more seriously in the future. Spending on legal order and police infrastructure was similar. We just guess that citizens would also prefer more efficient operation of legal system in Poland as well. The government at national level spent more for education in the middle of the 1990s than at the end of the decade. In 1994-95 more than eight per cent of the expenditures were allocated to 17
. Frequent changes and numerous relieves made compliance difficult. At the end of the decade the personal income tax code was amended more than 30 times and corporate income tax rules more than 40 times. Personal income tax code contained about 125 relieves, ten different types of opportunities for reducing tax base by deductibles, and fourteen types of tax credits. Lenian and Bartoszuk (2000) reported that individual taxpayers had to select among 24 different forms for tax declaration. VAT legislation required 75, while corporate tax declaration 128 different pieces of information to submit.
I.R.E.F
Ec-24
educate people. In 1999 and 2000 only about five per cent was spent for the same sector. Around ten per cent of the tax revenues are allocated to cover the health care budget. The changes in financing are reflected also in the figures. As can be seen in Table 2.20, in 1999, the expenditures on health care in the central budget decreased from 10.2 to 1.2 per cent. This heavy decline does not mean that that much less was spent for this sector, but this decrease shows the reallocation of these expenditures from central budget to subnational budgets. That is, this decrease is just nominal as you can see a counterbalancing increase of expenditure on health care in local budgets. In the middle of the last decade slightly less then half of the expenditures of the consolidated budget was spent to cover the costs of social security programs. By 2000 this share increased further and was already more than 56 per cent. This increasing spending must be alarming for Polish citizens and policy makers as well. The social security programs were fairly generous in the early 1990s. People could retire well before ordinary retirement age for pension. The conditions were also rather loose and it was also frequent in Poland that people abused with the system under such conditions. Moreover, the old-age and disbality pensions were indexed also generously what further induced people to exit from labor market. It became relatively more costly to work compared to live on social security and aid. In 1989 the retirement pension was 53 per cent of average salary. In 1998 this ratio was already 67 per cent. Not surprising that Poland spent 14 per cent of GDP for pension compared OECD average of 6.5 per cent. See Lenian and Bartoszuk (2000) Unemployment benefit was also lucrative alternative compared to earning wage. Very small amout is usually left for financing culture. Expenditures on housing had a bit higher share in 2000, but recently significantly less is allocated in the budget for this sector. As the economic transformation goes ahead less must be sent on subsidizing nonviable firms or rentseekers in the economy. Nevertheless still around five per cent of the budget are spent for economic affairs. Agriculture and firms in transportation receive more than half of this budget. Energy sector and coal-mines are also still dependent on state support. Nevertheless Polish governments provide less and less subsidies to firms. Their share was already less than three per cent in 2000 which was one third of 1994. But the share of transfers to households and nonprofit orgnizations are increasing and rather high. As can also be seen from the figures in Table 2.2 in the appendix in the middle of the decade it was still below fifty per cent, however by the end of the decade these expenditures had close to 60 per cent chare in the consolidated budget of the central government. As we already mentioned above there were some changes in public financing of welfare programs. Although the central government spent less directly on health care subnational governments received more from the central budget. As you can see the share of these transfers more than doubled in 1999 reflecting exactly this reallocation of expenditures among different levels of the administration. Finally, we point out that although with a decreasing share but interest payments still put heavy burden on the Polish economy. At the end of the last decade the Polish government outlined a strategic program for public finance and economic development. The proposal set the target to reduce overall level of expenditures what can serve a basis to lower taxes. This strategy gives prority to expenditures on R&D, improving road network and railroad system, development of agriculture and various restructuring programs. It is hard to belive that the Polish government will be able to reduce significantly government spending in the last phase of EU accession.
Corporate income taxation In 1989 almost right after the political change the new government introduced corporate income taxes. At the beginning of economic transformation the tax rate for businesses was similarly high to the rates used in other CEE countries. Although at the end of 1991 the corporate tax system was revised to large extent the corporate tax rate had not been reduced significantly for years. Neighboring countries fixed this rate at similar level but it seems rather high compared to the one in Hungary or Slovenia. Since 1997 the legislation reduced the rate
I.R.E.F
Ec-25
every year except for 2002. The current tax code stipulated a tax rate of 28 for ventures in 2002. But the legislators also set the rates in advance for following two years as well: in 2003 the corporate income tax rate is 24 per cent and next year it will be only 22 per cent. Of course not only the tax rate but the exemption, the determination of tax base and the allowances are also important for firms. In a large part of agriculture and forestry businesses are exempt from corporate tax. Determination of tax base is similar to the norms used in developed countries. Accounting and depreciation rules are also similar to those ones used in full fledged market economies. If the firm is registered in Poland it is subject to unlimited tax liability, that is taxes must be paid on the worldwide incomes of the venture, whereas other business entities (not being registered in Poland) are subject to tax obligations only to the extent of their incomes what is earned in Poland in the given fiscal year (limited tax liability). The Polish tax system perhaps even more distortionary than the systems in other countries in the region. For political and social reasons many preferences are given certain sectors especially agriculture and mining. As we referred to it already incomes from agriculture and forestry are tax exempt in Poland. Such exemption makes the tax system even less neutral and creates disincentives to restructure the economy. Poland and EU will have still lots of troubles to solve the difficulties of Polish agriculture and rural life. At the beginnig of transition the Polish government provided significant allowances for new businesess in general. In early 1992, however, these allowances were abolished. Later some investment allowances were again provided especially in regions hit by the transformation recession and coping with high local unemployment and for large foreign direct investments (in 1994, for example, the limit was over 2 million ECU), or for firms with large export capacity, or using new technologies. Anyhow, largest foreign investors - regardless the loosening or tighthening of tax policy in general - could still efficiently bargain with Polish governments due to international tax competition. The largest ones could always obtain significant allowances during the whole period some of them tailor-made to the particular interest of the investor. Dividends and capital gains are also taxed. Withholding tax with a flat rate of 15 per cent is now used in case of dividends except for cases when exemption is possible due to agreements on avoiding double taxation. (This tax rate was 20 per cent before 2001 just like the tax rate first imposed on interest income in early 1990s.) In case of corporate taxpeyers this withholding tax is deductible. Capital gains are taxed as ordinary income. The variation of effective tax rates on capital incomes makes corporate income taxation more distortionary, discourages issuance of new stocks, makes differences in corporate finances. Credit market can be more attractive for firms compared to capital market in general, but different firms (by size, ownership, etc) may have different access to bank loans.
Social security contribution Poland has had high social security expenditures for financing various welfare programs since 1989. These expenditures were rather high in other countries as well, but as we already referred above the share of such spendings were the highest proportionally in Poland. The financing of Polish social security funds had a unique characteristics as well. For a longer period of time the contribution was paid only by the employers. The rates were just splitted in the late 1990s. In 2000, the structure of the division of social security contribution rate among various funds were as follows: 19.52 per cent of gross wage was paid to the pension funds, 13 per cent to disability pension fund, 2.45 per cent went to labor market fund, 1.62 per cent to accident insurance fund. According to the regulation 18.71 per cent was paid by the employees and 17.9 per cent by the employers. In addition to the above mentioned combined social insurance rate of 36.6 per cent, 7.5 per cent was channeled to the health care fund, 0.08 per cent to benefit
I.R.E.F
Ec-26
guarantee fund, and 2.45 per cent to sickness benefit fund.18 (The contribution to health care fund was introduced only in 1999 to finance the newly created health care funds. These contributions are fully deductible from personal income tax.) As a whole, the overall payroll tax rate paid by the employer and the employee was 46.62 per cent in 2000. This rate was just a bit lower than the overall rate in 1992, but higher than the corresponding rate in 1991. No doubt that this high tax wedge makes labor costly and reduces the competitiveness of Polish firms or gives strong incentives to avoid these taxes. Perhaps already not surprising to mention that incomes from agriculture are exempt from social security contributions. But not only farmers, judges and prosecutors are also exempt from paying to these funds. The government initiated a pension reform at the end of the decade. In 1999 labor taxes were replaced with compulsory contributions to individual pension accounts. This change could improve tax awareness and can provide stronger incentives to work in the long run since people may know at any time the accumulated amount on their account and can consider this payment a saving rather than tax. This change makes people more interested in staying in the labor market longer. According to Linian and Bartoszuk (2000) however the credibility of pension reform was jeopardized with some administrative obstacles. Obviously the operation of such system must be smooth and the system must be reliable, and transparent. In 1999 there were changes in other benefit programs as well. For example, the conditions for eligibility to sickness allowances were tightened. Unfortunately in other respects the health care benefits are still provided on rather generous basis. Unemployed are still eligible to the same benefits as working poeple. This reduces the incentives to work.
Personal income taxation Although there were taxes imposed on incomes of natural persons also earlier, systemic personal income taxation was introduced in 1992. Similarly to firms, if the person is resident in Poland (or has residency over half a year)19 the taxpayer is subjected to unlimited tax liability, that is taxes must be paid on his worldwide incomes, whereas others (not being resident in Poland) are subject to tax obligations only to the extent of their incomes earned in Poland in the given fiscal year (that is they have only limited tax liability). Poland is the only country out of the five countries analyzed where spouses have the option to file tax returns jointly. As mentioned already the tax base is determined by world-wide incomes from all sources. However the aggregated incomes could be reduced with exemptions and deductibles. At the time of introduction of personal taxation the law provided exemption for fourty-two items. In addition to standard deductibles, interest incomes earned on savings deposits, bank accounts, securities, social welfare payments, and proceeds from sales of real estates if the income was used in two years for purchasing another real estate were all exempt. Up to a certain amount investments into newly privatized Polish firms or T-bills were also exempt. The amount of deductibles increased significantly in 1995 and especially in 1996 but then the value of deductibles decreased even nominally in 1997 when the scope and magnitudes of deductibles were cut back. (Deductibles for the purchase of stocks and bonds, or charitable donations to individuals had been eliminated among others. In Poland housing expenses have been also deductibles to larger extent than as it is allowed in other countries. This allowance might induce people for overinvestment into housing and
18
. In Poland there are nine different social security funds including labor funds. Farmers have their own funds which is financed mostly from state budgets due to extended exemptions of farmers. Prior to 1999, health care services were financed from social security payments as well. 19 . Foreign employees of foreign firms were also given exemption in addition to standard exemption of diplomats.
I.R.E.F
Ec-27
provided unnecessary indirect support for richer families although the ideology always used to be giving preference for the poor ones. In 2000 the most important deductibles were as follows: non-refundable tax credit of PLZ 436.2 is offered for all taxpayers, some reliefs were given for social security and health insurance contributions, and work and education related expenses, repair and modernization of buildings, etc. Here we have to mention that there was a special tax what was used in Poland in early 1990s. The government imposed tax on excessive wage increase in public sector in order to curb wage inflation. This tax was imposed on organizations. Although firms paid this tax on personal income this could effectively put a cap on wage increase and keep consumption under control. As far as the tax rates on personal incomes are concerned a rather simple system of rates was selected in 1992. There were only three rates: 20 per cent tax were imposed on tax base below 64,800 Zloties. In the second bracket between 64,800 and 129,600 Zloties people were obliged to pay 30 per cent of their incomes to the budget whereas the marginal rate was 40 per cent on income above 129,600 PZL. In 1994 the government increased the rates by one, three and five per cent in each bracket respectively. Although the government planned to reduce the rates back to their original level in 1995, these rates were finally maintained not only in 1995 but also in 1996. Brackets were adjusted to inflation to some extent. (We notice here that there was a currency reform in 1995 in Poland and the nominal value of the national currency (Zloty) was changed in the way that 10,000 old Zloties were worth of one new Zloty. This denomination is reflected in changes in brackets.) Later the rates were really decreased to the level set at the time of introduction. The lowest rate is in fact even lower by one per cent. See for more details Table 2.22 in appendix. According to OECD studies the brackets set rather wide thresholds and most people fall into the first bracket. And since there is no tax exempt income level (and tax credits are not effective enough for low income people everybody in principle pays income taxes in Polnad as well. In 1997 the minimum monthly wage was PLZ 450 and the average monthly salary was PLZ 1174. The corresponding values were far below the upper bound of the first PIT bracket. But just like in other countries the high tax rates and poor compliance and law enforcement on the one hand create strong incentives to evade taxes completely. Due to high income and payroll taxes people are interested or underreporting their incomes in private economy. On the other hand, state owned firms employing still many people simply do not pay taxes even if they report honestly. As we mentioned already tax arrears increased signficantly in the last decade. Probably due to low compliance and costly monitoring certain smale scale business activities were taxed in a large scale in a simplified form from the beginning of 1994. If the turnover was below PLZ 1.2 billion small private businesses had to pay a mandatory lump sum income tax with the following rates: 7.5 per cent of total sales in service sector, 5 per cent in manufacturing, construction services and transportation, and 2.5 per cent in commerce. Interest income and dividend are taxed at a flat rate of 20 per cent. The government made attempt to reduce tax rate and broaden the tax base via elimination or reduction of deductibles and allowances. According to the proposal of the government there would have been only two tax rates on personal incomes: 18 and 28 per cent in 2002. Unfortunately the president denied to sign this law and submitted back to the Parliament in 2000.
Taxes on consumption: value added taxes Value added taxation was just introduced in July of 1993 although the government planned to switch from turnover taxation already from the beginning of 1991 and again in the Summer of the same year. Under the socialism the government used a very complex and
I.R.E.F
Ec-28
complicated system of general sales (turnover) taxes. Just like in other countries in the socialist block almost every product had different rate and the negative rates were also quite common. That system, of course, created artifical prices and caused significant distortions in the economy. Between 1989 and 1993 the system of sales tax rates was simplified. In 1993 finally three VAT rates were chosen by the Polish government. Zero rate was, of course, imposed on export but also on some foodstuffs and certain social and cultural services. This rate has been still maintained even after 2000. A preferential rate of 7 per cent was imposed on most inputs of agricultural production, medicines, children’s products, and some services (like transportation, except for cab services). Temporarily this lower rate were imposed on some construction materials and electricity. The standard rate of 22 per cent is used for the rest of goods and services. Recently an even lower preferential rate (set at four and later at three per cent) was also introduced mostly for unproceeded agricultural products. This rate applies, for example, to diary products, honey, and also to some health and social care services. As can be seen the VAT rates are not in full harmony with EU Sixth Directive. According to this guideline two rates must be used. The standard rate in Poland fifty per cent higher that the recommended 15 per cent. It is true however that the standard rate is in fact close to the rates used in most EU countries. But there are three preferential rates. The EU directive suggests at least 5 per cent. Zero rate cannot be applied although some services can be VAT exempt.
Excise taxes Excise taxes have been used also since mid-1993 when VAT system was put into force. Although excise taxes generate less revenues for the budget but they are still important revenue sources. Currently excise taxes are imposed on about two hundred goods (including passenger cars, guns, fuels and lubricants, salt, alcohols, tobaccos and cigarettes, hifi systems, videocameras, jachts, and parfumes, etc). Different rates apply to domestic and import products. Tax rates are higher on imported goods. Tax rates on some selected products were as follows (in PLZ or in percentages) in 1994: spirits (129,900-194,500 or 185,000-190,000 per liter), wines (6,400-8,000 or 7,000-68,000 per liter), tobaccos (100,000-317,000 or 317,000 per thousand pieces), passenger cars (10% or 15%), lubricants (5% or 7%), furs (20% or 25 %), salt (15% or 20%), parfumes (20% or 25 %), chewing gums (20% or 25 %), etc.20 According to EU requirements excise taxes on cigarettes and other tobacco products still must be adjusted during the last period of accession.
Import duties In 1994 a flat rate of six per cent temporary import surcharge was imposed on all impored goods. The rate was reduced in October 1994 to five per cent. This general import surcharge was abolished in 1997 only.
Other taxes The governments at local and national level may impose other taxes on businesses and citizens. People and firms are obliged to pay so-called stamp duties levied on most civil law services or transactions (like sale, registration of firms, using public notary, etc). These taxes are 20
. In 2000, the rates were as follows: spirits (18 per cent or 5,677 PLZ per hl in case of 100 per cent alcohol), wine (89-220 PLZ/hl), beer (5.45 PLZ per one per cent extract of beer), cigarettes (63.70-97.40 PLZ/1000 pieces), other tobacco products (60 %), fuel (806-1219 PLZ/1000 liter) cars (2-10 %), electronic equipment (1015 %), furs (20 %) chewing gums (20 %), etc.
I.R.E.F
Ec-29
usually lump-sum taxes. Inheritance, donations are taxed also in Poland and these revenues go to the local budget. In case of the former one the tax is progressive and imposed usually to different extent depending upon the relationship between the parties concerned.
1.3.2 Subnational governments in Poland In Poland there were several layers in the administration before the political change. In 1975 counties were dissolved and 49 larger units (regions) were set up instead. In 1990, 254 local offices were established to help and control local communes. Their number even grew but at the end of 1998 they were also abolished. In 1999, the three level administrative governmental system was re-established. These three administrative levels consist of 2,489 communes (gminas), 373 counties (or districts called in Polish as poviats), and 16 regions (voivodships). There are 65 urban poviats (larger cities) which have both functions assigned to either communes or counties. There is no hierarchical relationship between local municipalities and counties or regions. The basic units are the municipalities and this position is guaranteed by the Constitution. The functions of municipalities at the lowest level (i.e., task of local municipalities – gminas) are as follows: - managing land, urban planning and zoning, - maintenance and cleaning of roads and public spaces, - maintenance of water, sewage systems, and managing solid waste disposal, - local public transportation, - local health care and social security services, - housing construction, - nurseries, kindergardens, primary education, - cultural and sport life, - cemetery, - public order and fire protection, etc. In addition to obligatory tasks and delegated duties, municipalities may carry out voluntary tasks according to the needs of residents. As can be seen in Table 2.26 the size structure of municipalities is less dispersed, less fragmented than in other countries. This is favorable from efficiency point of view. Nevertheless the revenue potential of municipalities are still different and for the „poor” municipalities it is more difficult to provide all the services and goods for their residents at appropriate level. Compared to counties and regions communal municipalities are more independent. Their financing is more stable and they have also own resources. Regions are responsible for medical centers providing services for citizens of the given region, trainig teachers, running institutions in higher education, regional development, regional cultural centers, etc. The basic administrative organ of a municipality – just like in other countries – is the local council elected by residents.21 Mayors are directly elected in local elections for four years. Citizens have the right for referendum to influence local decision making in all local matters.
Public finance at local level In 1998 when the Polish government decentralized the administratie system and the financial control over local government was also loosened a bit. The subnational governments now have more influence on expenditures in their budgets. Moreover the functions were reallocated to some extent among the three levels of governmental system. Local communes kept 21
. Similarly members of county and regional councils are also directly elected for four years.
I.R.E.F
Ec-30
their primary role in providing primary education, maintaining local road network, and managing basic utility services. Counties are primarily responsible for secondary education and general health care services, fire brigades or county level offices in tax administration and environment protection. Regions supervise sickness funds, have some role in higher education. But they are primarily responsible for regional development and coordinating the operations of their counties or local communities. The financing of subnational governments was also changed a bit at the same time of decentralization. Nevertheless in 1999 local municipalities still received 45 per cent of their revenues from central government in the form of earmarked or general grants. Counties were depended even more on redistributed central sources. Grants from the center accounted for 93 per cent of their revenues. Regions had a smaller share with 76 per cent. As mentioned already the taxing power of Polish subnational governments is rather limited. Neverheless a positive sign can be that in the late 1990s the government did not use equalization grants to level out revenue differences among municipalities and among other levels of administrative units. Transfers were simply distributed among governmental units on the basis of their population. At the end the 1990s communes received 27.6 per cent of personal income taxes, 5 per cent of corporate income taxes both collected by national authorities. In the early 1990s prior 1997 local governments received only 15 per cent of personal income tax revenues. In 1997 this share was increased to 16 per cent and in the following year by another per cent. Shared taxes are distributed on pro rata to respective municipalities. The share from corporate income tax revenues was the same except for 1992 when temporarily this was 2 per cent only. From central budget municipalities still receive special purpose (targeted) grants, education subsidies and general purpose grants (subsidy without earmarking). The largest part of the revenues was spent usually for managing elementary schools, primary health care fecilities, water system, and land zoning. Counties received some portion of personal income taxes. Their share was only one per cent. However they also received the same types of transfers from the state budget and related funds. In their case road maintenance subsidies are also important. The share of regions from personal income taxes is 1.5 per cent, and from CIT is half per cent. In addition to the same grants other level subnational governments may have access these administrative units can still have revenues from compensation grants to finance their expenditures mostly in regional development, higher education and environment protection. In case of special purpose subsidies co-financing is required. Central sources cannot exceed fifty per cent of all expenses. Education subsidy is the largest one and distributed on the basis of strict furmulas.22 Although there is no direct equalization grant, in fact, general purpose granst are serving exactly the same purpose of reducing income differences among municipalities. Less than hundred municipalities above the national average contributes to the fund that can be then redistributed among the vast majority (1500 of 2200 units) of municipalities below the average. The compensation grant is offered to those municipalities that unexpectedly lose their revenue bases.
Revenue structure of local governments in Poland As one can see in Table 2.24 tax revenues of subnational governments varied between 3540 percentages between 1994 and 2000. As we already referred above mid-level governments have received also transfers from social security funds to finance welfare expenditures. The share of shared taxes was adjusted accordingly. However, the own tax revenue sources were even lower. The share of own local taxes have been declining. The ratio of property taxes to total local tax revenues dropped back from almost 14 per cent to almost seven per cent. The share of tax on 22
. If the transfer arrives late to municipalities the state must pay penalty.
I.R.E.F
Ec-31
goods and servives also decreased. Non-tax revenues had also declining share. On the other hand, share of grants increased from 30.3 per cent in 1994 to 39.3 per cent in 2000. In recent years local governments have deficit. In order to keep the deficit in a managable range the government imposed rather strict control on finance (borrowing) of municipalities.23 Polish municipalities must finance their debt from their own sources, although temporary support can be obtained form the state budget. But in general and in principle central authorities cannot influence neither the reveue nor the expenditure side of a particular local budget. Of course, the basic right of internal control is at the hand of municipality. The budgets of subnational governments are primarily audited externally by regional clearing chambers.24 The budget of each municipality must be audited at least one in four years or upon request of the municipality by the Supreme Audit Chamber. The regional council, the Supreme Audit Chamber and the Prime Minister may also audit the budget of individual municipality in case of financial distress.
23
. The annual amount of repayment of loans cannot exceed 15 per cent of the total revenues of the municipality. The debt cannot be more than 60 per cent of the total revenues of the local budget. 24 These organs are state supervisory authorities appointed to monitor public procurement and audit local governments or other municipal entities.
I.R.E.F
Ec-32
Local taxes Local governments may also impose taxes but the objects on whom or which activity taxes can be levied on are determined by legislation at national level. Municipalities can influence the tax base since they can provide allowances, and exemptions. Although only within the limits set by the Parliament, municipalities can set the tax rates freely. Just like in other countries – because of tax competition at local level, and due to the lack of interest in revenue collection and for political reasons (i.e., in order to be reelected) – subnational governments used to set tax rates below the upper limit. Recently environmental taxes are also imposed on pulluters. Fees are levied at regional level by the local environment protection office. Although the fees are increasing but they are still far below the level to be effective. Unfortunately the compliance weak also in this front and the arrears are also high. Protected (frequently loss-maker) sectors are usually the biggest polluters in Poland. These earmarked revenues are distributed among the different levels of governments. Local governments at the lowest level, that is communes can impose some local taxes but just those ones determined by the legislation. Counties and regions does not have such right. They are fully dependent on shared taxes, and transfers. Tax rates cannot exceed the limits set by the Sejm. One of the most important tax is the property tax. This local tax is however rather low and does not have too much impact nor on the market neither on the budget of local governments. The tax is imposed on the size of living space (denominaed in m2).25 Polish municipalities can levy the following taxes: - agricultural tax (since 1984), what is essentially a property tax, and it is based on the area of farm land taking into account the type (quality) and location of the land as well.26 - forest tax (the tax base is measured in conversion hectare), - real estate tax is paid by both businesses and individuals (not value based, but it is imposed on the basis of m2)27, - vehicle tax with various rates depending upon the type and engine or fuel used by the vehicle. - business tax is also a lump sum levied on small businesses employing less than five persons. - tourism tax is paid by visitors of recreational regions, - market duty is paid by individual sellers on the market place, - keeping dogs is also taxed As mentioned already the Ministry of Finance set ceilings on these rates. Due to the large significance of grants and other redistributed funds and because of political reasons mayors and councils are reluctant to impose rates close to the ceiling. From one perspective it is good, but from another one it is bad. Low tax rates are good, but low share of local taxes (not utilized local revenue sources that could substitute for national taxes) makes the whole tax system less efficient.
25
. A stamp duty is also imposed on real estate (housing) market transactions. A higher 5 per cent rate applies to buyers in the secondary market and two per cent is the rate in the market for new houses or apartmants. The basis of the tax is the value of the property. This duty is considered to be high. Moreover, the rates were not uniform. That is ven more true, if we add that agricultural buildings are exempt again. 26 . In the early 1990 land below one hectare was exempt. 27 . In case of real estate tax the MoF also determined a lower limit at 50 per cent of the upper limit.
I.R.E.F
Ec-33
Local non-tax revenues As can be seen in Table 2.24 the proportion of non-tax revenues decreased over time but still they play an important role in financing local expenditures. In Poland municipalities can also offer services for their citizens. The local charges, however, are frequently not enough even to cover costs of running these utilities or facilities (like kindergardens, nurseries, swimming poools, museums, etc). The prices are not fully adjusted for various services (like discharge of waste water, removal of waste, street clearing, road maintenance, etc.) either.
The structure of expenditures of local governments in Poland Table 2.25 describes the structure of expenditure of local governments. General public services has similar share as we could see in the structure of government expenditure at national level. Expenditures on health were also low before 1998. Health care provision is organized at all the three levels. Municipalities are still reponsible for certain basic tasks. Servives used by the population outside a municipality are organized and financed by counties, or regions. Other social security and welfare programs have a modest share below 10 per cent although the tasks are rather numerous at local level. Funds are never sufficient in municipal budgets either in Poland. In the middle of the decade housing expenditures were rather high but they have continously declinig share. One of the reaosn of this reduction can be the privatization of housing stock. As less buildings the municipalities have less must be spent for renovation. Nevertheless, the relatively high ratio of private apartmants and the low level of new contructions creates a tension for low income families to obtain their own home. In 1994 almost fourty per cent of the whole budget were spent on housing. Six years later this ratio was below seventeen per cent. Subsidies to cultural life did not enjoy high preference. We can have similar conclusion as far as expenditures on transportation and telocommunication services are concerned. In 1994 and 1995 almost one quarter of the budget was devoted to finance education at local level. Between 1996 and 1998 this share increased by almost fifty per cent. Afterwards proportionally much less was spent on education. The share of this sector was only 13.3 in 2000. We do not know how Polish people feel but at the end of the period more was devoted to public order and safety even if this task is mostly the duty of the state according to Polish regulation as well. These expenditures in principle are truly serving public interest. These public goods are essential for well functioning of societies at any level.
1.4 Slovakia Slovakia was reestablished in 1993 after splitting the former Czechoslovak federal state. Still before the peaceful separation of the Slovak Federation there were important changes in tax legislation at the end of 1992 as we already referred above. This implies that we can see similarities of tax systems in Slovakia and in the Czech Republic. But afterwards the two systems developed independently and show also differences. Some differences could be seen already in th efirst part of the paper where we gave some brief description of economic development in general – mostly at macro level. In the following paragraphs we try to give a similar review of Slovak tax system as we did above in case of other countries.
1.4.1 Taxation
I.R.E.F
Ec-34
The Slovak tax system have the common roots with the Czech system. But by now this common past seems to evaporate. The country introduced personal income taxation in 1993 within the framework of comprehensive tax reform. The corporate tax system were changed gradually just like in the Czech Republic. In 1993 the turnover taxation was abolished and VAT and excise taxes were introduced. The development of welfare institutions also show similarities to the Czech systems.
Structure of tax revenues in Slovakia The government finance statistics of IMF provides data only since 1996 for Slovakia. As can be seen in Table 2.27 in the appendix the share of direct taxes imposed on personal incomes increased up to 1998 and then decreased. At the beginning and at the end of the period practically personal income taxes had the same share in tax revenues of consolidated central government. The share of corporate income taxes decreased by one third of the level in 1996 in four years. In 2000 this source generated almost the same revenues as personal income taxes. Payroll taxes have been also important source of the budget of the central government in Slovakia as well although to a smaller extent than in the Czech Republic. As can be seen from figures the share of social security contribution have fluctuated around the level of 35 per cent. The share of property taxes is hardly measurable and was always below one per cent during the whole period between 1996 and 2000. The other revenue source that has slightly increasing share is the tax imposed on consumption. The indirect taxes generated the quarter of the tax revenues for the central budget. The share of value added taxes increased by almost three per cent during the period in question. These revenues are the second most important tax revenues sources of the central government after payroll taxes also in Slovakia. These two sources provided sixty per cent of all tax revenues in Slovakia as well as in Poland in 2000. The excise taxes had a stable share around ten per cent. The share of import duties was less than half of excise taxes. Tariffs made consumption more costly also for Slovak citizens. Although Slovakia also gradually liberalized the economy and also joined the same free trade zones as other CEE countries this revenue source did not decline by the end of the decade.
The structure of expenditures in Slovakia Relatively small amount is spent on general public services in Slovakia as well. The share of these expenditures varied between 5.6 and 7.2 percentages in the period in question. Military expenditures had a stable share between 1996 and 1998 and then declined significantly in 1999 and inceased a bit a year later. We can repeat here what we said in case of other new NATO members: there will be pressure on the Slovak government as well to increase the expenditures on defence. If the ecomomy is growing this does not necessarily require larger share but there are many competing sectors where tax revenues can be spent. Just like in other countries spending on public order counts the same magnitude as military expenses do. No doubt that citizens also would prefer a bit better functioning state administration in this field also in Slovakia. The central government spent just a bit more proportionately for education in 1996 than at the end of the decade. In 1996 a bit more than eleven per cent of the expenditures of central government were allocated to educate people. In 2000 less than one per cent less was given to this sector. Almost a fifth of all tax revenues are allocated to cover the health care budget. This share is almost double of the share of Polish health care budget financed form the central budget. In 1996 the share was exactly 20 per cent but later it was reduced a bit. In the middle of the last decade slightly more than a quarter of the expenditures of the consolidated budget was spent to cover the costs of social security programs. Compared to the structure of the Polish central budget the ratio of Slovakia was half of the corresponding share in Poland. As in other countries the share of expenditures on social securities increased further between 1996 and 2000. At the end of the
I.R.E.F
Ec-35
period this ratio was already above 28 per cent. Compared again to the Polish budget a bit more was alocated for financing culture in Slovakia. Nevertheless this amount is also rather small. Expenditures on housing had a stable proportion if we consider the beginning and the end of the period but it varied to both direction in the other fiscal years. In 1997 there was a significant decrease to 0.9 per cent while an increase to 3.1 above the average in 1999. Most analist probably would say that the economic transformation has been completed to the least extent in Slovakia. We cannot judge this statement but the large share of expenditures on economic affairs indirectly may prove such claim. For sure it would serve the interest of most people in Slovakia if less was spent for such purposes. In 1997 17.1 per cent was the share of expenditures on economic affairs. This ratio was almost twenty per cent in 2000. Agriculture and transportation received in each year significant support from the state. Businesses in these two sector used to receive almost half of this sub-budget. Energy sector and coalmines are also dependent on state finance although the share of the former one was less significant in 2000. Compared to other countries a large part of these expenditures were alwas allocated to other sectors. The EU accession will stop this state intervention. Correspondigly the share of subsidies is also high in the Slovak central budget. It was 10.8 per cent in 1997 and 11 per cent in 2000. But the share of transfers to households and non-profit orgnizations are also high. As can also be seen from the figures in Table 2.28 in the appendix during the whole period the share of these expenditures was always below fifty per cent but this ratio was permanently close to one half. As you can see from the table transfers to subnational governments have had very low share what shows a very high centralization of expenditures. Less than one per cent of all expenditures of central government is redistributed to local governments. It can be alarming for the Slovak policy makers that proportionately almost more than 50 per cent more were spent for interest payment at the end of the period. In 1996 only five per cent was used for this purpose. In 2000 7.4 per cent of the budget was spent for financing the past. If this trend continues then we can be sure that interest payments will burden heavily the Slovak economy.
Corporate income taxation Corporate tax rates were set at lower level than in the Czech Republic already in 1993. Then for some period the Czech rate was lower a bit but in 2000 the Slovak government undercut the profit tax rate to 29 per cent. Corporate taxation in other respects are very similar to the practices of neighboring countries. Accounting rules, depreciation policy and other important elements of the regulation that have direct impacts on profitability of firms are in harmony with the rules generally used in developed economies.
Social security contributions Social security contribution rates are high in Slovakia as well. The combined rate of both employers and employees have been always above fifty per cent. This high wedge on labor encourages tax evasion what is understandably also rather extended in the Slovak economy. Both employees and their employers have to pay contributions to four separate funds: The largest part goes to the pension fund. Especially the rate of employers is very high here. Another large sum goes to the health care fund. Sickness fund receives a smaller part. Four per cent have been allocated to the unemployment insurance fund. As you may remember the rate of unemployment have been among the highest in Slovakia. What is striking a bit is that the overall rates have not been reduced, it even increased over time. At the beginning employers also had to pay a contribution of 0.6 per cent of the gross wage to social security fund in addition to those payroll taxes listed in Table 2.29. For more details about the structure of rates and its changes see also the same table.
I.R.E.F
Ec-36
Personal income taxation In 1993 the parsonal ncome tax rates and brackets were the same in the Czech Republic and Slovakia. Later the two systems were still similar to each other but some differences cen be also seen. Table 2.30 shows the changes in rates and brackets. (Since the Slovak national currency is weaker than the Czech crone the values must be still corrected with appropriate exchange rates.) Although the inflation has not been the highest in Slovakia, the fact that brackets were not adjusted to inflation implied also increasing taxation of personal incomes at the margin. There are still rather many rates and the lowest bracket is set at rather low level. Withholding tax of 15 per cent have been imposed on dividend and interest incomes.
Indirect taxes on consumption The VAT system was introduced also in 1993 - with two rates. The standard rate was set at higher level than in the Czech Republic. This rate was the same as in Hungary - 25 per cent. The preferential rate was six per cent at the beginning. Of course some products and goods were taxed at zero rate and there were some VAT exempt commodities as well. They were basically similar ones to those being exempt in other countries. In January 1996 the highest (standard) VAT rate was reduced by two percentages. A year later some products were regrouped into the basket of standard rate. From the beginning of 1998 the VAT rate of several goods and services (e.g. postal and telecommunication, financial and insurance, or legal services) were increased to the level of the standard rate. At the same time, the preferential rate was increased by one per cent, and it was again lifted by another three per cent still in 1999. From January 2003 the preferential rate was increased by four per cent to 14 per cent, while the standard rate was lowered to 20 per cent from 23 per cent. When VAT was introduced some commodities were still taxed even more. Excise taxes also generate stable revenues for the government. More or less the same circle of goods are covered by excise taxes as one can see elsewhere. In 1997 – when several amendments were passed in tax legislation in order to balance the budget – the excise tax on hydrocarbon fules and lubricants were lifted by 500 SK/t. Some rates are lower than in other countries (like additonal tax on fuels), others are similar.
Import tariffs In 1993 the avarage level of import duties was slightly below five per cent. After signing the accession agreement tariffs were reduced significantly on ixport mutually soon and later they have been gradually abolished completely. In addition CECs also established a free trade zone to which Slovakia also joined. As the monetary or fiscal imbalances became serious the government – as it also happaned in other CECs – adopted austerity measures. Among them the Slovak government also imposed temporary import surchanges. This took place between 1994-1996 for a limited set of imported goods and again in 1997 when 7 per cent of surchange was levied temporarily on all imports.
1.4.2 Subnational governments in Slovakia The current roots of self-governance in Slovakia goes back to the beginning of the 1990. Still under the Czechoslovak era local elections were held and the old council system was replaced with system of autonomous local governments in late 1990. Although local selfgovernace was in the focus of changes intermediary administrative units were also created.
I.R.E.F
Ec-37
Districts were created where the central authority delegated numerous functions. District offices served as lower level state administartive organs. They performed some important task including the management of schools, health care organizations and some other social welfare programs. They were financed directly from the central budget. Although some reform program was formulated in the early 1990s, because of the split of the federal state and the establishement of independent Slovak state changes were postponed. The Slovak administrative system was reformed in 1996. Administrative units were reshaped, eight regions were established and the division of labor and functions were reallocated to some extent among municipalities, district and regional offices. There are 79 districts. In 1997 there were 2875 settlements. Since in large cities districts may have their own municipalities the total number of municipalities is a slightly bit larger. Regional, district and local representatives are elected directly for four years. Slovak people have all the rights what are generally provided for citizens in modern democracies. Citzens can actively participate in managing local matters as well. Municipalities are governed by local assemblies and mayors. The tasks of municiaplities are similar to the functions of municipailites in other countries in the region: management of properties, budgetary management, administration of local taxes and fees, protection of environment, provision of healthy conditions for life, zoning, construction and maintenance of local road network, housing stock, provision of cultural and social, and basic health care facilities, public administration, supporting education, sport activities, maintenance of cemetery, water and sewage system, organizing disposal of waste, public lighting of streets, etc.
Public finance at local level In general, public finance at local level in Slovakia is very similar to the systems in neighboring countries. The only differences is perhaps the high level of centralized direct financing of certain activities. In addition, the central administration seems to be larger in the sense that intermediate administrative level helps the central government to carry out its task at local level. Accordingly the financing of local matters are a bit different. Regions are still poorly functioning administrative units. They still do not operate according to EU requiremnts neither in Slovakia.
The structure of revenues of local governments As can be seen in Table 2.32 data are published for fiscal years between 1996 and 2000. Tax revenues provided roughly half of total revenues of Slovak local governments on the average at national level. Property taxes have a rather stable share at local level in Slovakia. Surprisingly, grants are less significant sources of revenues. Slovak municipalities also receive normative and targeted financial support from the central budget. Nevertheless many functions of the general government are directly financed from the central budget and not through local governments. The relatively high level of centralized finacing may explain the relatively low level of grants. Correspondingly, nontax revenues have a relatively larger share, although it is decreasing over time. It perhaps can be at least partially explained by similar processes what happened also in other countries. Municipalities started to sell their tangible and intangible assets in order to finance their tasks. But the increasing gap between tasks (expenses) and revenues resulted soon in indebtedness for municipalities are usually poor. They do not dispose of huge assets. The rather large deficits must be a critical sign and this increasing indebtedness of local governments will probably create some trouble for the central government as well.
I.R.E.F
Ec-38
Local taxes Local governments may impose local taxes what are similar to the local taxes imposed by municipalities in other CE countries. Property taxes include tax on land and buildings. Financial distress of businesses made impossible to collect such taxes also at local level. In general the same constraints bind the hands of municipalities in Slovakia what we could see elsewhere. Taxes can only be levied on the basis of existing legal rules passed by the Parliament and within the limits set by the legislation. (Local fees and charges are also centrally regulated in Slovakia by the Act on Local Fees. Citizens in Slovakia have the right to initiate referendum on fiscal matters including tax rates and the budget of local community. The conditions of such referenda are regulated but the general rules are applicable also in Slovakia.
The structure of expenditures of local governments Expenditures on general public services took usually a quarter of the budgets. The level of health care expenditures is very low at local level. This obviously show a highly centralized financing of health care system. Social security programs and payments are also directly financed from the central budget. The large part of local budgets are spent for housing. Thes expenses are one of the highest in the region. A modest part of the budget is spent to finance cultural life. A bit more was allocated to support local ransportation. The very low level of expenditures on education also reflects centralized financing of elementary and secondary school systems. In fact this sector has been financed from the budgets of districts. Education offices at district level have been controlled by the Ministry of Education and and money has been also provided from the budget of that Ministry. A bit more than three per cent of all expenditures used to spent for public order and safety at local level on the average.
1.5 Slovenia Slovenia became independent in mid-1991. The country is rather small (its territory is 20,000 km2) with around two million inhabitants. The living standard is the highest among these selected countries in the region. The country has the highest GDP per capita. This means higher purchasing power and larger taxable income potential in principle. The country politically and economically is stable. In general macroeconomic situation and the development of the society are on the right track. Nevertheless as far as public finances and fiscal decentralization are concerned we can be a bit more sceptic if we want to evaluate the last decade as you will see below.
1.5.1 Taxation Slovenia was part of former Yugoslavia and had more or less the same tax regime during the late eighties and early nineties as other socialist countries had. The tax reform started immediately after the country became independent. Changes in tax rules were elements of whole economic transformation package also in Slovenia. Of course, the main goal of the tax reform was to provide a sound revenue basis for the operation of governments a various levels. Nevertheless policymakers also pursued to create a system what is compatible with market principle and the standards of developed economies. In some respects tax rules were harmonized rather quickly to EU norms, but in some fields Slovenia replaced the old taxes with new ones later than it took place in other countries. VAT, for example, was introduced only in late 1990s.
I.R.E.F
Ec-39
The current tax system is more or less compatible with the EU regulations. The problems of reforming fiscal regime were the same as in other CEEs in general. Taxes can also be levied only on the basis of tax code passed and amended by the Slovene legislation. Only the Parliament has the right to determine the tax base and it also sets limits on tax rates. National and local taxes are determined centrally. Local authorities cannot choose freely on what they would like to levy tax. They have only a limited choice: they can fix tax rates within the boundaries set by the central legislation. The tax system is administered by the Minister of Finance and Tax Administration of the Republic of Slovenia. In case of disputes people may first appeal to tax authority and if the taxpayer is not satisfied with the decision he may appeal to ordinary courts. The tax code is rather simple and clearly defined and put smaller administrative burden on taxpayers than in other countries. All taxes are collected by central Tax Administration of the Republic of Slovenia, expect for custom duties and excise taxes or value added taxes levied on imports that are collected by customs administration. Some of the tax revenues (like contributions to health care and pension funds) are earmarked. Citizens at local level may not initiate referendum on fiscal matters in Slovenia neither. The Sloven tax system uses the same types of taxes imposed elsewhere in other OECD countries. As mentioned the whole system is already very similar to those system adopted in EU countries. There are discrepancies only in a minor part of the regulation. The undergoing changes and the intention of the government are aimed at closing the loopholes and finalizing the harmonization of Sloven tax codes with the tax system of EU countries. In general we may say that corporate income taxes are relatively low, but payroll taxes are still high.28 These revenues are necessary because the welfare system is generous also in Slovenia. Tax revenues are generated from a few but relatively stable sources. Tax revenue sources are neverheless less diversified compared to western OECD countries. The proportion of local taxes is low also in Slovenia. Tax compliance and enforcement is better than elsewhere in the region.
Structure of tax revenues in Slovenia The GFS of IMF provides data since 1992 for Slovenia. As can be seen in Table 2.35 in appendix the share of direct taxes imposed on personal incomes increased a bit between 1992 and 2000. At the beginning of this period personal income taxes amounted almost 11 per cent of tax revenues in consolidated budget of central government. At the end of the period this share was a bit larger and reached 11.4 per cent. Between 1996 and 1998 the rato of PIT to tax revenues increased above 12 per cent temporarily. Compared to other CE countries the share of corporate tax revenues was always rather low over the whole decade. Nevertheless the Sloven trend is opposite to the experience of other countries at least between 1992 and 2000. The share of corporate income taxes increased from 1.5 per cent to 3.5 per cent. The share of payroll taxes again depicted different pattern in Slovenia than in other countries. Although the ratio of social security contributions to tax revenues of consolidated central government was above fifty per cent in 1992 this share decreased significantly to 37.7 in 2000. Nevertheless these revenues constitute still the largest part of the state revenues. The taxes imposed on properties are insignificant also in Slovenia as well as in the other four countries. The share of wealth taxes was never larger than 0.4 per cent in this period. Indirect taxes imposed on consumption (excluding excise taxes) have the same share in 1992 and in 2000: 27.7 per cent. Between 1994 and 1999 this share was larger and in some years it was above 35 per cent. The indirect taxes generated always more than a quarter of the tax revenues for the central budget and relatively more income for the 28
. In addition there are many other rigidities in the regulation of labor market providing plenty of previleges for employees but this topic is beyond the scope of this paper.
I.R.E.F
Ec-40
state than in other countries investigated. These revenues are the second most important tax revenue sources of the central government after payroll taxes also in Slovenia. These two sources provided three-quarter of all tax revenues of the state in Slovenia between 1992 and 1995. Excise taxes were not used before 1999. After switching from system of turnover taxes to value added taxation excise taxes also gain importance. In the second year the share of these revenues almost reached 10 per cent. The share of import duties was as significant in the mid-1990 as excise taxes at the end of the decade. But now tariffs are lower and imposed on smaller set of goods. Slovenia also have free trade agreements with several countries. As much as trade liberalization extended the revenues from this source declined.
The structure of expenditures in Slovenia General public services count approximately the same share in Slovenia as one can see in the other countries. The share of these expenditures varied between 7.0 and 8.4 percentages in the period. Military expenditures had a small and declining share between 1993 and 2000. US government will probably put pressure on Slovene governments as well in the near future in order to increase the expenditures on defence. If the ecomomy can maintain its growth rate this does not necessarily imply larger share of military spending from total tax revenues of central government. Just like in other countries spending on public order counts a similar magnitude but these expenditures have an increasing share from the budget. The central government spent just a bit more proportionately for education in Slovenia than the Polish government and similar proportion as the Slovak did. In 1996 a bit more than ten per cent of the expenditures of central government were allocated for education. In 2000 slightly (0.2 per cent) more was redistributed to this sector. Compared to other countries in the region the health care sector and social security programs had a rather stable shares from the consolidated budget of central government. Except for two years a bit more than 14 per cent were spent on health care while the share of social security sector varied in a narrow range between 42.8 and 44.4 percentages. The share of the combined central budgetary allocation of resources for these two sectors were although always below sixty per cent but the shares very close to this band. Compared to the Slovak budget proportionately similar amount has been allocated for financing culture in Slovenia. Expenditures on housing also had a stable proportion over the whole period. In 1993 the share of these expenses was 0.8 while seven years later only 0.1 per cent more was spent for this purpose in Slovenia. Just like in Slovakia the large share of expenditures on economic affairs indirectly may cast some doubt how far the transformation of the economy proceeded. Although the allocation for this item in the budget is continously declining, close to ten per cent of the budgetary expenses were spent for various sectors in the economy. The largest support is provided to transportation. Each year this sector have received close to half of this subbudget. The agriculture also received during the whole period significant support from the central budget. Businesses in these two sector used to receive around 60-70 per cent of expenditures under this heading. Energy sector and mines did not enjoy substantial state financing. A large part of the expenditures was allocated to other sectors of the economy than those mentioned above. The EU accession can cause serious financial problems if this kinds of state intervention is not alloweed. The share of subsidies dropped to less than the half of the share in 1992 by the end of the decade. It was 7.1 per cent in 1992 and only 3.3 per cent in 2000. But the share of transfers to households and non-profit organizations is still high although perhaps just relatively. As can also be seen form the figures in Table 2.36 in the appendix during the whole period the share of these expenditures was always well below fifty per cent. This value is one of the lowest among the countries analyzed in this paper. But as you also can see from the same table the share of the transfers to subnational governments have always been rather low showing a very high centralization of expenditures in Slovenia as well. Local governments have never received more than three per cent from the central budget. Interest payments did not put heavy burden on the
I.R.E.F
Ec-41
economy. The share of these expenditures in the budget has never grown above four per cent. This cost is still relatively easily manageable.
Corporate income taxation Modern corporate income taxation was introduced rather quickly after the political change. Determination of tax base is similar to the practice of developed countries. Of course, corporate tax base is influenced by several factors. Among the many factors relevant for making profit, depreciation policy plays an important role. Although at the beginning the periods were longer, the recent regulation is rather favorable for businesses. At the beginning of economic transformation the tax rate for businesses was high. But later the tax rate on net corporate income had been reduced gradually and has been modest although not the lowest in the region. CIT rate has been 25 per cent since 1996 as can be seen in Table 2.37. Just like in other countries analyzed here a lower rate applies to firms operating in Special Economic Zones in Slovenia. These firms have to pay 10 per cent of their net income to the budget. Differential rates are used for dividends. A withholding tax of 25 per cent applies to residents, while a lower rate of 15 per cent is levied on dividends if it transferred to abroad. Slovene legal entities are tax exempt in this respect. Capital gains are taxed as ordinary income. Banks are taxed also differently. A tax is levied on their assets. The taxe rate is three per cent. No doubt that the differences of effective tax rates on capital incomes make these taxes even more distortionary and have the same harmful effect on new investments or expansion of firms as in other countries. In the harmonization phase the Sloven government consider to lower the tax rate on undistributed profits and raising the rate on distributed profits. The tax code must be still adjusted to take into account merger directive, the parent and subsidiary directive, and indirect taxes on raising of equity. Moreover, taxation in Special Economic Zones must be also revised according to EU and WTO requirements.
Social security constributions Slovenia also has had an extended social security system. Financing of these welfare programs required substantial contributions from taxpayers. The social security expenditures have been nevertheless smaller than in other CE countries. The tax burden is divided between employers and employees. But in Slovenia employees have a larger share from the contribution as can be seen from Table 2.37. Compare to Hungary and Poland, the financing schemes are rather stable. The rates are not changed frequently. Employees’ rates have not changed practically in the last ten years. The combined rate is a bit more than 22 per cent. The contribution rates of employers, however, were reduced by the end of the period from almost 23 per cent in 1992 to less than 13 per cent in 2000. There are four funds to pay for. The structure of the division of social security contribution rates among various funds was as follows: a bit more than six per cent are paid to health care fund respectively by both employers and employees, less than oneone per cent is paid to employment and maternity funds (both operated within the state budget) respectively by both employers and employees. Recently employees contribute to the pension fund almost twice as much as their employers. When the social security system was introduced this burden was practically splitted equally between employees and their employers. Here the high rates create high tax wedge that makes labor costly and reduces the competitiveness of Slovenian firms. As all over the world, but especially in CECs businesses still have to pay other direct taxes on incomes of their employees. Various contributions to different funds in social security system put also heavy burden on businesses in Slovenia. However, in this country there is another progressive payroll tax that is imposed on employers as it was in Poland. The tax rates are set from 2 to 15 per cent for different monthly income brackets.
I.R.E.F
Ec-42
Slovene Parliament passed new acts on health, social care, pension and disability insurance in 1992. The health care system is relatively easily manageable since there are only 26 hospitals and maternity hospitals with less than 12,000 beds. Health insurance is compulsory for residents. The compulsory health insurance covers most health risks, but not all and not fully. The difference has to be paid by those insured out of their own pockets, or they can pay for additional insurance. Since 1999 voluntary health insurance has been also available. More than half of the population have such policy. In 1999 the government initiated a pension reform that introduced a three pillar system and the disability insurance scheme was also revised. The current regulation being in force since 2000 is similar to that in the rest of Europe. The retirement age for men is 63 and for women 61.
Personal income taxation Since the introduction of personal income taxation in 1992 the tax rates on personal income have not been changed. There are six tax brackets. The progressive taxation is intended to be reached with increasing marginal rates as follows: 17 %, 35 %, 37 %, 40 %, 45 %, and 50 %. Of course, the brackets have been valorized each year by a growth coefficient of average salary. These tax rates on personal incomes are high in international comparison at least in the CE region as one can see. Unfortunately we do not have data on what the dispribution of the population is among these six brackets. If the majority fell into the first one, of course, there would be less significant income tax burden imposed on citizens directly. But we guess that this is not the case. As in the other CEECs or elsewhere advance tax payments during the tax period are withheld and the difference between advance tax payments during the period and final tax obligation is settled on the basis of assessment of tax return. As in other countries incomes from various sources are aggregated and the tax base can be reduced with different deductibles. Incomes from property rights and capital gains are also taxed with other incomes just like interest incomes and royalties.29 However, insurance premium is taxed at rate of 6.5 per cent payable by the insurance company. Most important recent deductibles are as follows: - 11 per cent of the average annual wage is deductible for all taxpayers. (Disabled may deduct the whole amount.) - students and senior citizens may reduce the tax base by 40 and 8 per cent of the average annual wage, respectively. - families have allowances (after children regressively) - certain expenses (like those ones related to housing, or membership fees, donations, etc.) - investment (like long term securities of government, voluntary contributions to various pension and health schemes) etc. As can be seen these allowances mostly give preferences and privileges to rich people in Slovenia as well. In the accession period the government plans to widen the tax base, reduce the tax burden on low income families, replace allowances with tax credits.
Taxes on consumption Value added taxation was introduced in 1999 only although the government planned to switch from turnover taxation in 1997 already. Under the socialism the Yugoslav government also used a very complex and complicated system of sales taxes. Just like elsewhere in the block almost each product had different rate and negative rates were frequent to provide indirect 29
. In the middle of the last decade capital gains were taxed with withholding tax at rate of 30 per cent.
I.R.E.F
Ec-43
subsidy. Between 1991 and 1998 the system of sales tax rates was simplified. In 1996, for example, the basic rate was 20 per cent. A preferential 5 per cent rate applied to equipments, foodstuffs, books, and childrens’ clothing, among others. Footwears, cloths, construction materials were taxed at 10 per cent. Three per cent higher rate was used for mineral water. Beer consumption was taxed at rate of 26 per cent. The rate on cosmetics, precious stones, gold, fancy cars was 32 per cent. A rate of 45 per cent was imposed on tobaccos. The highest 80 per cent rate was levied on alcohols. In 1999 the government adopted three VAT rates. Zero rate applies to export and postal, medical, welfare, education, sport, cultural and political and social security services, broadcasting, milk, financial and postal services, gambling. A preferential rate of 8 per cent is imposed on foodstuffs, water, agricultural inputs, medicine, public transportation, books, newspapers, accommodation, etc. The standard rate of 19 per cent is used for the rest of goods and services. As can be seen VAT rates are in harmony with EU Sixth Directive. The standard rate is lower than elsewere in Central Europe. The preferential rate is above the Polish and Czech rates but lower than the lowest rate (ignoring zero rate) in Hungary or Slovakia. In case of zero rate some adjustment is still necesary.
Excise taxes We have already concerned excise taxes a bit in the previous paragraph. Excise taxes are also important revenue sources for the Slovene government. Although separated data for excise tax revenues have been available since 1999 only since such taxes are in force after the introduction VAT regime in July 1999 from the above paragraph we could see that excessively high rates applied to those goods in the pre-VAT period what are now taxed additionally and we may also guess that these extra revenues were before 1999 as significant as they are now. Currently excise taxes are imposed on the following selected goods: - cigarettes (50 % of retail price)30 - other tobacco products (25 % of retail price) - petrol (238-328 EURO per 1000 liters) - beer (5 EURO per hectoliter) - fermented beverages (37.5 EURO per hectoliter) Excise taxation is in line with EU directives. According to EU requirements excise taxes on cigarettes and other tobacco products still must be adjusted during the last period of accession.
Import duties Tariffs are also levied on imported goods in Slovenia as well. Tariffs vary from 0 to 27 per cent.31 For some agricultural products the rates are higher indicating the survival of traditional protectionist economic policy in case of agriculture. Slovenia also joined to several multilateral and bilateral free trade agreements or zones like EU, CEFTA, EFTA. Slovenia have free-trade agreement with the Baltic state and Croatia and some other countries as well. In several cases however the agreements simply mean that goods imported from these regions or countries are taxed at preferential rate. 30
. The relevant act prescribed that the tax rate on cigarettes must be increased further by 2005. The proposed tax rate is 57 per cent. 31 . In 1996 the average rate of tariffs was 10.74.
I.R.E.F
Ec-44
Other taxes Of course, we can find other taxes in Slovenia as well as in other countries. Inheritance and gift taxes are paid by the recepient and imposed on the basis of market value and relationships among the parties involved. Exemptions are provided for direct descendants, spouses, farmers on land, etc. Property tax is imposed on urban premises and boats. The property taxation will be revised in accession phase. The existing system of property taxes apply to those two categories mentioned. The tax rate is one and a half per cent maximum or less and the tax is value-based in case of dwellings.32 In the near future the tax base must be widened to include other properties as well. For example, all immovable properties (including rural area as well) must be taxed in the same manner according to a current proposal. Exemption under certain limits will be probably maintained in the future as well. Vehicles are also taxed just like in other countries. The tax rate depends on the type of the vehicle and capacity of the engine.
1.5.2 Subnational governments in Slovenia The authonomy of local municipalities was restored also in Slovenia after the political change and fist local election. Local matters of public interest in a community shall be independently performed by the given municipality. But the rules also spells out that in order to meet the needs of its residents, a municipality shall perform primarily the following functions: - manage the assets of the municipality and provide the conditions for the economic development of the municipality including spatial development, creating appropriate conditions for construction of housing, - regulate, manage and provide for local public services and utilities within its jurisdiction; - promote social welfare services for pre-school institutions, for children and families, and for socially threatened, disabled and elderly people; - provide for air, soil, water including collection and disposal of waste, and protection of the environment; - organize education, and cultural programs, - construct, maintain and regulate local public roads, public ways, recreational and other public areas; regulate traffic in the municipality, - maintain public order with local police, - maintain cemetery, etc In addition an urban municipality must provide the following in its territory: - vocational schools and colleges, and university college departments and faculties, university and special libraries, specialized information documentation centers, - a hospital; - a network of public services, and a telecommunications center, and local radio and television stations and press; - cultural activities (theatres, museums, archives), and sport and recreation areas and facilities. In order to emphasize the importance of scale economies, the Act prescribes that a municipality must be capable to provide for their inhabitants complete elementary education, primary health care services, provision of essential goods in a food shop or general store, supply 32
The bas lump sum tax on boats is approximately 70 USD what increases with length.
I.R.E.F
Ec-45
basic utility services like drinking water, removal and purification of waste water, electricity, postal and financial services, etc. Therefore the Act sets a limit and requires that a municipality shall have at least 5000 inhabitants. Smaller municipalities can be established in the future only in special and exceptional cases for geographic, border location, nationality, historical or economic reasons. In accordance to the European Charter of Local self-government (ECLS) the right to local self-government is one of the basic democratic principles in Slovenia as well. Previously – under the socialist regime - the main characteristics of the municipal system was that the municipality performed the majority of tasks for the state. A municipality was not competent only for local matters as a classic municipality but also for the matters of the state. Under the old Yugoslav constitution, a municipality was responsible first for the indirect implementation of all federal and republic laws and all other regulations. That is, a municipality performed the majority of tasks for the state.33 The new constitution reestablished and provides for local self-governance. Similarly to other CE countries the Local Self-Government Act is of basic importance to the system of local self-government. The Act was adopted by the Parliament at the end of 1993. In 1994, 147 new municipalities were founded in 62 communes. By 2002 their number increased to 193. The number of municipalities according to the number of inhabitants is shown in Table 2.42 in the appendix. Political power is distributed among various institutions (bodies) including the directly elected municipal council and the mayor, supervisory board and various forms of direct participation of citizens in decision-making through meetings of local residents, referendums and civil initiative. According to the Slovene constitution, a municipality is competent for local matters that it can manage independently and which concern only its residents. The constitution also allows that the state may by previous consent of municipality or a wider self-governing local community transfer tasks belonging to the competence of the state if it provides also the funds. In fact, the introduction of local self-government resulted in a decentralization of the management of public affairs, i.e. transferring numerous tasks of central government to the local level. Obviously financial resources have primary importance for the autonomy of local governments. The European Charter for Local Self-government demands that local authorities should be entitled to adequate own financial sources over which they can freely decide. In Slovenia the increasing tasks of municipalities require more and more money. The Slovene government provides for general or special financial transfers and shared taxes. Just like in other countries however state financing is not sufficient in general to meet the demand of local residents. The tax base of the Slovene municipalities is also low. The municipalities in Slovenia have been financed according to the Act of 1994 on Financing of Municipalities Act. The Act laid down the foundations for financing of necessary tasks, determined the criteria for financial equalization, etc. But this system of financing must be revised after signing ECLS. Article 9 of the Charter enumerates eight principles central governments must take into account when they prepare their regulation to finance local communities.34 33
. According to some survey in 1974 there were more than 3,000 such tasks and that 80 % of activities of municipal bodies were performed for the state. 34 The adequacy principle requires that local municipalities must have adequate own financial resources of which they may dispose freely. The principle of self-financing requires that at least part of the financial resources of local communities must be derived from local taxes and charges of which, within the limits of statute, local communities have the power to determine the rate. According to the principle of flexibility, financial resources of local communities must be sufficiently diversified and flexible to enable them to keep pace as far as practically possible with the real evolution of the cost of carrying out their tasks. No doubt that this principle is rather illusory. The equalization principle prescribes that the state must provide for equal distribution of financial resources between local communities in the area of financing of local affairs not only by financial equalization but also by other equivalent measures.
I.R.E.F
Ec-46
Public finance at local level In 1999, a new system for the financing municipalities was introduced. The essence of the changes was the introduction of new bases for the financing of those tasks which are performed by municipalities according to the Constitution and the law. The basic features of financing municipalities in Slovenia are as follows. The Article 142 of the Slovenian Constitution states that municipalities must raise their own revenues. But municipalities that are unable to meet their obligations are eligible for additional financial transfers from the state. Under the old system central support was based on certain criteria determined by branch ministries. Under the new regime a system of appropriate amount of resources was introduced so as to allow a municipality to carry out its responsibilities. Nevertheless the transfers are frequently not adequate to fulfill the tasks. Municipalities now receive 35 per cent of personal income taxes.35 They have also revenues from inheritance and gift taxes, taxes on profits from lotteries and other games, special tax on the use of slot machines outside casinos, taxes on real estate business transactions, administrative fees and duties. But municipalities do not have power to set tax rates. They are determined by other laws. In addition local governments may collect property tax, tourism tax; may charge fees, and ask compensation for various services. As we mentioned municipalities which cannot collect enough own resources to finance appropriate expenditures (calculated on the basis of strict formula by the central government) are entitled to equalization grant. In 1999, 172 municipalities out of 192 applied for such subsidy. As elsewhere municipalities may also request co-financing of municipal investments mostly for building elementary schools, kindergartens, or for road construction, providing public utilities or other infrastructure. The government may provide maximum 70 per cent of the total value of the given investment. Slovene municipalities in general may not incur debts exceeding 10% of the revenues. The loan services in a particular year may not exceed 5% of the revenues. Exceptionally, a permission can be obtained to finance construction of houses or system of water supply, sewage and waste disposal. According to the Article 32 the highest organ of supervision of public expenditure in the municipality is the supervisory committee of the municipality which has the right to determine how severe the violation of regulations or irregularities are in the operation of a municipality. The committee must submit a notice to the competent ministry and the Court of Auditors of the Republic of Slovenia about the violation within fifteen days. The committee shall also issue a report with recommendations and proposals. It is the obligation of the municipal council or the mayor to discuss the reports and to take into account the recommendations and proposals. In Slovenia members of a municipality shall directly participate in decision-making in the municipality through their assembly, referendum and people's initiative. But according to Article 46 of the Local Government Act citizens may initiate a referendum on various issues in general, except for the budget and the final account of the municipal budget, and on general tax rules which determines municipal taxation.
Revenue structure of local governments in Slovenia As one can see in Table 2.40 in the appendix tax revenues of subnational governments varied between 58 and 63 percentages compared to total revenues between 1992 and 2000. The share of shared income taxes was also rather high compared to other countries considered here in the paper. However, the own tax revenue sources have still small share although it is has been 35
. Before 1998 this share was 30 per cent.
I.R.E.F
Ec-47
increasing. Non-tax revenues have a relatively stable share. Between 1996 and 1998 these revenue sources were even more important for municipalities. The share of grants is also stable. They provide a quarter of the total revenues. Local governments on the average do not have budget deficit. In order to prevent indebtedness of municipalities as you could see above the government imposed strict rules on borrowing.
Local taxes As already mentioned Slovenian local governments can also impose some types of local taxes but under very strict conditions determined by the central legislation. As we referred to above municipalities can levy taxes on properties of private individuals only. In 1996 a change in the regulation allowed municipalities to use higher rates. Properties of businesses are still exempt. Like in other countries managing organs of municipalities are reluctant to impose high rates and there is also weak pressure to do so. Property tax is not imposed in many municipalites at all. Another reason for not using this tax is that the law poorly defines the tax base, provides numerous exemption. It is now the intention of the governemnt to change the rules and widen significanty the tax base for property taxation.
Local non-tax revenues As can be seen in Table 2.40 the proportion of non-tax revenues represents less than 20 per cent of revenues at local level. For municipalities these sources are fully discretionary. They can be spent for any purpose the managent of the community thinks appropriate. Rental fees, sales of property are the most important revenue sources under this heading. The lack of proper skill in asset management at the level of municipalities creates serious problem also in Slovenia. In most cases short run financial troubles are managed at the expense of selling of the valuable properties. This process can undermine long term stability and functioning of certain municipalities especially in case of smaller one. Local user fees are reraly sufficient to cover all the costs.
The structure of expenditures of local governments in Slovenia Table 2.41 describes the structure of expenditure of local governments in Slovenia. General public services has much larger share as we could see in the structure of government expenditure at national level in other countries. That was even more valid in 1993 and 1994. We guess that the expenditures were restructured and some items could be simply shifted from this heading to another one in 1995. Expenditures on health are very low during the whole period reflecting central financing even if municipalities are reponsible for certain tasks. The same conclusion must be valid in case of welfare expenditures as well. In a small country perhaps in some sense this type of financing can be understandable compared to larger nations. In 1992 less than 17 per cent of the all expenditures were spent on housing. Eight years later this ratio was almost one quarter. Subsidies to cultural life receive more preferences in Slovenia than in other countries. As far as expenditures on transportation and telecommunication services are concerned we can see that their proportion doubled and now they are important items in local budgets. The most significant part of the budgets are spent for education. Almost one quarter of all expenditures was devoted to finance education at local level. In 1995 this share was almost one third of the budget. Relatively less in spent from local sources to public order and safety reflecting again large involvement of the state in managing this duty of municipalities. As you could notice there are no regions in Slovenia. It is now an urgent task for the government to speed up the process to devide the country into regions. In case of such a small country perhaps it is not too reasonable.
I.R.E.F
2
Ec-48
Evaluation and Policy Proposals
In some countries the ratio of tax revenues to GDP decreased mostly during the 1990s. This was the case also in Poland, Hungary and the Czech Republic. In OECD, or EU on the average (or in Bulgaria for example) this ratio increased. The tax systems in Central European transition economies have been rather distortionary. They are very far from being neutral. The relatively extended social safety net required huge revenues especially in the middle of the period between 1990-2002. But instead of using extended tax base with a few exemptions and low rates these tax systems were mostly characterized with complicated taxation with reduced tax bases (due to numerous exemptions) combined with rather high rates. Some of the examptions were perhaps legitime if we think about the promotion of newly emerging domestic private sector. In case of the lack of sufficient savings and private capital accumulation tax allowances and exemption provided for large foreign investors might seem also reasonable. But there were several cases when such exemptions were although politically perhaps understandable but economically were very costly for the majority of population. In each country agriculture and some other particular industries received indirect state support through the corporate or personal income taxation. The misallocation of resources are further exacerbated with housing deductibles used frequently in each country. Corporate tax reliefs and tax competition have been criticized both by domestic and international circles. As it frequently happens even economics can provide argument for and agains such practices. On the one hand reduced rates are good if one consider taxes as confiscation of the reward for work or return on investment. But lack of uniformity emplies bigger distortionary effects of taxes. Perhaps some practical consideration can make the choice easier: (1) tax competition cannot be avoided, (2) the national (domestic) government can restore uniformity if the similarly preferential lower rate is also offered to domestic firms. Moreover, it can be difficult to figure out whether the preferential treatment is provided because of rent seeking or because of competition. Tax consideration is just one aspect of the decision when firms makes decision about where to locate their investments. Exchange rate policy, reliability of political and economic regimes, legal rules, infrastructure, market regulation, productivity of labor force, and many other factors are almost at least as important if they do not have the same relevence. The exemptions and deductibles make the system not only less neutral but also complicated. The tax systems in CEEs are rather complicated and less transparent. In addition to the general rules, there are several rules and particular guidelines issued by brach ministries. And if the rules are changed frequently as used to be the case in most countries then less compliance can be expected even from basically honest people. Of course the enforcement of tax code is also more costly. It is not surpising that compared to other countries the operating costs of tax administration is higher. In some of these countries the unofficial economy is rather large. According to some estimates it can be around 15-20 per cent of GDP. This is a huge tax potential. Neverheless raducing tax rate, extending tax base alone are not sufficient solutions. And to rely upon compliance cannot be effective either. Much more emphasis should be placed on law enforcement in general in this region to force people to obey the rules. In many respects it does not require larger administration but rather changing the existing rules. On the one hand reducing bank secrecy, increasing obligations of lawyers and tax consultants, more effective exchange of information among various state administrations, etc. could increase the probability of catching cheaters without too much expenses. On the other hand panalties can also be increased for evaders. If both is done simultaneously we might expect smaller tax evasion in the economy.
I.R.E.F
Ec-49
Work efforts must be made more rewarding in most of these countries. Payroll taxes can be reduced for low wage employees like the French government did after 1996. Or, measures can be taken to increase after tax income by earned income tax credits – as used in the US since 1995. Similarly to the British practice, tax credit can be also offered for families. Widening of base of social security contributions can be also a policy option in exchange for an overall reduction of contribution rates. For the time being only incomes from labor are taxed for this purpose. But the most important lesson must be still: without reducing the expenditures taxes cannot be reduced significantly. On the expenditure side more benefits must be provided on means tested way rather than on universal basis for each citizen. Generousities in eligibility for diability or early retire pension, and sickness allowances must be curtailed. We can agree with one of the conclusions drawn by OECD (2001c) on Poland. Moreover, the conslusion can be equally valid in case of other countries as well. The existing system of financing of local governments with overwhelming importance of grants undermines the basic idea of local governance. Local communities are too heavily dependent on the discretion of central governments, the decisions are not funded on the own financial capability of the communes. This financial dependency must be reduced. Accordingly the delegated duties of central government also must be curtailed. And then own task can be increased together with appropriate financial sources. Of course if central financing is adjusted to smaller set of delegated task it can have nagative impact on some communities enjoying the benefit of previous redistribution. For this reason it will be not an easy task for politicians to carry out politically such reform.
3
Index for Fiscal Decentralization
On the basis of the description of the state of fiscal centralization in these countries selected for comparison we can have some idea how public finance actually work in these countries. But in addition, we may also try to construct some yardstick to measure somehow fiscal decentralization. As suggested by our colleagues in the team we used six variables and from the values of these variables we calculated an index for fiscal decentralization. The variables - having values between 0 and five, where the lowest value is for complete centralization and the highest score is for full decentralization, - are as follows: (1) Structure of the budget. (2) Structure of tax collection. (3) Fiscal legislation. (4) Budgetary autonomy. (5) Tax litigation. (6) Fiscal mobility. In addition we also tried to measure the extent of voting by feet but it is not taken into account for IFD. We can calcuted the value of the index for those year for what we could have data in government finance statistics in IMF (2002). For some countries we have index for almost the whole decade, for some others we could calculate values for a shorter period only. As you will see there are some differences but not fundamental.
I.R.E.F
3.1
Ec-50
Structure of the budget
The financing of public affairs is highly centralized in these countries but especially in Slovenia and Slovakia. In Poland - the only country which had value above 30 per cent – decentralized a bit more its system in the last two years. In some countries the values fluctuate aroung the limit value of 20 per cent, therefore a small change can cause a change in this variable. As you could see in the country studies above there are regions effectively operating only in Poland. In Slovakia there are regions but without budget. In the Czech Republic regions have importance since 2000 and we do not have hard data or any other precise information about their functioning. Regions are effectively do not exist - just in documents – in Hungary. In Slovenia creating regions is on the agenda only. Because of the infant nature of regionalism in calculation of the values for this variable we consider the share of the state budget as a threshold. We evaluated local and regional budgets together. See for more details Table 3.9 and 3.10-3.14 in Appendix 3.
3.2
Structure of tax collection and fiscal legislation
Most taxes are collected by the state in each country. Although income taxes are shown in the revenues statistics of local governments but these are also centrally administered and collected and then later shared with subnational governments. Local governments administer and collect only property taxes. Only central governments can decide whether a tax may be imposed or not and about the limits of rates. Muncipalities can just decide upon whether they want to use it or not and whether they want to give allowances or exemptions or not. As you could also see, in some countries (like the Czech Republic, Hungary and Slovenia) residents’ rights are curtailed in the sense that they are not allowed to initiate referendum about fiscal matters. There are only two countries (Poland and Slovakia) where referendum can be organized about the local budget and tax rates or fees. Neverheless since most taxes are centrally imposed and rates are in these cases determined also at national level, people could have decision about something of minor importance. It is hard to judge whether local government set local (propery) taxe rates at low level because of the threat of referendum or not, but since rates are low everywhere, we can be for the time being rather sceptic in this respect. But when local taxes are more important in financing local fiscal decisions perhaps the threat of referendum can really be effective.
3.3
Budgetary autonomy
As you could see municipalities are dependent on central government. most of their revenues are out of their control. Especially in the Czech Republic and Slovakia grants are earmerked to a large extent, but in the other countries as well significant part of transfers are targeted and can be just used for a given purpose. Nevertheless in principle expenditures are not controlled. Other (nontax) revenues can be used for financing any expenditures and to some extent tax revenues can be shifted among heading as well. Moreover municipalities can borrow loans, issue bonds, although in some countries (like Poland and Slovenia) deficit financing and indebtedness is kept under control. But because of the lack of resources at local level (as well as at the level of central government) and permanent undefinancing through the grant system reallocation among headings of the budgets is not significant. The budget is not or hardly enough to cover costs of individual items and therefore it is hard to find idle resources that could be spent elsewhere than where it was originally assigned to.
I.R.E.F
3.4
Ec-51
Tax litigation
We can find similar legal system to each other in these countries. If a taxpayer is not satisfied with the decision of the tax office at local level (tax administration is decentralized in each country) then he can appeal to the the tax administration at higher level. After the decision of the tax authority the taxpayer still can appeal to the ordinary court. The tax office does not have any privilege. There are no administrative courts in these countries.
3.5
Fiscal mobility and voting by feet
Residents of these coutries may freely choose where to be resident for tax purposes especially if agreements on avoiding double taxation is in force between the countries concerned. No contraints are imposed on citizens of these countries neither. They can move their assets abroad. Existence of firms of businessmen from these countries registered in tax heavens proves this. No constraint on reallocation of human capital either. Certain EU countries (e.g., Germany) would like to benefit from free brain-drain at the expense of these accesion countries.
3.6
Index for fiscal decentralization
As you can see in Table 3.9 - 3.13 the values of index of fiscal decentralization is are spread in a narrow range between eighteen and twenty. Slovenia has the lowest score, and Poland has the highest. Although there are differences among these countries these are not reflected in the variation of the values of the index. One reason can be that fiscal decentralization is in fact very similar in the countries of this region. Or perhaps the index could not capture well enough the differences. And, of course, measurement error is also possible.
4 Economic transition and fiscal centralization: an evaluation There are several economic reasons why fiscal centralization is rational and can be welfare enhancing. But centralization of revenues used to couple with more than supraoptimal redistribution. One of the main reason for redistribution of income across various income groups is equalization, what is an inherent characteristics of all communities and societies. Concerning finances of local governments, for example, there are efforts for perfect equalization in the UK, and The Netherlands, while only partial equalization is aimed at in Sweden. In local public finance equalization may be reasonable and therefore accepted but not in the magnitude as it has been carried out in CECs. Redistribution (and therefore equalization) does not create too much problem or difficulties if funds are sufficient: people and their communities (both from where as well as to where money is tranferred) still can cover costs. Unfortunately, this is not the case in any society but especially in these countries we investigated. The problem is rather serious in these less affluent societies. The experience of these CE countries shows that the grants system is not able to cover the gap between expenditures and revenues, i.e., to finance costs of mandatory functions of most municipalities. The need for equalization among communities is mitigated if: (1) disparities among revenue bases of municipalities are reduced.
I.R.E.F
Ec-52
(2) same effort are taken in revenue collection, compliance and enforcement of tax laws at national and local level. (3) differences in management of local communities and their finances are reduced. (4) disparities in demand for local services are balanced. (5) inherited differences in demand for environmental and economic remedial interventions are reduced. (6) differences in social (share of elderly, school age children, single parent households, health status, density of population, etc) and economic (local rate of employment, wage level and structure) structures are reduced. (7) people tolerate more inequalities. In most dimensions we cannot see favorable develoments. What makes situation wrong is that one cannot even expect improvement in most respects along these dimensions. The revenue bases of municipalities are significantly different. Differences in regional development during transition could not eliminate the existing differences in wealth generating potential. And the social structure of municipalities has just worsened. One can see some development in restoring the environment and reducing the impact of transitional recession at regional level. In practice, as far as the fifth dimension is concerned we can see and expect real and significant success in equalization and declining long term need for redistribution for equalization purpose. In principle concerning the second and third points differences can be eliminated, but what is possible in principle that does not necessarily becomes true in reality if human beings bahave opportunistically and learning by doing and scale economies are important. In addition to the distortions in cost and benefit incidence in the provision and financing of local public services, the most important effects of equalization are the various kinds of disincentives it generates: (1) in the place of tax incidence people are less interested in working hard, and/or (2) are interested in hiding revenues, (3) where people benefit from redistribution, people are less interested in working hard and/or (4) reveal their true income status or needs, (5) current health care systems make people less responsible for their health states, (6) current health care systems and especially pension systems undermine intergenerational responsibilities, (7) municipalities and organizations providing public services are less interested in efficient operation, etc. But it is very difficult to change the existing system of local public finance. Rent protection in a democratic system makes radical changes almost impossible. But as far as we can see fundamental changes are not on the agenda in these countries. Perhaps with this paper we can also initiate discussion about the fundamental problems of fiscal decentralization to some extent. We believe that the economic aspects the problems are at least as much important to take into account as political or legal considerations. References: Barbona, Luca, and Polastri, Rossana (1998) Hungars’s Public Finance in an InternationalContext. in: Bokros and Dethier (1998) pp. 155-173 Bokros, Lajos and Dethier, Jean-Jacques (eds.) (1998) Public Finance Reform during the Transition. (The Experience of Hungary) World Bank, Washington, D.C. Bokros, Lajos (1998) Unfinished Agenda. in: Bokros and Dethier (1998) pp. 535-598 Bronchi, Chiara and Burns, Andrew (2002) The Tax System in the Czech Republic. Societa italiana di economia pubblica, Working Papers No. 192/2002 Cickon, Michael (ed) Social Protection in the Visegrád Countries: Four Country Profiles. ILO-CEET Report No. 13, Budapest Csaba, László (1998) Twists and Turns: The History of the Hungarian Public Finance Reform. in: Bokros and Dethier (1998) pp. 127-153
I.R.E.F
Ec-53
Davey, Kenneth and Péteri, Gábor (2000) Transfers? Policy Options. In: Kopanyi et.al. (2000a) chapter 7, manucript Ebel, Robert, Várfalvi István, and Varga Sándor (1998) Sorting out Intergovernmental Roles and Responsibilities. in: Bokros and Dethier (1998) pp. 423-445 Fox, William (2000) Intergovernmental Finance: Summary and Evaluation. In: Kopanyi et.al. (2000a) chapter 5, manucript Horváth, Tamás M. (ed) (2000) Decentralization: Experiments and Reforms. OSI/LGI Budapest Kopanyi et.al. (2000a) Hungary: Modernizing the Subnational Government System. World Bank, forthcoming Kopanyi et.al. (2000b) Hungary: Modernizing the Subnational Government System. World Bank, Discussion Paper No. 417 Kornai, János (1998) The General Trends and the Philosophy of Public Finance Reform. in: Bokros and Dethier (1998) pp. 25-44 Kowalczyk, Andrzej (2000) Local Governments in Poland. in: Horváth (2000) pp. 217-253 Lacina, Karel and Vajdova, Zdena (2000) Local Governments in the Czech Republic. in: Horváth (2000) pp. 255-295 Lenain, Patrick and Bartoszuk, Leszek (2000) The Polish Tax Reform. OECD Economics Department Working Paper No. 234 McLure, Jr. Charles E., et.al. (1995) Tax Policy In Central Europe. International Center for Economic Growth, San Francisco OECD (2001a) Fiscal Design Across Levels of Governments (Year 2000 surveys) Country Report: Czech Republic. OECD (2001b) Fiscal Design Across Levels of Governments (Year 2000 surveys) Country Report: Hungary. OECD (2001c) Fiscal Design Across Levels of Governments (Year 2000 surveys) Country Report: Poland. Orosz, Éva, Ellan, Guy, and Jakab, Melitta (1998) Reforming the Health Care System: The Unfinished Agenda. in: Bokros and Dethier (1998) pp. 221-253 Palacios, Robert and Rocha, Roberto (1998) The Hungrian Pension System in Transition. in: Bokros and Dethier (1998) pp. 177-219 Semjén, András (1995) Tax Policies in Hungary. in: McLure, et.al. (1995) pp. 19-87 Setnikar-Cankar, Stanka, Vlaj, Stane, and Klun, Maja (2000) Local Governments in Slovenia. in: Horváth (2000) pp. 385-421 Temesi, István (2000) Local Governments in Hungary. in: Horváth (2000) pp. 343-384 Vámosi-Nagy, Szabolcs, Kocsis, Imre, and Sanchez, Luis Alvaro (1998) Tax-Policy Reforms in Hungary. in: Bokros and Dethier (1998) pp. 479-509 Vitek Leos and Pubal, Karel, Evaluation of the Effectiveness of the Tax Collection – the Case of the Czech Central and Local Governments. www.lgi.osi.hu/publications World Bank (1995) Hungary. (Structural Reforms for Sustainable Growth) World Bank, Washington, D.C.
I.R.E.F
Ec-54
Appendix
I.R.E.F
Ec-55
Table 1.1 EBRD liberalization index (%) Bulgaria Czech Republic Hungary Poland Romania Slovakia Slovenia
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
13 0 34 24 0 0 41
19 16 57 68 22 16 62
62 79 74 72 36 79 71
66 86 78 82 45 86 78
66 90 82 82 58 83 82
64 90 86 86 68 83 82
58 93 90 89 71 86 85
65 93 90 89 72 86 87
79 93 93 89 75 86 89
-
-
Notes: In this table I use percentage form of the index rather than the original one in decimal form. (Sources: EBRD Transition Reports (1997) p. 135) Table 1.2 EBRD transition indicators (in 1997)
Bulgaria Czech Republic Hungary Poland Romania Slovakia Slovenia
1
2
3
4
5
6
7
8
9
3 4 4 3 2.7 4 3.3
3.3 4.3 4.3 4.3 3.7 4.3 4.3
2.3 3 3.3 3 2 3 2.7
3 3 3.3 3.3 3 3 3
4.3 4.3 4.3 4.3 4 4.3 4.3
2 3 3 3 2 3 2
2.7 3.3 4 3.3 2.7 2.7 3.3
2 3 3.3 3.3 2 2.3 3
2.9 3.4 3.7 3.5 2.8 3.3 3.3
Notes: 1: large scale privatization 2: small scale privatization 3: governance and enterprise restucturing 4: price liberalization 5: trade and foreign exchange system 6: competition policy 7: banking reform and interest rate 8: securities markets and non-bank financing liberalization 9: aggregate transition index (Sources: EBRD Transition Reports (1997) p. 134) Table 1.3
I.R.E.F
Ec-56
Real GDP Growth Rate (%) Bulgaria Czech Republic Hungary Poland Romania Slovakia Slovenia
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
-9.1 -1.2 -3.5 -11.6 -5.6 -2.5 -4.7
-11.7 -11.6 -11.9 -7.0 -12.9 -14.6 -8.9
-7.3 -0.5 -3.1 2.6 -8.8 -6.5 -5.5
-1.5 0.1 -0.6 3.8 1.5 -3.7 2.8
1.8 2.2 2.9 5.2 3.9 4.9 5.3
2.1 5.9 1.5 7.0 7.1 6.7 4.1
-10.9 4.8 1.3 6.1 3.9 6.2 3.5
-6.9 -1.0 4.6 6.9 -6.1 6.2 4.6
3.5 -2.2 4.9 4.8 -5.4 4.1 3.8
2.4 -0.8 4.5 4.1 -3.2 1.9 5.0
5.0 3.1 5.2 4.1 1.6 2.2 4.7
(Sources: EBRD Transition Reports (2001) Table 1.4 Change in Employment (in %) Bulgaria Czech Republic Hungary Poland Romania Slovakia Slovenia
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
-
-
-
-1.6
0.6
1.3
0.2 -11.7 -1.7 -3.8 -2.6 -2.3
0.7 -2.0 1.1 8.5 -1.0 0.7
2.8 -1.9 0.3 2.2 2.4 3.6
0.1 1.2 -0.8 3.5 -1.9 -1.4 -0.5
-3.9 -1.7 0 1.3 1.0 -2.3 2.3
-0.1 -2.5 1.4 1.4 -3.2 -1.0 1.0
-6.9 -1.7 3.1 -1.5 0.3 -1.8 -1.7
-6.8 0.9 1.2 -3.3 -1.0 0.2
(Sources: EBRD Transition Reports (2001)
I.R.E.F
Ec-57
Table 1.5 Unemployment Rate
Bulgaria Czech Republic Hungary Poland Romania Slovakia Slovenia
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
1.7
11.1
15.2
16.4
12.8
11.1
0.7 1.7 6.3 -
4.1 8.5 11.8 3.0 6.6 8.2
2.6 12.3 13.6 8.4 11.4 11.6
3.5 12.1 16.4 10.2 12.7 14.4
3.2 10.7 14.4 8.2 13.7 14.4
2.9 10.2 13.3 8.0 13.1 14.5
12.5 3.9 9.9 12.3 6.7 11.3 7.3
13.7 4.8 8.7 11.2 6.0 11.8 7.4
12.2 6.5 7.8 10.6 6.3 12.5 7.9
16.0 8.7 7.0 15.3 6.8 16.2 7.6
end of the year (%) 2000 17.8 8.7 6.5 16.7 8.4 18.9 7.2
(Sources: Various issues of Statistical Yearbook of the Czech Republic)
Table 1.6 GDP per capita
Bulgaria Czech Republic Hungary Poland Romania Slovakia Slovenia
1990
1991
1992
1993
1994
1995
1996
1997
1998
(at current prices in USD) 1999 2000
1343 3126 3179 1630 1217 2710 8706
872 2466 3242 1037 1187 2046 6330
1012 2903 3617 2197 859 2216 6261
1281 3386 3752 2234 1158 2384 6370
1152 3977 4052 2399 1323 2721 7231
1563 5049 4374 3085 1564 3423 9418
1179 5620 4441 3483 1563 3679 9439
1230 5109 4512 3511 1551 3802 9103
1490 5412 4659 4066 1688 3970 9793
1513 5148 4853 3987 1512 3650 10020
(Sources: EBRD Transition Reports (2001) Table 1.7
1484 4797 4734 4108 1596 3742 9320
I.R.E.F
Ec-58
Foreign Debt
Bulgaria Czech Republic Hungary Poland Romania Slovakia Slovenia
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
-
-
-
127.7 24.3 63.7 54.9 16.1 25.6 14.8
116.8 26.0 68.7 47.1 18.3 32.0 15.7
77.4 31.8 70.4 38.0 19.1 30.9 15.8
97.7 36.0 61.1 35.3 24.3 38.8 21.1
95.8 40.6 51.9 36.6 27.1 48.5 22.6
83.7 43.1 56.9 37.6 26.1 55.9 25.1
80.5 42.6 59.9 41.7 25.8 53.4 27.0
(as % of GDP) 2000 86.0 46.5 67.8 42.8 27.8 53.5 33.4
(Sources: EBRD Transition Reports (2001) Table 1.8 General Government Debt
Bulgaria Czech Republic1 Hungary Poland Romania Slovakia Slovenia
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
-
-
-
150.9 18.8 90.4 88.7 31.5 21.1
159.6 17.6 88.2 72.4 28.0 18.5
111.1 15.3 86.4 57.9 17.6 24.6 18.8
152.5 13.1 72.8 51.2 28.1 24.5 22.7
116.6 13.0 63.9 49.8 27.9 23.7 23.2
100.7 13.4 62.3 43.2 30.6 26.0 23.7
96.6 15.0 60.7 43.3 34.7 28.4 24.6
Notes: 1: excluding indirect debt of transformation organizations.
(as % of GDP) 2000 90.5 17.5 59.2 43.5 31.2 28.9 22.5
I.R.E.F
Ec-59
Table 1.9 General Government Budget Balance
Bulgaria Czech Republic Hungary Poland Romania Slovakia Slovenia
(as % of GDP) 2000
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
-8.1 -0.2 0 3.1 -
-4.5 -1.9 -3.0 -2.1 2.6
-2.9 -3.1 -7.2 -4.9 -4.6 -11.9 0.3
-8.7 0.5 -6.6 -2.4 -0.4 -6.0 0.6
-3.9 -1.1 -8.4 -2.2 -2.2 -1.5 -0.2
-5.7 -1.4 -6.7 -3.1 -2.5 0.4 -0.3
-10.4 -0.9 -5.0 -3.3 -3.9 -1.3 -0.2
-2.1 -1.7 -6.6 -3.1 -4.6 -5.2 -1.7
0.9 -2.0 -5.6 -3.2 -5.0 -5.0 -1.4
-0.9 -3.3 -5.6 -3.3 -3.5 -3.6 -0.9
-1.0 -4.9 -3.4 -3.0 -3.7 -3.5 -1.3
(Sources: EBRD Transition Reports (2001)
Table 1.10 Annual avarage consumer price index (CPI) (%) Bulgaria Czech Republic Hungary Poland Romania Slovakia Slovenia
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
26.3 9.7 28.9 585.8 5.1 10.8 549.7
333.5 52.0 35.0 70.3 170.2 61.2 117.7
82.0 11.1 23.0 43.0 210.4 10.0 207.3
73.0 20.8 22.5 35.3 256.1 23.2 32.9
96.3 9.9 18.8 32.2 136.7 13.4 21.0
62.0 9.1 28.2 27.8 32.3 9.9 13.5
123.0 8.8 23.6 19.9 38.8 5.8 9.9
1082.3 8.5 18.3 14.9 154.8 6.1 8.4
22.2 10.7 14.3 11.8 59.1 6.7 8.0
0.7 2.1 10.1 7.3 45.8 10.6 6.1
9.9 3.9 9.8 10.1 45.7 13.6 8.9
(Sources: EBRD Transition Reports (2001) Table 1.11
I.R.E.F
Ec-60
Total tax revenues of general governments
Czech Republic Hungary Poland Slovakia Slovenia
1990 44.7 -
1991 39.6 -
1992 38.8 -
1993 35.1 39.2 38.1
1994 33.3 37.6 37.6 39.1
1995 32.3 35.4 36.6 38.9
1996 32.0 33.8 36.3 35.4 37.6
1997 32.3 32.6 35.2 33.3 37.0
1998 32.0 32.0 32.8 31.8 37.2
1999 33.0 33.3 29.2 30.5 38.3
(as a % of GDP) 2000 33 31.6 27.8 29.6 35.7
1999 96,9 87.3 88,6 82,4 95,9
2000 96,8 75.9 89,5 89,8 94,5
(Sources: IMF Government Finance Statistics (2000)) Table 1.12 Ratio of tax revenues to total revenues and grants of general government (%) Czech Republic Hungary Poland Slovakia Slovenia
1990
1991
1992 82.6
1993 92,9 83.0
1994 92,6 82.9 89,6
1995 91,8 84.6 89,7
84.5
79.2
94,6
95,4
97,5
97,1
(Sources: IMF Government Finance Statistics (2000))
1996 93,8 85.3 91,2 89,3 96,6
1997 96,0 86.4 90,7 90,2 96,6
1998 96,4 85.6 91,4 91,2 94,9
I.R.E.F
Ec-61
Table 1.13 Corporate income tax (CIT) revenues
Czech Republic Hungary Poland Slovakia Slovenia
1990 6.5 -
1991 4.8 -
1992 2.2 -
1993 6.9 1.5 0.5
1994 5.4 1.9 3.3 0.8
1995 4.6 1.9 3.1 0.6
1996 3.0 1.8 2.9 5.3 0.9
1997 2.5 1.9 3.0 3.4 1.2
1998 2.9 2.2 2.7 3.3 1.2
1999 2.8 2.3 2.5 2.7 1.2
(as a % of GDP) 2000 2.7 2.2 2.4 2.7 1.2
1999 1.9 5.0 3.8 3.7 4.1
(as a % of GDP) 2000 1.8 5.2 3.4 2.7 4.1
(Sources: IMF Government Finance Statistics (2000))
Table 1.14 Personal income tax (PIT) revenues
Czech Republic Hungary Poland Slovakia Slovenia
1990 2.9 -
1991 5.0 -
1992 4.8 4.1
(Sources: IMF Government Finance Statistics (2000))
1993 0.1 5.9 4.0
1994 0.5 5.6 8.3 4.1
1995 0.6 5.2 8.2 4.5
1996 1.9 5.6 7.2 3.4 4.7
1997 2.0 5.0 6.8 3.7 4.7
1998 2.0 4.3 6.3 3.9 4.6
I.R.E.F
Ec-62
Table 1.15 Social security contributions
Czech Republic Hungary Poland Slovakia Slovenia
1990 15.5 -
1991 13.0 -
1992 13.8 19.1
1993 13.2 13.2 19.4
1994 13.9 12.5 10.3 17.4
1995 14.2 11.3 10.4 16.5
1996 14.4 10.4 11.0 12.1 14.9
1997 15.0 10.7 11.0 11.9 13.9
1998 15.0 10.6 10.5 11.3 13.9
1999 15.0 11.4 9.5 10.7 13.8
(as a % of GDP) 2000 15.3 9.6 9.4 10.8 13.5
1999 0,4 0.4 0,0 0,2 0,1
(% of GDP) 2000 0,3 0.4 0,0 0,2 0,0
(Sources: IMF Government Finance Statistics (2000)) Table 1.16 Property tax revenues
Czech Republic Hungary Poland Slovakia Slovenia
1990
1991
1992 0.0
1993 76,9 0.0
1994 0,2 0.0 0,0
1995 0,2 0.0 0,0
0.0
0.0
0,1
0,1
0,1
0,0
(Sources: own calculation on the basis of GFS of IMF)
1996 0,2 0.0 0,0 0,1 0,0
1997 0,3 0.4 0,0 0,1 0,0
1998 0,3 0.4 0,0 0,2 0,1
I.R.E.F
Ec-63
Table 1.17 VAT revenues
Czech Republic Hungary Poland Slovakia Slovenia
1990
1991
1992 6.0
1993 7,6 8.1
1994 7,3 7.7 7,2
1995 6,9 7.6 7,2
7.5
6.0
10,6
10,9
12,2
12,7
1996 7,0 7.5 7,8 8,0 12,9
1997 7,1 7.9 8,3 8,0 13,0
1998 6,6 7.9 7,9 7,4 13,0
1999 7,5 8.1 8,0 7,2 13,0
(% of GDP) 2000 7,6 8.6 7,6 7,6 9,9
1999 4,0 4.0 4,1 3,1 1,9
(% of GDP) 2000 3,7 3.8 4,0 3,0 3,2
(Sources: own calculation on the basis of GFS of IMF)
Table 1.18 Excise tax revenues
Czech Republic Hungary Poland Slovakia Slovenia
1990
1991
1992 5.7
1993 3,9 4.2
1994 3,9 3.8 4,3
1995 4,1 3.6 4,2
5.2
5.5
0,0
0,0
0,0
0,0
(Sources: own calculation on the basis of GFS of IMF)
1996 3,9 3.2 4,3 3,6 0,0
1997 3,8 3.1 4,0 3,2 0,0
1998 3,8 3.2 3,8 3,1 0,0
I.R.E.F
Ec-64
Table 1.19 Import duties
Czech Republic Hungary Poland Slovakia Slovenia
1990
1991
1992 3.4
1993 1,5 3.6
1994 1,5 3.4 3,6
1995 1,3 4.4 3,1
2.5
2.5
0,0
3,6
3,5
3,5
1996 1,3 3.6 2,6 1,6 3,0
1997 0,9 1.9 1,6 1,9 2,0
1998 0,8 1.3 1,1 1,5 1,5
1999 0,7 1.2 0,9 1,5 1,3
(% of GDP) 2000 0,7 1.0 0,7 1,4 0,9
1999 4.5 3.9 1.6 4.9 4.5
(as a % of GDP) 2000 4.6 4.3 1.5 7.1 3.9
(Sources: own calculation on the basis of GFS of IMF)
Table 1.20 Expenditures on economic affairs
Czech Republic Hungary Poland Slovakia Slovenia
1990 11.5 -
1991 5.2 -
1992 5.9 -
(Sources: IMF Government Finance Statistics (2000))
1993 4.7 5.3 5.1
1994 5.2 7.1 2.6 4.7
1995 5.0 5.5 2.5 4.6
1996 4.4 5.5 2.3 7.0 3.9
1997 4.1 5 2.2 7.5 4.1
1998 4.6 4.6 2.1 6.1 4.3
I.R.E.F
Ec-65
Table 1.21 Expenditures on agriculture
Czech Republic Hungary Poland Slovakia Slovenia
1990 2.1 -
1991 2.0 -
1992 1.6 -
1993 1.0 1.9 0.7
1994 0.8 2.3 0.9 0.7
1995 0.7 1.8 0.9 0.7
1996 0.6 1.7 0.8 2.4 0.7
1997 0.8 1.3 0.8 2.4 0.8
1998 0.8 1.6 0.7 1.9 0.9
1999 1.0 1.4 0.6 1.5 0.9
(as a % of GDP) 2000 1.0 1.2 0.5 1.8 0.8
1999 5.9 2.3 0.8 3.1 1.6
(as a % of GDP) 2000 6.5 2.2 0.8 3.9 1.3
(Sources: IMF Government Finance Statistics (2000))
Table 1.22 Subsidies
Czech Republic Hungary Poland Slovakia Slovenia
1990 7.2 -
1991 2.6 -
1992 2.7 -
(Sources: IMF Government Finance Statistics (2000))
1993 4.8 2.2 2.5
1994 5.3 2.9 3.2 1.8
1995 6.5 2.6 2.9 1.8
1996 6.3 2.8 2.5 4.4 1.2
1997 6.1 2.3 2.0 4.1 1.3
1998 6.2 4.6 1.6 3.5 1.4
I.R.E.F
Ec-66
Table 1.23 Transfer to non-profits and households
Czech Republic Hungary Poland Slovakia Slovenia
1990
1991
1992 22,9
1993 16,3 21,6
1994 17,0 20,7 21,4
1995 17,0 18,1 20,3
21,3
24,1
16,4
17,2
17,7
17,7
1996 15,7 16,1 20,3 20,1 17,4
1997 18,5 15,2 20,4 18,7 17,9
1998 18,7 14,8 18,5 18,4 17,8
1999 19,6 15,7 18,5 18,6 17,7
(as a % of GDP) 2000 20,2 15,1 18,2 17,4 17,3
1999 0,9 7,3 3,1 3,1 1,4
(as a % of GDP) 2000 1,0 5,9 2,6 2,7 1,5
(Sources: IMF Government Finance Statistics (2000))
Table 1.24 Interest payment 1990 Czech Republic Hungary Poland Slovakia Slovenia
1991
1992 5,4
1993 1,7 4,5
1994 1,3 6,6 4,1
1995 1,1 9,0 4,8
3,6
0,5
1,2
1,4
1,1
(Sources: IMF Government Finance Statistics (2000))
1996 0,9 8,1 3,9 2,0 1,2
1997 1,1 9,7 3,6 1,9 1,2
1998 1,1 7,7 3,3 2,7 1,3
I.R.E.F
Ec-67
Table 1.25 Transfer to other level of governments
Czech Republic Hungary Poland Slovakia Slovenia
1990
1991
1992 6,6
1993 2,7 6,8
1994 1,9 6,2 2,4
1995 1,6 5,2 2,3
4,9
6,9
1,1
0,9
1,0
1,1
1996 3,1 4,7 3,1 0,2 0,9
1997 1,4 4,0 3,1 0,2 1,0
1998 1,4 3,7 3,1 0,2 0,9
1999 1,5 6,3 6,1 0,2 0,9
(as a % of GDP) 2000 1,6 2,7 5,9 0,2 0,8
(Sources: IMF Government Finance Statistics (2000))
Table 2.1 Structure of general government tax revenues in the Czech Republic
PIT CIT Social security Property VAT Excise tax Import duties
1990 -
1991 -
1992 -
(Sources: own calculation on the basis of IMF (2002))
1993 0,4 19,8 37,6 0.2 21,5 11,2 4,2
1994 1,5 16,1 41,8 0,5 21,8 11,8 4,4
1995 1,9 14,2 43,8 0,7 21,2 12,7 3,9
1996 5,9 9,5 45,0 0,8 21,7 12,2 3,9
1997 6,2 7,8 46,6 0,9 21,8 11,9 2,8
(% of tax revenues) 1998 1999 2000 6,3 5,8 5,5 8,9 8,5 8,3 46,6 45,6 46,4 1,1 1,1 0,9 20,8 22,8 23,1 11,8 12,1 11,2 2,4 2,0 2,2
I.R.E.F
Ec-68
Table 2.2 Structure of general government expenditures in the Czech Republic
General public services Defense Public order and safety Education Health Social security and welfare Culture Housing Economic affairs Subsidies Transfer to other level of governments Transfer to households and non-profits Interest payment
1990 -
1991 -
1992 -
1993 6,4 6,7 6,0 11,6 19,2 27,9 0,9 2,1 13,3 13,7 7,7
1994 6,7 6,6 6,2 11,9 17,7 29,8 1,1 1,2 14,7 14,9 5,4
1995 6,5 5,9 6,2 12,0 17,5 29,9 1,0 0,6 14,3 18,6 4,5
1996 7,1 5,7 6,5 12,1 17,9 26,1 1,0 0,7 13,1 18,4 9,1
1997 2,7 4,8 4,9 11,0 18,1 37,4 1,1 4,1 12,5 17,7 4,1
1998 2,8 4,9 4,7 10,1 18,4 37,7 1,1 3,2 13,9 17,9 4,0
( of expenditures) 1999 2000 2,7 2,9 5,1 5,1 4,8 4,9 10,4 9,6 18,2 17,6 38,6 38,2 1,2 1,2 3,1 3,1 12,7 12,3 16,5 17,6 4,2 4,3
-
-
-
46,2
48,4
48,8
46,1
53,4
53,7
54,8
54,2
-
-
-
4,9
3,6
3,2
2,7
3,2
3,0
2,6
2,7
(Sources: own calculation on the basis of IMF (2002))
I.R.E.F
Ec-69
Table 2.3 Corporate tax and social security contribution rates in the Czech Republic between 1993-2002 ( %) 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 45 42 41 39 39 35 35 31 Profit tax 26 35 35 35 35 Employer 3.6 3.3 9 9 9 - o/w health care 20.4 19.5 19.5 19.5 19.5 - o/w pension 3.3 3.3 3.3 - o/w sickness insurance 3.2 3.2 3.2 3.2 unemployment insurance 0.75 8 12.5 12.5 12.5 12.5 Employee 1.2 1.1 4.5 4.5 4.5 - o/w health care 6.8 6.5 6.5 6.5 6.5 6.5 - o/w pension 1.1 1.1 1.1 - o/w sickness insurance 0.4 0.4 0.4 0.4 0.4 unemployment insurance 2.25 36 47.5 47.5 47.5 47.5 Employer + employee Table 2.4 PIT Tax Rates in the Czech Republic between 1993-2002 (in CK) 1993 15 20 25 32 40 44 47
1,080,000-
1994-95 -60,000 -120,000 -180,000 -540,000 -1,080,000 1,080,000-
1996 -84,000 -144,000 -204,000 564,000 546,000-
1997 -84,000 -168,000 -252,000 -756,000 756,000-
1998 x x x x x
1999 -102,000 -204,000 -312,000 -1,104,000 1,104,000
2000 -102,000 204,000 -312,000 312,000-
2001 x x x x
2002 x x x x
I.R.E.F
Ec-70
0 5 22 23
Table 2.5 VAT rates in the Czech Republic between 1993-2003 1993-1994 1995financial and social security services, and services financial and social security services, and services of small ventures of small ventures medicines, telecommunication,, heating, fuels for medicines, telecommunication, fuels for heating, heating, construction work, and most services heating, construction work, and most services other goods and services other goods and services Table 2.6 Structure of revenues of local governments in the Czech Republic 1990
1991
1992
Tax revenues Income taxes Social security Property tax Tax on goods and services Nontax revenues Grants Deficit (Sources: own calculation on the basis of IMF (2002))
1993 40,9 30,7 0 3,7 1,3 20,2 30,3 2,5
1994 48,5 43,4 0 3,4 1,0 18,4 27,6 0,1
1995 52,4 46,2 0 2,9 0,6 16,7 26,8 -1,7
1996 42,7 31,0 0 2,5 0,5 14,8 37,5 -4,4
1997 52,4 37,5 0 2,7 2,9 17,0 24,7 -3,3
1998 53,0 37,3 0 2,6 2,8 17,2 23,8 925,7
(% of revenues) 1999 2000 52,5 52,7 36,3 34,9 0 0 2,6 2,4 2,4 2,4 17,3 17,0 25,0 25,3 11,2 -1,4
I.R.E.F
Ec-71
Table 2.7 Structure of expenditures of local governments in the Czech Republic (% of expenditures) 1990 1991 1992 1993 1994 1995 1996 1997 1998 12,5 13,3 15,4 14,2 15,8 15,2 General public services 7,1 5,5 5,5 3,8 3,8 3,6 Health 10,2 10,4 10,9 23,3 10,0 11,2 Social security and welfare 35,1 31,9 28,5 24,0 28,4 27,0 Housing 5,2 5,7 6,3 5,7 6,7 6,8 Culture 12,2 14,8 14,8 12,6 15,8 17,1 Transport and telecom. 12,5 10,9 10,5 9,5 9,1 8,8 Education 1,3 3,0 3,2 3,0 3,9 3,8 Public order and safety (Sources: own calculation on the basis of IMF (2002))
1999 15,0 4,1 11,8 26,8 6,6 16,0 8,4 4,1
2000 15,4 4,2 12,5 25,4 7,0 15,5 7,5 3,8
Table 2.8 Size structure of municipalities in the Czech Republic in 1994 Number of inhabitants Number of municipalities Share from total number of Share from population of municipalities given size range of municipalities 1699 27.2 2.0 - 199 2061 33.1 6.5 200 – 499 1215 19.5 8.2 500 – 999 646 10.4 8.6 1 000 – 1 999 345 5.5 10.2 2 000 – 4 999 135 2.2 9.0 5 000 – 9 999 66 1.1 9.0 10 000- 19 999 42 0.7 11.8 20 000- 49 999 17 0.3 11.3 50 000 – 99 999 7 0.1 23.4 100 000 – 6 230 100.00 100.00 Total (Source: Horváth (2000) p. 290)
I.R.E.F
Ec-72
Table 2.9 Structure of general government tax revenues in Hungary 1990 1991 1992 6.6 12.6 12.5 PIT 14.6 12.1 5.6 CIT 34.6 32.9 35.6 Social security 0.0 0.0 0.0 Property 16.8 15.1 15.4 VAT 11.6 13.9 14.6 Excise tax 5.6 6.4 8.8 Import duties (Sources: own calculation on the basis of IMF (2002))
1993 15.2 3.9 33.7 0.0 20.6 10.7 9.2
1994 14.8 5.1 33.2 0.0 20.5 10.0 9.2
1995 14.5 5.3 31.8 0.0 21.2 10.0 12.5
1996 16.7 5.4 30.9 0.0 22.1 9.5 10.7
1997 15.3 5.9 33.0 1.2 24.3 9.6 5.8
1998 14.8 6.7 33.2 1.2 24.7 10.0 4.1
1999 15.0 6.8 34.3 1.1 24.4 12.0 3.7
(% of tax revenues) 2000 16.5 6.9 30.5 1.3 27.3 12.0 3.3
(% of expenditures) 2000 4.0 1.7 2.8 6.3 4.4 22.1 1.3 1.1 9.6 4.9 5.9
Table 2.10 :Structure of general government expenditures in Hungary
General public services Defense Public order and safety Education Health Social security and welfare Culture Housing Economic affairs Subsidies Transfer to other level of governments Transfer to households and non-profits Interest payment
1990 -
1991 4.2 2.9 3.6 7.9 5.3 37.9 3.0 8.9 9.7 4.9 12.9
1992 7.5 2.9 3.7 8.2 2.7 39.3 3.4 2.1 11.0 5.0 12.4
1993 7.5 8.1 3.5 8.0 5.3 38.9 3.7 1.6 10.1 4.1 12.8
1994 6.1 2.6 3.4 7.1 5.6 37.8 3.4 1.6 13.6 5.5 11.8
1995 6.6 2.3 3.7 8.6 5.2 40.4 3.5 2.5 13.2 6.4 12.5
1996 5.0 2.2 3.7 8.8 4.9 35.5 2.8 1.8 13.0 6.7 11.1
1997 5.1 3.1 4.2 9.5 6.1 35.8 1.8 1.5 12.5 5.8 10.1
1998 5.4 2.3 3.8 8.6 6.0 30.1 1.8 1.6 12.6 10.6 8.5
1999 5.0 2.1 3.5 7.9 5.5 27.5 1.6 1.4 9.3 6.6 15.1
-
44.9
42.8
40.7
39.7
43.7
38.0
38.0
33.9
37.7
33.5
-
6.7
10.0
8.5
12.7
21.7
19.2
24.4
17.6
17.4
13.1
I.R.E.F
Ec-73
Table 2.11 :Corporate tax and social security tax rates in Hungary between 1989-2002 (%) 1989 1990 40/50 35/40 Profit tax 4.5 4.5 Tech. dev. contr. 1.5 1.5 Qualification contr.* 43 43 Employer - o/w health care - o/w pension - o/w solidarity fund 10 10 Employee - o/w health care - o/w pension - o/w solidarity fund 53 53 Employer + employee *: Can be counted as expenses.
1991 40 4.5 1.5 44.5 1.5 10 0.5 54.5
1992 40 4.5 1.5 49 5 11 1 60
1993 40 4.5 1.5 51 19.5 24.5 7 12 4 6 2 63
1994 36 1.5 49 19.5 24.5 5 11.5 4 6 1.5 60.5
1995 18 -
1996 18 -
1997 18 -
1998 18 -
1999 18 -
2000 18 -
2001 18 -
2002 18 -
49 19.5 24.5 5 11.5 4 6 1.5 60.5
47.5 18 24.5 5 11.5 4 6 1.5 59
43 15 24 4 11.5 3 7 1.5 54.5
42 15 24 3 12.5 3 8 1.5 54.5
36 11 22 3 12.5 3 8 1.5 48.5
34 11 20 3 12.5 3 8 1.5 46.5
34 11 20 3 12.5 3 8 1.5 46.5
32 11 18 3 12 3 8.5 1 44
I.R.E.F
Ec-74
Table 2.12 Corporate tax allowances in Hungary between 1989-1994 (%) 1989 1990 1991 1992 1993 1994 80 80 80 40 0 0 Public service (medical) 10 5 0 0 0 0 Public service (others) 80 65 65 40 0 0 Cultural & sport activity 40 35 35 0 0 0 Forest & wood industry 0 0 50 50 50 0 Hungarian proprietorship 10 10 0 0 0 0 R & D (input) 70 35 0 0 0 0 R & D (output) 70 35 0 0 0 0 Agricultural firms (low capital endowment) 0 40 20 Agricultural & food industrial investment 40 35 20 0 0 0 Retail (food) 2.5 2.5 2.5 0 0 0 Retail (small settlements) 3.5 3.5 3.5 3.5 0 0 Folklore 0 30 30 0 0 0 Investment allowance in undeveloped settlements Allowances for foundation 65 65 65 0 0 - first year 0 50 50 50 50 0 - second year 0 40 40 40 40 0 - third year 0 20 20 20 20 0 - fourth year 0 10 10 10 10 0 - fifth year 0 20 20 0 0 0 Fixed assets investment sales 0 0 20 20 10 0 Environment protecting investment 0 0 10 10 0 0 Historical preservation investment Source: Szolnoki [1993] cited by Gem [1994]
I.R.E.F
Ec-75
Table 2.13 PIT Tax Rates in Hungary between 1989-2003 %
1989
1990
1991
1992-93
1994-95
0 15 17 20 22 23 25 29 30 31 35 39 40 42 44 48 49 50 56
- 55,000
- 55,000 - 90,000
- 55,000 - 90,000
- 100,000
- 110,000
(HUF) 2003
1996
19971998
19992000
2001
2002
- 150,000
-150,000
- 250,000 -300,000
- 400,000
- 480,000
- 600,000
- 650,000
- 220,000
- 220,000 - 1,000,000
- 1,050,000
- 1,200,000
- 1,350,000
1,000,000 -
1,050,000 -
1,200,000 -
1,350,000 -
- 70,000
- 100,000 - 200,000 - 150,000 - 300,000
- 300,000
- 240,000 - 500,000
- 500,000
- 500,000
- 380,000
- 380,000
500,000 -
- 550,000
- 550,000
- 360,000
1,100,000 550,000 -
- 600,000 500,000 600,000 -
-500,000 -700,000 - 1,100,000
- 900,000 900,000 -
I.R.E.F
Ec-76
Table 2.14 Some characteristics of PIT system in Hungary between 1988-2000
Average gross wage (HUF/year) Minimum wage (HUF/year) Average PIT (%)
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
107,616
126,852
161,352
215,208
267,528
326,076
407,268
466,800
562,044
671,640
36,000
44,400 48,000
84,000
96,000
108,000
126,000
146,000
174,000
204,000
14,43
14,37
57,000 67,200 69,600 16,11
18,13
17,97
19,25
18,06
21,45
22,59
20,91
1998
1999
2000
2001
Table 2.15 VAT rates in Hungary between 1988-2002 % 0
6
1988-1992 medicines, basic health-care and cultural goods and services & foods -
10
-
basic health-care and cultural goods and services & foods -
12
-
-
15 25
01/01/1993-08/01/1993 some medicines
1993-1994 some medicines
1995some medicines
-
-
basic health-care and cultural goods and services & foods & household energy -
-
other services other goods services and goods services and goods Note: VAT exempt activities and goods are listed in the row of zero rated goods and services.
basic health-care and cultural goods and services & foods & household energy services and goods
I.R.E.F
Ec-77
Table 2.16 Structure of revenues of local governments in Hungary 1990 0,0 0,0
1991 16,7 12,0
1992 18,1 12,4
1993 15,3 8,4
Tax revenues Income taxes Social security 0,0 2,1 2,2 2,4 Property tax 0,0 2,4 3,3 4,3 Tax on goods and services 0,0 13,3 16,1 14,6 Nontax revenues 0,0 67,1 61,6 64,1 Grants 0,0 5,2 3,0 -1,7 Deficit (Sources: own calculation on the basis of IMF (2002))
1994 15,0 8,7
1995 19,4 11,8
1996 22,2 11,0
1997 24,7 12,3
1998 27,1 13,7
1999 29,1 13,0
1,7 4,5 14,6 63,0 -5,2
2,1 5,3 13,7 59,8 2,2
2,9 8,1 15,5 55,1 5,2
2,9 9,3 17,1 51,0 5,9
3,0 10,3 16,8 50,2 -0,7
3,3 12,7 15,8 49,3 1,6
(% of revenues) 2000 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
1999 12,6 14,7 12,4 13,5 4,3 2,9 23,1 0,9
(% of expenditures) 2000 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Table 2.17 Structure of expenditures of local governments in Hungary 1990 1991 1992 n.a. 9,9 12,3 General public services n.a. 21,0 20,0 Health n.a. 8,7 10,2 Social security and welfare n.a. 13,3 13,6 Housing n.a. 4,2 4,6 Culture n.a. 3,7 2,9 Transport and telecom. n.a. 35,2 31,4 Education n.a. 0,5 0,4 Public order and safety (Sources: own calculation on the basis of IMF(2002))
1993 12,4 20,6 10,4 13,5 4,5 2,7 31,2 0,4
1994 12,5 18,9 10,8 14,6 4,4 3,1 30,5 0,4
1995 12,7 18,6 12,9 12,9 4,1 3,1 29,9 0,4
1996 12,9 19,1 12,9 12,4 4,6 3,0 29,4 0,9
1997 14,8 18,2 12,5 13,9 4,6 3,0 28,6 0,9
1998 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
I.R.E.F
Ec-78
Table 2.18
Number of inhabitants
Size structure of settlements in Hungary in 1997 Number of settlements Share from total number of settlements 1714 651 493 133 116 11 8 1 3127
- 1 000 1 001 – 2 000 2 001 – 5 000 5 001 – 10 000 10 001- 50 000 50 001 – 100 000 100 001 – 1 000 000 1 000 001 – Total
Share from population of given size range of settlements 7.8 9.2 14.6 9.2 22.4 7.0 11.4 18.4 100.00
54.81 20.82 15.77 4.25 3.71 0.35 0.26 0.03 100.00
(Source: Horváth (2000) p. 379) Table 2.19 Structure of general government tax revenues in Poland
PIT CIT Social security Property VAT Excise tax Import duties
1990 -
1991 -
1992 -
(Sources: own calculation on the basis of IMF (2002))
1993 -
1994 22,0 8,7 27,4 0,0 19,3 11,4 9,5
1995 22,3 8,4 28,4 0,0 19,6 11,5 8,6
1996 19,9 8,1 30,4 0,0 21,4 11,8 7,2
1997 19,2 8,5 31,2 0,0 23,7 11,5 4,5
1998 19,3 8,2 32,1 0,0 24,0 11,7 3,4
1999 13,1 8,5 32,5 0,0 27,6 14,2 3,1
(% of tax revenues) 2000 12,1 8,8 33,8 0,0 27,2 14,3 2,6
I.R.E.F
Ec-79
Table 2.20 Structure of general government expenditures in Poland
General public services Defense Public order and safety Education Health Social security and welfare Culture Housing Economic affairs Subsidies Transfer to other level of governments Transfer to households and non-profits Interest payment
(% of expenditures) 2000 4,5 4,5 3,9 5,3 1,7 56,2 0,6 1,2 5,0 2,5 19,1
1990 -
1991 -
1992 -
1993 -
1994 4,0 4,7 4,3 8,3 9,6 49,9 0,9 3,3 5,9 7,2 5,4
1995 3,9 4,4 4,2 8,4 10,1 49,6 0,9 2,4 5,9 6,7 5,3
1996 3,9 3,9 4,5 6,0 11,2 50,5 1,0 2,7 5,4 5,9 7,3
1997 3,9 4,0 4,6 6,5 11,3 51,6 1,1 2,2 5,6 5,0 7,6
1998 3,9 4,1 4,7 6,5 10,2 51,2 1,1 1,7 5,6 4,4 8,4
1999 4,0 4,3 3,7 4,9 1,2 53,9 0,6 1,1 4,8 2,4 18,1
-
-
-
-
48,4
47,4
48,3
50,1
50,1
55,0
59,3
-
-
-
-
9,4
11,2
9,4
8,9
8,8
9,1
8,5
(Sources: own calculation on the basis of IMF (2002))
I.R.E.F
Ec-80
Table 2.21 Corporate tax and social security contribution and other payroll tax rates in Poland between 1991-2002 (%) 1991 Profit tax Employer - o/w social insurance Labor Fund Benefit Guarantee Fund Employee Employer + employee
43 43
1992 40 48 45 3
1993 40
1994 40
1995 40
1996 40
1997 38
1998 36
3
1999 34
2.45
-
-
-
0.5 -
43
48
48
48.5
48
48
48
48
2000 30 20.43 17.9 2.45 0.08
2001 28
2002 28
18.71 48.02 46.62
Table 2.22 PIT Tax Rates in Poland between 1992-2002 % 19 20 21 30 32 33 40 44 45
1992
1993
64,800,000
x
-129,600,000
x
1994
1995
1996
1997
1998 x
1999 -29,634
2000 -32,736
2001 x
2002 -37,024
x
-59,248
-65,472
x
-74,048
x
59,248-
65,472-
x
74,048-
x -91,200,000
-124,000
x x
-182,400,000 129,600,000-
-248,000
x
x x 182,400,000-
248,000-
x
Table 2.23
I.R.E.F
Ec-81
VAT rates in Poland between 1993-2003 % 0
3 4 7
22
1993unprocessed agricultural products, postal, broadcasting, housing, communal services, health, cultural and educational services, financial and insurance, diary and fruit products, basic agricultural inputs energy, most foodstuffs and children’s products, transportation and telecommunication services, construction work and materials, medicines, etc other goods and services
-(2000)basic agricultural inputs, books, magazines, postal, some health care and educational, cultural and social services
basic agricultural inputs, books, magazines, postal, some health care and educational, cultural and social services
unprocessed agricultural products agricultural machinery, children’s products, construction materials and work, certain cervices, medicines
unprocessed agricultural products agricultural machinery, children’s products, construction materials and work, certain cervices, medicines
other services and goods
other services and goods
Note: VAT exempt activities and goods are listed in the row of zero rated goods and services.
I.R.E.F
Ec-82
Table 2.24 Structure of revenues of local governments in Poland 1990
1991
1992
1993
Tax revenues Income taxes Social security Property tax Tax on goods and services Nontax revenues Grants Deficit
1994 37,2 17,1 0 13,7 4,4 29,7 30,3 -0,8
1995 37,3 17,1 0 14,0 4,3 29,7 29,4 1,0
1996 36,2 19,2 0 11,7 3,8 26,4 33,0 -1,3
1997 35,7 19,0 0 11,4 3,8 26,6 32,9 -1,9
1998 34,4 19,7 0 11,4 1,8 26,5 34,2 -2,2
(% of revenues) 1999 2000 38,0 39,1 9,7 8,5 19,3 21,6 7,1 7,1 1,0 0,9 19,5 19,2 39,2 39,3 -1,4 -2,0
1998 9,1 5,1 9,1 29,1 4,9 6,9 32,3 0,7
(% of expenditures) 1999 2000 6,8 7,2 25,1 23,7 8,4 8,3 17,5 16,5 3,9 3,7 5,5 5,9 26,1 13,3 3,9 6,8
(Sources: own calculation on the basis of IMF (2002)) Table 2.25 Structure of expenditures of local governments in Poland 1990
1991
1992
General public services Health Social security and welfare Housing Culture Transport and telecom. Education Public order and safety (Sources: own calculation on the basis of IMF (2002))
1993
1994 9,0 6,7 9,1 37,5 5,7 5,6 22,7 0,6
1995 10,2 6,0 10,3 36,3 5,0 5,5 22,9 0,6
1996 9,1 4,9 8,7 30,8 4,3 5,6 33,0 0,6
1997 8,8 5,0 8,8 30,4 4,6 6,1 32,3 0,5
I.R.E.F
Ec-83
Table 2.26 Size structure of municipalities in Poland in 1996 Number of inhabitants
Number of municipalities
Share from total number of municipalities
- 1 000 1 001 – 2 000 2 001 – 5 000 5 001 – 10 000 10 001- 50 000 50 001 – 100 000 100 001 – Total
0 7 563 1078 734 56 45 2483
0 0.3 22.7 43.4 29.5 2.3 1.8 100.00
Share from population of given size range of municipalities 0 0.0 5.8 19.8 35.5 9.6 29.1 100.00
(Source: Horváth (2000) p. 244) Table 2.27
PIT CIT Social security Property VAT Excise tax Import duties
Structure of general government tax revenues in Slovakia (% of tax revenues) 1993 1994 1995 1996 1997 1998 1999 9,5 11,2 12,3 12,2 15,1 10,2 10,3 8,9 34,1 35,8 35,4 34,9 0,4 0,4 0,5 0,6 22,7 24,0 23,1 23,7 10,1 9,6 9,7 10,1 4,5 5,6 4,8 5,0
(Sources: own calculation on the basis of IMF (2002))
2000 9,2 9,1 36,5 0,6 25,5 10,3 4,7
I.R.E.F
Ec-84
Table 2.28 Structure of general government expenditures in Slovakia (% of expenditures) 1993 1994 1995 1996 1997 1998 1999 7,2 7,2 6,0 5,6 General public services 5,7 5,2 5,1 4,4 Defense 5,6 5,5 5,5 3,7 Public order and safety 11,1 10,5 10,5 9,9 Education 20,0 18,7 18,0 17,3 Health 25,4 25,8 27,3 27,0 Social security and welfare 2,0 1,9 1,9 1,5 Culture 2,3 0,9 2,2 3,1 Housing 17,1 18,2 15,6 12,1 Economic affairs 10,8 10,1 9,1 7,8 Subsidies 0,4 0,4 0,5 0,5 Transfer to other level of governments 48,9 45,6 47,3 46,3 Transfer to households and non-profits 5,0 4,6 7,0 7,7 Interest payment (Sources: own calculation on the basis of IMF (2002))
2000 7,1 5,0 4,1 10,3 18,7 28,1 1,7 2,2 19,8 11,0 0,7 48,3 7,4
I.R.E.F
Ec-85
Table 2.29 Corporate tax and social security contribution rates in Slovakia between 1993-2003 (%)
Profits tax Employer - o/w health care - o/w pension - o/w sickness insurance unemployment insurance Employee - o/w health care - o/w pension - o/w sickness insurance unemployment insurance Employer + employee
1993 40 38 10 20.6 4.4 3 12 3.7 5.9 1.4 1 50
1994 40 38 10 20.6 4.4 3 12 3.7 5.9 1.4 1 50
1995 40 38 10 21.6 3.4 3 12 3.7 5.9 1.4 1 50
1996 40 38 10 21.6 3.4 3 12 3.7 5.9 1.4 1 50
1997 40 38 10 21.6 3.4 3 12 3.7 5.9 1.4 1 50
1998 40 38 10 21.6 3.4 3 12 3.7 5.9 1.4 1 50
1999 40 38 10 21.6 3.4 3 12 3.7 5.9 1.4 1 50
2000 29 38 10 21.6 3.4 3 12 3.7 5.9 1.4 1 50
2001 29 38 10 21.6 3.4 3 12.8 4 6.4 1.4 1 50.8
2002 29 38 10 21.6 3.4 3 12.8 4 6.4 1.4 1 50.8
2003 29 38 10 21.6 3.4 3 12.8 4 1.4 1.4 1 50.8
I.R.E.F
Ec-86
Table 2.30 PIT Tax Rates in Slovakia between 1993-2003 (Sk) % 10 12 15 20 25 28 30 32 35 38 40 42 47
1993
1994-1997
1998-1999
2000
-60,000 -120,000 -180,000
-60,000 -120,000 -180,000
-60,000 -120,000 -180,000
-60,000 -120,000 -180,000
2001
2002 -90,000
2003 -90,000
-180,000
-180,000
-396,000
-396,000
-564,000 564,000-
-564,000 564,000-
-90,000 -150,000 -240,000 -396,000 -540,000
-540,000
-540,000
-540,000 -564,000
-1,080,000 1,080,000-
-1,080,000 1,080,000-
-1,080,000 1,080,000-
-1,080,000 -3,240,000 3,240,000-
-1,128,000 1,128,000-
I.R.E.F
Ec-87
Table 2.31 VAT rates in Slovakia between 1993-2003 % 0
1993 – 95
6
-
10
-
14 20 23 25
other services and goods
1996 – 30.06.1999
basic health-care and cultural goods and services & foods -
other services and goods -
01.07.1999 – 12.31.2001
-
basic health-care and cultural goods and services & foods & household energy
other services and goods -
Note: VAT exempt activities and goods are listed in the row of zero rated goods and services.
01.01.2002 lotteries, social and selected financial services -
some foods (vegetables and animals), medicines, newspapers, books, eyeglasses, orthopedic and other instruments used by disabled persons, other services and goods -
I.R.E.F
Ec-88
Table 2.32 Structure of revenues of local governments in Slovakia 1990 1991 1992 1993 Tax revenues Income taxes Social security Property tax Tax on goods and services Nontax revenues Grants Deficit (Sources: own calculation on the basis of IMF (2002))
1994 -
1995 -
1996 47,4 21,7 0,0 13,4 6,6 28,1 8,8 -2,0
1997 45,3 22,6 0,0 13,4 5,8 24,1 13,9 -7,6
1998 50,5 24,2 0,0 14,2 6,0 17,9 16,3 -13,9
1999 54,6 27,6 0,0 15,8 6,5 16,9 16,1 -12,1
(% of revenues) 2000 51,9 26,1 0,0 14,6 6,1 16,2 18,6 -6,8
1999 28,6 0,7 1,9 32,5 8,3 13,2 0,2 3,4
(% of expenditures) 2000 25,5 0,6 1,8 36,6 8,2 12,4 0,2 3,2
Table 2.33 Structure of expenditures of local governments in Slovakia 1990 1991 1992 1993 General public services Health Social security and welfare Housing Culture Transport and telecom. Education Public order and safety (Sources: own calculation on the basis of IMF (2002))
1994 -
1995 -
1996 24,8 0,9 1,8 40,6 7,2 10,8 0,6 3,0
1997 23,9 0,8 1,6 39,4 7,8 12,7 0,5 3,0
1998 24,8 0,7 1,6 37,8 8,5 13,0 0,3 3,1
I.R.E.F
Ec-89
Table 2.34 Size structure of settlements in Slovakia in 1997 Number of inhabitants
Number of settlements
Share from total number of settlements
- 1 000 1 001 – 2 000 2 001 – 5 000 5 001 – 10 000 10 001- 50 000 50 001 – 100 000 100 001 – 1 000 000 Total
1966 544 241 52 61 9 2 2875
68.39 18.29 8.38 6.76 2,12 0.31 0.07 100.00
Share from population of given size range of settlements 16.17 14.22 13.16 6.76 24.70 12.12 12.87 100.00
(Source: Horváth (2000) p. 336) Table 2.35 Structure of general government tax revenues in Slovenia
PIT CIT Social security Property VAT (turnover tax) Excise tax Import duties
1990 -
1991 -
1992 10,8 1,5 50,2 0,2 27,7 0,0 0,0
(Sources: own calculation on the basis of IMF (2002))
1993 10,2 1,2 49,6 0,3 27,9 0,0 9,2
1994 10,5 2,1 44,7 0,2 31,3 0,0 8,9
1995 11,8 1,5 42,8 0,0 32,8 0,0 9,1
1996 12,4 2,3 39,6 0,0 34,2 0,0 8,0
1997 12,6 3,1 37,7 0,0 35,2 0,0 5,4
1998 12,3 3,3 37,4 0,4 35,0 0,0 3,9
1999 10,8 3,0 36,1 0,2 34,0 5,0 3,3
(% of tax revenues) 2000 11,4 3,5 37,7 0,1 27,7 9,1 2,6
I.R.E.F
Ec-90
Table 2.36 Structure of general government expenditures in Slovenia
General public services Defense Public order and safety Education Health Social security and welfare Culture Housing Economic affairs Subsidies Transfer to other level of governments Transfer to households and non-profits Interest payment
1990 -
1991 -
1992 7,1 2,7
1993 7,0 3,4 3,5 10,2 14,5 42,8 1,6 0,8 12,5 6,1 2,3
1994 7,6 3,2 3,2 9,6 14,2 44,0 1,8 0,7 11,6 4,4 2,6
1995 8,4 3,3 3,7 10,0 13,7 44,0 1,7 1,0 11,5 4,5 2,8
1996 7,4 2,9 4,0 10,8 14,3 44,3 1,7 0,8 10,1 3,2 2,3
1997 7,7 2,9 4,0 11,3 14,1 44,2 1,7 0,8 10,2 3,2 2,5
1998 7,9 2,8 3,8 10,8 14,2 44,4 1,6 0,8 10,6 3,5 2,3
(% of expenditures) 1999 2000 8,2 8,1 2,8 2,8 3,9 4,0 10,7 10,4 13,8 14,4 43,5 44,4 1,6 1,6 0,8 0,9 11,2 9,9 3,9 3,3 2,1 2,0
-
-
41,0
42,5
44,0
44,5
44,8
45,0
44,4
43,5
44,3
-
-
1,2
3,0
3,5
2,8
3,1
3,0
3,2
3,4
3,7
(Sources: own calculation on the basis of IMF (2002))
I.R.E.F
Ec-91
Table 2.37 Corporate tax and social security contribution rates in Slovenia between 1992-2002 (%) 1992 Profit tax Employer - o/w health care - o/w pension - o/w employment fund - o/w maternity fund Employee - o/w health care - o/w pension - o/w employment fund - o/w maternity fund Employer + employee
50.35
1993
1994 30 22.9 6.6 15.5 0.7 0.1 22.4 6.1 15.5 0.7 0.1
1995 19.9
0.1 22.1 6.36 15.5 0.14 0.1 42
1996 25 15.9 6.89 8.85 0.06 0.1 22.1 6.36 15.5 0.14 0.1 38
1997 25 15.9 6.89 8.85 0.06 0.1 22.1 6.36 15.5 0.14 0.1 38
1998 25 15.9 6.89 8.85 0.06 0.1 22.1 6.36 15.5 0.14 0.1 38
1990 25 15.9 6.89 8.85 0.06 0.1 22.1 6.36 15.5 0.14 0.1 38
2000 25 15.9 6.89 8.85 0.06 0.1 22.1 6.36 15.5 0.14 0.1 38
2001 25 15.9 6.89 8.85 0.06 0.1 22.1 6.36 15.5 0.14 0.1 38
2002 25 15.9 6.89 8.85 0.06 0.1 22.1 6.36 15.5 0.14 0.1 38
I.R.E.F
Ec-92
Table 2.38 PIT Tax Rates in Slovenia between 1993-2003 % 17 35 37 40 45 50
1992 x x x x x x
1993 -450,000 -900,000 -1,350,000 -1,800,000 -2,700,000 2,700,000-
1994 x x x x x x
1995 x x x x x x
1996 -668,131 -1,336,262 -2,004,394 -2,672,525 -4,008,787 4,008,787-
1997 x x x x x x
1998 x x x x x x
(Tol) 1999 2000 x x x x x x x x x x x x
2001 x x x x x x
2002 x x x x x x
Table 2.39 VAT rates in Slovenia between 1999-2003 % 0 8 19
1999postal, medical, welfare, education, sport, cultural and political and social security services, broadcasting, milk, financial and postal services, gambling, etc. foodstuffs, water, agricultural inputs, medicine, public transportation, books, newspapers, accommodation, etc. other goods and services
Note: VAT exempt activities and goods are listed in the row of zero rated goods and services.
I.R.E.F
Ec-93
Table 2.40 Structure of revenues of local governments in Slovenia 1990
1991
1992 60,9 54,3
1993 62,6 56,4
Tax revenues Income taxes Social security 3,7 3,9 Property tax 1,8 2,2 Tax on goods and services 11,9 14,8 Nontax revenues 23,7 20,5 Grants 0,4 0,3 Deficit (Sources: own calculation on the basis of IMF (2002))
1994 61,2 53,6
1995 57,6 42,8
1996 59,3 43,2
1997 57,7 39,5
1998 57,8 38,3
1999 60,0 42,7
(% of revenues) 2000 58,6 42,3
3,0 4,5 15,0 22,1 1,6
11,4 3,0 15,2 25,6 3,9
11,4 4,5 19,6 19,8 3,4
13,3 4,8 18,1 21,7 4,2
14,0 5,3 18,4 21,7 2,6
12,9 4,3 13,8 23,1 1,3
11,9 4,5 13,6 23,8 0,4
Table 2.41 Structure of expenditures of local governments in Slovenia 1990 General public services Health Social security and welfare Housing Culture Transport and telecom. Education Public order and safety
1991
1992
1993 34,7 1,5 3,3 16,9 8,2 5,2 23,0 1,5
(Sources: own calculation on the basis of IMF (2002))
1994 32,6 1,3 3,1 17,2 8,2 5,3 23,3 1,4
1995 14,0 1,3 3,4 23,3 11,1 6,8 33,4 1,4
1996 14,7 1,5 3,4 27,0 10,6 6,8 29,5 1,4
1997 15,2 1,6 3,9 25,7 10,2 9,2 26,3 1,8
1998 14,6 1,6 3,9 23,9 10,6 9,8 26,8 2,0
1999 14,1 1,7 3,8 23,8 10,9 11,0 25,0 2,0
(% of expenditures) 2000 14,3 1,8 3,9 24,3 10,0 11,2 24,1 1,9
I.R.E.F
Ec-94
Table 2.42 Size structure of municipalities in Slovenia in 1998 Number of inhabitants
Number of municipalities
Share from total number of municipalities
6 18 72 42 51 3 192
3.1 9.4 37.5 21.9 26.6 1.6 100.00
- 999 1 000 – 2 000 1001 – 5 000 5001 – 10 000 10 001 – 50 000 50 0001 – Total (Source: Horváth (2000) p. 415)
PIT CIT Social security Property VAT Excise tax Import duties Economic activity Inheritance and gift
Table 3.1 Defining Taxable Income National Regional CzHuPlSkSl CzHuPlSkSl CzHuPlSkSl CzHuPlSkSl CzHuPlSkSl CzHuPlSkSl CzHuPlSkSl CzHuPlSkSl CzHuPlSkSl
Proportion of the whole population in municipalities within the given range of population 0.2 1.4 12.7 14.2 49.2 22.3 100.00
Local
I.R.E.F
Ec-95
Table 3.2 Defining Tax Rates
PIT CIT Social security Property VAT Excise tax Import duties Economic activity Inheritance and gift
National CzHuPlSkSl CzHuPlSkSl CzHuPlSkSl CzHuPlSkSl CzHuPlSkSl CzHuPlSkSl CzHuPlSkSl CzHuPlSkSl CzHuPlSkSl
Regional
Local CzHuPlSkSl CzHuPlSkSl CzHuPlSkSl CzHuPlSkSl CzHuPlSkSl CzHuPlSkSl CzHuPlSkSl CzHuPlSkSl CzHuPlSkSl
Regional
Local CzHuPlSkSl CzHuPlSkSl CzHuPlSkSl CzHuPlSkSl CzHuPlSkSl CzHuPlSkSl CzHuPlSkSl CzHuPlSkSl CzHuPlSkSl
Table 3.3 Tax collection
PIT CIT Social security Property VAT Excise tax Import duties Economic activity Inheritance and gift
National CzHuPlSkSl CzHuPlSkSl CzHuPlSkSl CzHuPlSkSl CzHuPlSkSl CzHuPlSkSl CzHuPlSkSl CzHuPlSkSl CzHuPlSkSl
I.R.E.F
Ec-96
Table 3.4 Tax Litigation (Appeal) Administrative Court
Specialized Court
Ordinary Court x x x x x
Czech Republic Hungary Poland Slovakia Slovenia Table 3.5 Origin of revenue sources at local level CZ N N L L L N
Income taxes Social security Property tax Tax on goods and services Nontax revenues Grants
Czech Republic Hungary Poland Slovakia Slovenia
HU N N L L L N
Table 3.6 Audit of local budget National Regional Audit Office Auditor x x x x
Poland N N L L L N
Local Auditor
x
SK N N L L L N
SL N N L L L N
Independent Auditor x
I.R.E.F
Ec-97
Table 3.7 Fiscal Referendum
Czech Republic Hungary Poland Slovakia Slovenia
National No No
No
Regional -
Local No No Yes Yes No
I.R.E.F
Ec-98
Table 3.8 Structure of the budget
Czech Republic Hungary Poland Slovakia Slovenia
1990
1991
1992
18,4
23,8
26,9
11,3
1993 19,3 25,7
10,9
1994 20,9 26,2 16,9
1995 21,1 25,1 17,1
11,2
10,9
1996 23,4 25,2 20,2 8,2 11,4
1997 20,6 25,6 21,3 8,4 11,7
1998 20,9 25,8 21,5 7,9 11,6
1999 20,9 25,0 32,3 6,6 11,6
2000 21,8
1998 2 1 2 4 5 5 5 19
1999 2 1 2 4 5 5 5 19
2000 2 1 2 4 5 5 5 19
33,0 7,4 12,1
Table 3.9 Index of Fiscal Decentralization in the Czech Republic 1990 Structure of budget Structure of tax collection Fiscal legislation Budgetary autonomy Tax litigation Fiscal mobility Voting by feet IFD
1991
1992
1993 1 1 2 4 5 5 5 18
1994 2 1 2 4 5 5 5 19
1995 2 1 2 4 5 5 5 19
1996 2 1 2 4 5 5 5 19
1997 2 1 2 4 5 5 5 19
I.R.E.F
Ec-99
Table 3.10 Index of Fiscal Decentralization in Hungary
Structure of budget Structure of tax collection Fiscal legislation Budgetary autonomy Tax litigation Fiscal mobility Voting by feet IFD
1990 1 1 2 4 5 5 5 18
1991 2 1 2 4 5 5 5 19
1992 2 1 2 4 5 5 5 19
1993 2 1 2 4 5 5 5 19
1994 2 1 2 4 5 5 5 19
1995 2 1 2 4 5 5 5 19
1996 2 1 2 4 5 5 5 19
1997 2 1 2 4 5 5 5 19
1998 2 1 2 4 5 5 5 19
1999 2 1 2 4 5 5 5 19
2000 2 1 2 4 5 5 5 19
1997 2 1 3 4 5 5 5 20
1998 2 1 3 4 5 5 5 20
1999 2 1 3 4 5 5 5 20
2000 2 1 3 4 5 5 5 20
Table 3.11 Index of Fiscal Decentralization in Poland 1990 Structure of budget Structure of tax collection Fiscal legislation Budgetary autonomy Tax litigation Fiscal mobility Voting by feet IFD
1991
1992
1993
1994 1 1 3 4 5 5 5 19
1995 1 1 3 4 5 5 5 19
1996 2 1 3 4 5 5 5 20
I.R.E.F
Ec-100
Table 3.12 Index of Fiscal Decentralization in Slovakia 1990
1991
1992
1993
1994
1995
Structure of budget Structure of tax collection Fiscal legislation Budgetary autonomy Tax litigation Fiscal mobility Voting by feet IFD
1996 1 1 3 4 5 5 5 19
1997 1 1 3 4 5 5 5 19
1998 1 1 3 4 5 5 5 19
1999 1 1 3 4 5 5 5 19
2000 1 1 3 4 5 5 5 19
1997 1 1 2 4 5 5 5 18
1998 1 1 2 4 5 5 5 18
1999 1 1 2 4 5 5 5 18
2000 1 1 2 4 5 5 5 18
Table 3.13 Index of Fiscal Decentralization in Slovenia 1990 Structure of budget Structure of tax collection Fiscal legislation Budgetary autonomy Tax litigation Fiscal mobility Voting by feet IFD
1991
1992 1 1 2 4 5 5 5 18
1993 1 1 2 4 5 5 5 18
1994 1 1 2 4 5 5 5 18
1995 1 1 2 4 5 5 5 18
1996 1 1 2 4 5 5 5 18
