Local Budgets are Increasing However There are Many Reserves for Their Increase, Halyna Markovych

For the six months, local budgets have increased their revenues by UAH 22 billion, in comparison with the same period of the previous year. For the said period, UAH 87 billion was paid to the general fund of local budgets, which amount totals 53.6% of the annual volume of revenues approved by local councils. The highest annual performance of budgets is in Rivne (61.5%), Poltava (58.2%), Volynska (58.0%), Kyiv (58.0%), Chernivtsi (57.9%), and Ivano-Frankivsk (57.2%) Oblasts (Regions). In total, the percentage of completion in 12 Oblasts was higher than average performance in Ukraine.

Experts call the financial decentralisation as the major factor for increased revenues of local budgets. According to them, since 2015, exactly when the provisions of the financial decentralisation became effective, local budgets have been increasing from year to year.

 "Increased revenues have been secured with respect to all taxes. In addition, the fact that we see today the improved planning at the local level is a positive aspect of the financial decentralisation.  It means that we are slowly approaching the situation when actual plan indicators are determined at the local level rather than intentionally understated indicators so to be able to demonstrate an increase, as it was natural in the Soviet management system. Basically, we are currently dismantling that system by implementing the reform. Those local self-government bodies who are actively taking part in the reform have already clearly understood that the information about the actual financial resource allows it being efficiently allocated to the areas of activity, take into account the priorities to the maximum extent, which priorities are set forth in the territory development strategy, and draw up a budget for development needs", Halyna Markovych, Coordinator of the focus area "Local Budgets" of the Project Office for Sectoral Decentralisation explained.

Higher rates of growth in the revenues were shown by the budgets of amalgamated territorial communities (ATCs): + UAH 1.2 billion. The increase has totalled 143.1%. In terms of certain taxes, it is even higher: the increase of personal income tax collections totals 152.6%; flat-rate tax, 157.2%; excise tax for retail sales, 119.3%, land tax, 118.6%.

Halyna Markovych also noted the improvement of local expenditure pattern. According to her, there increased expenses related to the exercise of powers by local authorities.

"In the current year, expenses on housing and communal services, as well as roads increased almost by one third, in comparison with the previous year. The volume of capital expenditures increased. This year, the amount allocated for the development of local budgets is UAH 34 billion, whereas in the previous year that amount totalled UAH 19.9 billion," the expert informed. She also noted the increased government support for the development of regions. In 2017, it has totalled UAH 12.7 billion.

The expert emphasised that, notwithstanding such performance, local government authorities have a lot of reserves to attract additional revenues to local budgets. As an example, she mentioned the necessity of taking land inventory and carrying out the standard monetary valuation of land. That is the land tax base and the basis for setting the amount of rent, whereas the lack of it has an adverse effect on the revenues of local budgets.

"In the overwhelming majority of local councils, the land inventory has not been taken in full, and some of them did not take it at all. Whereas, the standard monetary valuation of land has been carried out with respect to 30-50% of agricultural land in average, which land is leased out," Halyna Markovych noted.

Among the reserves of attracting additional revenues to local budgets, the expert also mentioned the measures aimed at paying wages in a legitimate manner, the review of benefits provided by local government authorities, the establishment of an effective network of state-funded institutions, and the decrease of taxes payable. As of 1 May 2017, the amount of taxes payable to local budgets totalled UAH 6.6 billion, including personal income tax in the amount of UAH 1.2 billion, land tax in the amount of UAH 3.8 billion.

According to Halyna Markovych, at the local level, attention should be paid to the matters of optimum staffing level of the local council and its executive committee.

"The analysis of staffing level of management bodies in the amalgamated territorial communities showed that, when arranging the staffing table, the functional workload on the employees was not taken into account in all cases. As a result, in certain communities, up to 30% of budget revenues are allocated for payroll expenses of the management", the expert said.

As a separate matter, she mentioned zero tolerance to any violations of the fiscal discipline in using budget funds. According to the information of the State Audit Service of Ukraine, there were revealed violations in the amount of UAH 0.12 billion in the first quarter of this year.

According to the expert, the work on expansion of the taxation base, attracting additional revenues to local budgets, and optimisation of budget expenses under the conditions of complete independence in making decisions on budget resources allocation and responsibility for the decisions made will allow local authorities ensuring that any matters of their territories development are resolved in the future by an integrated approach

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