Local authorities shall be entitled, within national economic policy, to adequate financial resources of their own, of which they may dispose freely within the framework of their powers.
As in many other European countries, finances are perceived by local politicians as one of the most controversial aspects of the current situation. It should be stressed that the local finances system is homogeneous across the country. Therefore, there are no specificities or differences between regular municipalities and “cities”, or between small towns and large cities. The key piece of legislation in this field is the Act No. 564/2004 Coll., on budget determination of income tax yields to territorial self-government, the Act No. 582/2004, on local taxes and fees, amended several times, and the Act No. 583/2004, on budgetary rules of the local self-government. Fiscal decentralisation was deepened in 2005 and 2008. The main sources of local income are formed by exclusive local taxes and shared taxes, non-fiscal income and transfers. The main ideas underlying the system is that the original competencies of municipalities should be financed through “own revenue” (tax and non-tax revenue) while the tasks delegated by the State should be financed through transfers from the State budget.
In the domain of taxation, local authorities are entitled to the following taxes: a. Personal Income tax (PIT): this is the main source of funding for municipalities. According to data provided by the Ministry of Finance in 2014, the personal income tax amounts for 72.3% of total tax incomes; the real estate tax is accountable for 17.9% of said incomes and 9.8% comes from other own tax incomes. This State tax, regulated and collected at State level, but the national collection of this tax is mainly allocated to the regional and local governments. According to two memoranda of co-operation signed by the Government with ZMOS and SK8, the local and regional authorities receive the following percentages of the income tax collection: a. local authorities: 66-67% in 2014; 68.5% in 2015, and 70% in 2016; b. regions: 21.9 in 2014, 29.2% in 2015 and 30% in 2016. Therefore, in 2016 the whole national collection of the personal income tax will be granted to the regions and to local authorities. In addition, the system incorporates a formula allowing a certain degree of equalisation, because the actual amount of money that each municipality receives for this category is determined according to a complex formula that takes into account several variables and coefficients, such as the number of children under 15; the number of inhabitants of the municipality, the number senior residents who are older than 65, the altitude of the municipality, etc. b. Real estate tax: municipalities also collect the real estate tax and are entitled to 100% of the collection thereof. Tax rates are approved by the city council in the form of general binding bylaws, with due respect to applicable State tax legislation. c. Other local taxes are the lottery tax, the local tax on dogs, the tax on vending machines. d. Charges and fees: municipalities collect a number of different charges, such as the one for the municipal collection of waste, or for the use of municipal property.
Amongst the non-tax revenue: revenue from business, commercial activities, revenue from the ownership of property (sale of movable and immovable property); donations received; interests from deposits or other financial products; collection of traffic fines and other administrative offences; financial operations – the municipalities (like the self-governing regions) can ask for loans from the private sector and they can issue bonds. The prior approval of the Ministry of Finance is not required. However, municipalities and regions can only enter into these financial operations if they respect some ceilings or limits (see below).
Municipalities do receive transfers for the performance of delegated, State administration tasks. These transfers are earmarked transfers and are calculated by State agencies so as to cover, theoretically, the cost of discharging these delegated tasks. However, the rapporteurs received many complaints that the funds transferred do not cover adequately the provision of those services, especially in the domain of primary schools.
Municipalities may also benefit from the several EU funds established in the domain of urban development, rural development and other fields related to the municipal life. However, these revenues are in no way stable or periodic and depend on a large series of factor which mainly stand outside the municipalities reach.
The current overall situation of local finances was diagnosed in a contradictory way by the interlocutors met by the rapporteurs. For what concerns the local leaders, the situation was diagnosed as unsatisfactory in general, as far as the flexibility and sufficiency of financial resources is concerned. They claim that a great part of the money still comes from the State; that the system of local taxes is not satisfactory; that the total amount of disposable resources is not enough; and that the spending power of local authorities is still small as compared to the State. Small municipalities allegedly receive the minimum money for the functioning of their administrative apparatus, but Bratislava also complains. This aspect seems to be a permanent discussion in the Slovak political landscape. Some local leaders are not satisfied with the manner how funds are calculated, the system is considered not to be fair, and according to them there is not enough equalisation. According to the UMS, the formula of fiscal decentralisation should be changed because it is disadvantageous for small cities and towns.
In this sense, mention should be made to a study performed by the National Accounting Office in 2005. The NAO conducted audits in 100 municipalities, chosen according to previously established statistical selection criteria. At the end of this comprehensive survey, the NAO found that municipalities under 5,000 inhabitants could not really discharge their competencies and statutory responsibilities.
A different viewpoint is that of the central government. The relevant ministries claim that the current arrangement is fair and adequate for the country, which is suffering from the economic crisis. The Ministry of Finance considers that the level of financial autonomy of local authorities is satisfactory and that the principle of commensurability of local finances (as proclaimed by the Charter on local self-government and by art. 71 of the Slovak Constitution) is fully respected. Furthermore, the Ministry claims also that the amounts of transfers (to finance delegated tasks) have been sufficient over the last years. As an evidence of this assertion, it seems that in 2012-2014 the territorial self-governments showed a budget surplus or balanced budget. The crisis in 2008-2010 resulted in the decrease funds from the personal income tax and for that reason the Government granted an additional transfer to the municipalities of €100M in 2009 and €72.5M in 2010.
For what concerns the actual figures, the structure of revenues for municipalities can be broken down as follows for the years 2012, 2013 and 2014.
Independently from the official position of the Government, it is clear from the above table that, at least, the own revenues of municipalities have increased, while the state transfers have decreased. On the other hand, the fiscal decentralization has been deepened in the last years, something that can be understood to be right: during the last Congress monitoring visit on local democracy in 2001, local authorities spent some 7% of total government expenditures, while currently both local authorities and regions account for 18% of total government expenditures. However, it is true that the setting up of the regions has established a certain “cap” on the potential increase of financial autonomy of local authorities. Moreover, the said figure of 18% can be still considered to be low in the light of common practices in Europe.
In the domain of budgeting, all municipalities are free to draft and to approve their own budgets, but they must respect the budget structure established by the Law, which sets a unified legally binding system of budgetary classification. The local council is the competent authority to approve the budget. Local authorities are free to decide on what they spend their own revenues, and the Central government or other State authority cannot interfere with the municipalities budgetary autarchy. The Ministry of Finance respects the autonomy of municipalities and does not address binding instructions or guidelines to municipalities or to self-governing regions in the domain of budgeting.
However, the Law sets some specific limits or rules on the local public debt, such as: (a) loans which can only be used for capital purposes; (b) the total debt stock which cannot exceed 60% of the budget of the previous year; and (c) the annual debt payments which may not exceed 25% of the budget of the previous year. In the aftermath of the economic crisis, and in view to reduce the public deficit of local and regional authorities, some extraordinary measures and controls have been implemented on local/regional bodies as a consequence of the economic crisis: in accordance with the Constitutional Act No. 493/2011 Coll. on fiscal responsibility (Fiscal Responsibility Constitutional Act) and with the Law on Budgetary Responsibility of 1 March 2013, since 2016 these obligations or limits have been stringed, since the Act establishes a fine to the municipalities and self-governing regions in the event of exceeding the limit of debt (in December 31th 2015). During the consultation process, the Ministry of Finance informed the delegation that: “The government made an agreement (“Memorandum of Understanding") with local and regional authorities (ZMOS, SK8). The basic goal of memorandum was “consolidating public finances in order to bring the general government deficit below three per cent of GDP in 2013. Following the successful fulfilment of the Memorandum have been further discussions with territorial government authorities. The local and regional authorities negotiated an increasing their in the income of share from PIT as explained under para 76 (a, b, c) above.
Finally, and as far as municipal property is concerned, Slovak municipalities have their own property, goods and assets. The key piece of legislation in this field is the Act No. 138/1991, on the municipal property. In addition, the right to own land and real estate property is fully recognised to local authorities, and they manage them in a freeway.
In the light of the above, the Slovak Republic meets the basic standards enshrined in Art. 9 of the Charter.