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.
The principle behind Article 9 of the Charter is that the legal authority to perform certain functions is meaningless if local authorities are deprived of the financial resources to carry them out.1 Legal authority for own financial resources in Croatia is provided by the Constitution of Croatia under Article 138 which states that units of local and regional self-government are entitled to their own revenues, proportional to their powers, and to dispose of them freely in the performance of their tasks; the Law on Local and Regional Self-Government repeats this in Article 68; the Law on Financing of Local and Regional Self-Government Units of 2008 regulates local finances and budgets, and the Budget Act of 2008 which inter alia regulates the 3 year budget plan of adoption for one year and projection for the next two years, at both the state and local unit levels. The Act on the Amendments to the Budget Act then defines more precisely the goals and priorities of the development of local units.
Self-government responsibilities that have to be financed derive from Article 135 of the Constitution as well as from the Law of Croatia on Local and Regional Self-Government of 2001, of which Article 19 defines the following as competences of a town and municipality: Organisation of settlements and housing, Town and urban planning, Utility services, Child-care, Social welfare, Primary health protection, Education and primary-school education, Culture, physical culture and sports, Consumer protection, Protection and improvement of natural environment, Fire-protection and civil defence.
Article 19a (2005) prescribes that large towns in addition to town and municipality performs also: Maintenance of public roads Issuing construction and location permits and other acts related to construction and spatial planning
The following are competences of regional self-government bodies: Education, Medical care, Town and urban planning, Economic development, Traffic and traffic infrastructure, Planning and development of the network of educational, medical, social and cultural institutions Maintenance of public roads Issuing construction and location permits and other acts related to construction and spatial planning.
The sources of funding of local and regional self-government budgets include grants; shared taxes including personal income tax (PIT) and tax on real estate transactions; revenue from property sales and leases; own taxes, fees and other charges, borrowing receipts and other revenues. For the Charter these sources must not only be adequate for the tasks above, and in particular in relation to functions that have been specifically assigned to the local authority.
In relation to Article 9.3, the Law on Financing of Local and Regional Self-Government Units defines the following types of local revenues: local tax revenues and dues, shared taxes, central government grants and revenues operable by own property. The following are local tax revenues of the regional level: The inheritance and gifts tax The road motor vehicle taxâ€¨ The vessels taxâ€¨ The coin operated machines for games for amusement tax
Local tax revenues of municipalities and towns consist of the following taxes: Surtax on personal income taxâ€¨(PIT) Consumption tax Second [vacation] home tax Trade name tax Tax on usage of public land
The rates for the taxes are fixed by the organic Law on Financing of Local and Regional Self-Government Units. Surtax on PIT is also ranked according to the size of a local authority. For municipalities it forms a maximum of 10 % and for the City of Zagreb it forms a maximum of 18 % (previously 30%).
In addition to taxes, municipalities and towns are authorized to collect duties, which include: Fines and confiscated pecuniary gains for offences prescribed by local regulations Administrative charges Sojourn charges (hotel tax) Municipal economy fees, contributions and other charges as defined by the domestic legislation Fees for the use of public, municipal or city land
The Croatian public finance system makes use of the institute of shared revenues, which consists of two segments – shared fees and charges and shared tax. Shared fees include: a. fee on the use of mineral and thermal water resources, one half of which is directed to the local budget and the other half to the central budget; b. fee on the use of drinking water resource, 30% of which goes to the local and 70% to the central budget.
Shared tax includes income tax and property transfer tax. 80% of the property transfer tax is retained at the first level of self-government (town, municipality) and 20 % goes to the central budget. As regards personal income tax (PIT), the following system of allocation is in operation: 60 % of personal income tax is retained at the first level of self-government (municipality and town) 16.5% is retained at the second level of self-government (county) 6% of which is designated for the delegated functions 16 % is used for the equalisation fund for delegation competences 1.5% is used for the EU project co-financing fund.
The redistribution of the 6 % earmarked for fulfilling the delegated functions is also clearly specified in the law and has to be spent on the following: Elementary education Secondary education Welfare centres Homes for the elderly and infirm Health care Fire services:â€¨Public fire departments
Accordingly, the largest recipient of personal income tax, owing to its status both as a self-governing local unit and a county, is the City of Zagreb. The smallest recipients of income tax are counties however they gain a larger part from the fund financing the delegated functions, as the most of these functions are fulfilled by counties.
On Article 9 paragraph 1 it is clear that, within the national economic policy, self-government units (hereafter local authorities) do have financial resources of their own and these are enumerated above. The question then arises as to whether these financial resources may be considered adequate so that local authorities are free to determine their expenditure priorities.2
2See the Explanatory Report on the European Charter of Local Self-Government.