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Introduction: The Relevance and Conceptualisation of Local Finance Regulatory Regimes Read chapter Read first chapter

2021 | OriginalPaper | Chapter

Local Public Finance Regulation in Southeast Europe: A Comparison of Slovenia, Croatia and Serbia

Authors : Mihaela Bronić, Jelena Jerinić, Maja Klun, Katarina Ott, Iztok Rakar

Published in: Local Public Finance

Publisher: Springer International Publishing

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Abstract

Local public finance regulation differs among countries. The intention of this chapter is to compare current regulatory systems, uncover similarities and differences and provide some cautious explanations on developments. As example, three Southeast European countries—Slovenia, Croatia and Serbia—will be analysed. These countries share a similar history. However, their local public finance regulation developed in different directions, with different reform efforts and different budget constraints. This chapter investigates the regulatory regimes of local public finance, tries to explain the paths these three countries followed and examines the ensuing results. It starts with a description of local government structure and local government finance, followed by a comparison of fiscal rules and supervision. These three countries are still more similar than some of them would like to admit. This holds true especially when it comes to the availability of reliable statistical data, hesitation in substantially reforming their local government systems, simplifying financing and raising local government autonomy. Referring to local government public finance itself, Croatia and Slovenia have stricter regulations than Serbia, as EU accession served as a driver for the quality of fiscal governance.

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previous chapter European Patterns of Local Government Fiscal Regulation
next chapter The Impact of Fiscal Rules on the Financial Management of Municipalities: A Comparative Analysis of the Czech Republic and Slovakia
Footnotes
1
Local share of public revenue is 12% in Croatia, 14% in Serbia and 15% in Slovenia (NALAS 2018, 22).
 
2
The average Croatian municipality has 2700 inhabitants (ranging from 137 to over 16,000), average city 23,000 inhabitants (from 1500 to over 800,000), and average county 165,000 inhabitants (from 45,000 to around 450,000).
 
3
In spring 2019, based on the initiative of the President of the Republic of Slovenia, president of the National Council and presidents of municipal associations, an expert group was formed which delivered drafts of regional legislation (www.​pokrajine.​si).
 
4
For a complete list of municipal competences, see the Catalogue of Municipal Competences, available at http://​www.​lex-localis.​info/​TabView/​VsebinaTabs.​aspx?​SectionID=​c6c26383-9df0-4f89-8f05-67d774f72bab
 
5
Constitution of the Republic of Serbia, OG 98/06, Belgrade: Official Gazette. Available in English at: http://​www.​ustavni.​sud.​rs/​page/​view/​en-GB/​235-100028/​constitution
 
6
Local Self-Government Act (Serbian only – Zakon o lokalnoj samoupravi), OG 129/07, 83/14, 101/16, 47/18.
 
7
Act on the Capital (Serbian only - Zakon o glavnom gradu), OG 129/07, 83/14, 101/16, 27/19. Belgrade: Official Gazette.
 
8
Act on Local and Regional Self-Government (Croatian only), (OG 33/01, 60/01, 129/05, 109/07, 125/08, 36/09, 36/09, 150/11, 144/12, 19/13, 137/15, 123/17). Zagreb: Official Gazette.
 
9
In the early 2000s, these so-called decentralized functions were transferred to local governments, with 6% of personal income tax revenues earmarked for their implementation. Expenditures that cannot be covered by this 6% are funded from the national budget as earmarked grants and legislated annually in the bylaws of national line ministries. Thus, the amount of these earmarked grants depends on function-specific minimal standards determined by national bylaws (e.g. for primary education – number of pupils, classrooms and school buildings) (NALAS 2018).
 
10
Excluding the transfer tax (in the case of sale of property), gift and inheritance tax, which are both shared revenues of the local government.
 
11
According to the balanced budget rule, a local government’s budget must be balanced: total revenues and receipts must cover total expenditures and outlays. If, during the budget year, expenditures and outlays increase or revenues and receipts decrease, the budget must be balanced by identifying new revenues and receipts and/or reducing the budgeted expenditures and outlays. Thus, local governments normally plan balanced budgets, but at the end of the fiscal year, there is often a deficit or surplus. If they have ended the fiscal year with a deficit, local governments are obliged to include it in the next year’s budget proposal and projections for the following 2 years and also present how they plan to cover that deficit. Budget Act (Croatian only), OG 87/08, 136/12 and 15/15. Zagreb: Official Gazette.
 
12
It is applied to state budgets, local governments, extra-budgetary users of state and local budgets; legal persons that are in accordance with ESA 2010 classified within the general government budget sector; companies owned by the state or local governments; and other legal entities established by the state or local governments. The newest version of the Act, effective since 2019, is fully adjusted to the SGP and the so-called Six Pack acquis. It also prescribes that the Statement on Fiscal Responsibility must be submitted to the Ministry of Finance by March 31 of the current year for the previous year. By submitting the Statement, the heads of institutions confirm that they are responsible for the legal, earmarked and purposeful spending of resources and for the efficient and effective functioning of the internal control system within the framework defined by their budget (Act on Fiscal Responsibility (Croatian only), OG 111/18. Zagreb: Official Gazette).
 
13
Budget System Act (Serbian only – Zakon o budžetskom sistemu), OG 54/09, 73/10, 101/10, 101/11, 93/12, 62/13, 63/13, 108/13, 142/14, 68/15, 103/15, 99/16, 113/17, 95/18, 31/19, 72/19. Belgrade: Official Gazette. Although without publishing concrete data, the Serbian Government claims that, in sum, all local governments have balanced budgets and that in the past several years they have been in surplus (Ministry of Finance 2019, Fiscal Strategy for 2020 with projections for 2021 and 2011, pp. 27-28 - in Serbian only).
 
14
Local Self-Government Financing Act (Serbian only – Zakon o finansiranju lokalne samouprave), OG 62/06, 47/11, 93/12, 83/16, 104/16, 95/18. Belgrade: Official Gazette.
 
15
The amount of total annual debt service includes the average annual credit and loan service commitments and liabilities arising from issued securities and certain guarantees and approvals granted, as well as arrears from preceding years. For more, see Ott and Bronić (2016).
 
16
For more details, see, e.g. annual acts on the national budget execution and rules on the procedure for borrowing and issuing guarantees and granting approvals by units of local and regional self-government (Croatian only), OG 55/09 and 139/10. Zagreb: Official Gazette.
 
17
The 3% limit does not apply to (1) local governments which obtained approval from the national government by December 31, 2019, for borrowing not realized in that year; (2) local governments from specially supported areas; (3) for projects co-financed by EU funds; and (4) for energy efficiency projects (Act on the Execution of the 2020 National Budget of the Republic of Croatia (Croatian only), OG 117/19).
 
18
The draft amendment of FMA-1 envisages an increase to 9%.
 
19
Slovenia introduced the Treasury Single Account System in 2002. Its main objectives are to provide an effective overview on cash resources, reduce borrowing costs and ensure central state information.
 
20
The Ministry of Finance must publish annual reports on the internal controls of the users of the national and local governments’ budgets. It also requires local governments to appoint persons to deal with suspicions of irregularities and fraud.
 
21
State Audit Institution Act (Serbian only – Zakon o Državnoj revizorskoj instituciji), OG 101/05, 54/07, 36/10, 44/18), Belgrade: Official Gazette.
 
22
Public Debt Act (Serbian only – Zakon o javnom dugu), OG 61/05, 107/09, 78/11, 68/15, 95/18. Belgrade: Official Gazette.
 
23
Bankruptcy Act (Serbian only – Zakon o stečaju), OG 104/09, 99/11, 71/12, 83/14, 113/17, 44/18, 95/18, Belgrade: Official Gazette.
 
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Metadata
Title
Local Public Finance Regulation in Southeast Europe: A Comparison of Slovenia, Croatia and Serbia
Authors
Mihaela Bronić
Jelena Jerinić
Maja Klun
Katarina Ott
Iztok Rakar
Copyright Year
2021
Book
Local Public Finance

Print ISBN: 978-3-030-67465-6

Electronic ISBN: 978-3-030-67466-3

Copyright Year: 2021

DOI
https://doi.org/10.1007/978-3-030-67466-3_6