Financial Independence Report.pdf

Strengthening the financial independence of local and regional governments in Slovakia requires policy analysis and recommendations. The Council of Europe's Centre of Expertise for Good Governance, in cooperation with the Slovak NGO MESA10, has produced a report with proposals for increasing revenue autonomy.

Key Findings:

Local governments in Slovakia have limited financial independence, with a high dependence on central government transfers.
The current revenue structure is characterized by a low share of own-source revenue, with a dominant role of shared taxes and grants.
The report proposes increasing the taxing power of sub-central governments, introducing new local taxes, and improving revenue sharing and equalization mechanisms.

Proposals:

Introduce a local business tax, similar to those in other European countries.
Implement a motor vehicle tax, with estimated revenues of €20-30 million.
Increase the share of personal income tax (PIT) allocated to local governments, with a proposed allocation criteria.
Improve the equalization system to reduce disparities in revenue capacity between municipalities.

Revenue Options:

Own-source revenue: increase the share of local taxes, such as property tax, and introduce new taxes, like the local business tax.
Revenue sharing: improve the allocation of shared taxes, such as PIT, and introduce a more transparent and predictable system.
Grants and transfers: reduce the dependence on central government transfers and introduce a more conditional and performance-based system.

Conclusions and Recommendations:

Increase revenue autonomy for local and regional governments to improve accountability and responsiveness to local needs.
Implement a more diverse and stable revenue structure, with a mix of own-source revenue, revenue sharing, and grants.
Improve the equalization system to reduce disparities in revenue capacity between municipalities.
Monitor and evaluate the impact of fiscal decentralization reforms on local government finances and service delivery.