PERSPECTIVES OF LOCAL GOVERNMENT PROVISION AND FINANCING OF DECENTRALIZED SERVICES IN CROATIA

1. PERSPECTIVES OF LOCAL GOVERNMENTPROVISION AND FINANCING OF DECENTRALIZEDSERVICES IN CROATIA Vojko Obersnel, M.Sc. President of the Association of Croatian Cities

2. EUROPEAN CHARTER OF LOCAL SELF-GOVERNMENT – The Croatian Parliament in 1992 adopted the Decision on acceptance and compliance with the principles and the institute of the European Charter of Local Self-government, implemented only since 1 January 1998 Croatia is considered bound by the following provisions (paragraphs) of the Charter: Constitutional and legal foundation for local self-government Concept of local self-government Scope of local self-government (sub-paragraphs 1,2 and 4) Protection of local authority boundaries Appropriate administrative structures and resources for the tasks of local authorities Conditions under which responsibilities at local level are exercised Administrative supervision of local authorities' activities (sub-paragraphs 1 and 2) Financial resources of local authorities (sub-paragraphs 1,2 and 3) Local authorities’ right to associate (sub-paragraphs 1 and 3) Legal protection of local self-government

3. LOCAL AND REGIONAL GOVERNMENT SYSTEM IN CROATIA No. of counties - 20 + City of Zagreb No. of cities -123 + City of Zagreb No. of municipalities – 426 Association of Cities and Municipalities: Organization of cities Organization of municipalities CROATIAN UNION OF COUNTIES

4. ASSOCIATION OF CITIESAND MUNICIPALITIES projects and programs activities proposals of amendments to Laws cooperation with USAID cooperation with EU cities

5. ACHIEVED LEVEL OF DECENTRALIZATION IN CROATIA primary and secondary schools, health care, social welfare, culture LARGE CITIES AND COUNTIES in the New Law: transport in their area maintenance of public roads, issuing construction and location permits, other by-laws regarding construction

6. CITIES AND TAXES CITY OR MUNICIPAL TAXES INCOME TAX SURTAX CONSUMPTION TAX TAX ON VACATION HOMES TAX ON COMPANY OR NAME TAX ON THE USE OF PUBLIC SURFACES TAX ON IDLE LANDS TAX ON UNUSED ENTERPRENEURIAL REAL PROPERTY TAX ON VACATION PLOTS SHARED TAXES PROFIT TAX INCOME TAX CAPITAL TRANSFER TAX

7. INCOME AND PROFIT TAX 80 68 69 70 57 53 60 50 38 34 state 40 28 28 county 30 city/municipality 20 9 9 4 10 3 0 2003 2004 2003 2004 Income tax and surtax Profit tax Distribution of realized income tax and surtax and profit tax by level of public authority Source: Drezgić Saša, M.Sc., Faculty of Economics Rijeka Data: Ministry of Finance

8. GDP PER COUNTIES IN 2003 Note: for calculation of GDP per capita the average foreign currency rate in 2003 was used; HR/EUR – 7.56

9. GDP PER COUNTIES IN 2003

10. TOTAL REVENUE Structure of generated revenue of the state, county and city/municipal budget Source: Drezgić Saša, M.Sc., Faculty of Economics Rijeka Data: Ministry of Finance, Tax Administration

11. TOTAL REVENUE 22% 4% 74% State budget total revenue County budget total revenue City/municipality budget total revenue

12. Structure of public expenditures Structure of public expenditures of European unitary economies Source: Drezgić Saša, M.Sc., Faculty of Economics Rijeka; Data: IMF (2002), Government Finance Statistics

13. INDEBTEDNESS OF GENERAL GOVERNMENT SITUATION WITH DEBT OF THE GENERAL GOVERNMENT – without granted guarantees as at 31 October 2005 Source: Ministry of Finance, NBS for GDP

14. FISCAL CAPACITY OF CITIES Comparison of total expenditures of the Croatian local public sector in 2001 Source: Drezgić Saša, M.Sc., Faculty of Economics, Rijeka Data: Ministry of Finance

15. FISCAL DECENTRALIZATION increase in own tax revenues non-tax revenues – in part used as earmarked revenue, and in part for other activities from the self-government scope borrowing – the level of borrowing to be adjusted to the value of local unit’s assets, i.e. budget capacity not to set up new units of local government without ensured resources

16. ANALYSIS OF FUNCTIONAL RESPONSIBILITIES OF LOCAL GOVERNMENT AND RECOMMENDATIONS FOR FURTHER DECENTRALIZATION (1) From the standpoint of local government: current division of functions is not in compliance with the principle of subsidiarity some of the basic functional responsibilities prescribed by laws are not appropriately implemented specific discrepancies and inconsistencies exist, as well as a high level of imbalance of current legislation

17. ANALYSIS OF FUNCTIONAL RESPONSIBILITIES OF LOCAL GOVERNMENT AND RECOMMENDATIONS FOR FURTHER DECENTRALIZATION(2) CONCLUSIONS: further transfer of competences for primary schools to cities and large municipalities transfer of competences of social welfare centers to large and medium-size cities transfer of concessions for agricultural land to all units of local government transfer of competences for roads to large and medium-size cities transfer of the tasks of issuing operating permits for hospitality industry enhancing the level of adjustment and coordination between the local government and service providers in health-care and social welfare introducing more equitable distribution of shared profit tax so it is shared to areas where profit was actually generated introducing a real “Equalization Fund”

18. FINAL CONSIDERATIONS • Inadequate level of decentralization • Ratification of other provisions of the European Charter of Local Self-government • There is no developed and strong local government without fiscal decentralization as a precondition for the decentralization of functions • Need to adopt the Law on Local Civil Servants and Employees • Need to set up a Local Government Academy • Direct election of leaders of units of local and regional government