Experts and central authorities continue to debate Law on local public finances

Experts and central authorities continue to debate the Law on local public finances amid failing attempts to convince the Ministry of Finances that the richer mayoralties should be left a higher share of the supplementary revenue. The experts of IDIS “Viitorul” who were included in the working group for drawing up the new draft of the Law plead for a version which would help the poor administrations to have a better situation, and the rich ones to develop. Economist Veaceslav Ionita told Info-Prim Neo on the occasion of a new round of debates, which took place on Wednesday, July 4, that together with his colleagues the organisation accepts in general terms the project of the Ministry of Finances, which is almost entirely similar to that proposed by IDIS, considering that other things necessary for the well-functioning of the local communities could be implemented later, after the law comes into force. Ionita says that in the case of State Budget transfers to the local communities, the experts propose to calculate only the tax on individual income and the property tax. At the same time, MF insists that the rest of the taxes should also be taken into consideration. In this case, the expert says, a settlement with tax revenue of MDL 500 thousand and which needs the same volume of expenses does not receive transfers. If another settlement has supplementary revenue besides tax income of MDL 500 thousand, than the state wants to take almost all the money. In this way, the state does not stimulate at all the mayors to lease anything. It is suggested that the local budgets get financing from the State Budget only by means of a Fund for the financial support of the territories, which would total MDL 400 mln. Half of the sum should be allotted from the State Budget, and the rest – collected from the richer local budgets to support the poorer. The expert is convinced that if this law works, the local authorities will have supplementary tax income of about MDL 1.4 bln. Worked out 5 years ago, the draft’s adoption is obviously delayed. However, Ionita considers that the law could pass first reading by the end of the current parliamentary session, and second reading – in the fall of 2007. “We consider that we have sufficiently postponed the approval of the law for 17 years of independence, while the countries of the former soviet space carried out the reform of public finances immediately after the soviet system collapsed. According to an impact analysis conducted by IDIS “Viitorul”, the present system of local finances is out of balance and inefficient, working by means of exceptions and discretionary transfers. The present law of public finances (passed in 2003) had, according the cited source, the doubtful merit to take away from the authorities of first level (mayoralties) the most important income sources, excepting taxes. The local authorities of first level (896 mayoralties), which represent over MDL 2.5 mln citizens, freely administrate only MDL 34 mln annually, which is a sum considered minute for the development of the settlements. Although officially the local authorities in Moldova have available about MDL 4.2 bln – the amount of all the local budgets of first and second level, those about 900 mayoralties, are responsible of administrating the sum of MDL 267 mln, of which only MDL 76 mln remain for the settlement of community’s most important problems (roadways, sewerage system, tap water, heating, territory beautification, waste disposal), which is a very small sum compared with the necessities. In light of this situation, the draft law stipulates that all the mayoralties shall collect in the local budgets 70% of the tax on individual income, 100% of the tax on real estate. In the case of the municipal budgets – income tax, tax on real estate and the private tax shall be collected at 100%, plus 10% of the volume of TAV accumulations. 30% of the tax on individual income, 100% of the private tax and 10% of the TAV accumulations shall be collected in the raion budgets.