Government rejects draft law on local public finances presented by parliamentary Opposition, while another bill is being examined by CE

The Government at its last meeting rejected a draft law on local public finances presented by the parliamentary opposition, while another bill with the same name is being inspected by the Council of Europe, Info-Prim Neo reports. According to the Deputy Minister of Finance Nina Lupan, the draft law put forward by a group of MPs, including Vladimir Filat, Zoia Jalba, Oleg Serebrian, Valentina Cusnir, Anatol Onceanu and others, does not contain the financial assessment that would indicate the results of the implementation of the law and the budget’s possibilities of offsetting the given impact. At the same time, she informed that the Ministry of Finance in cooperation with the local authorities and the relevant nongovernmental organizations worked out another bill on local public finances and submitted it to the Council of Europe for approval. Nina Lupan said that both of the projects aim to increase the independence and responsibility of the local public authorities when working out and autonomously managing the own resources and fixing constant norms of general state income defalcations for the budgets of the territorial administrative units of the first and second level. The bill drafted by the ministry will be submitted to the Parliament for adoption until the end of this year. The MPs will have the possibility of amending it. The cited source said that in March, the Ministry of Local Public Administration and the Ministry of Finance in partnership with the NGO Coalition for Fiscal Decentralization CASI Counterpart organized three broad debates on the new draft law on local public finances that were attended by representatives of local governments. Compared with the present situation, the bill establishes direct relations between the state budget and the local budgets of the second level (district budgets and the budgets of the municipalities of Chisinau and Balti and of UTA Gagauzia) as well as between the state budget and the local budgets of the first level, i.e. the budgets of the villages and towns. Currently, there are no direct relations between the state budget and the local budgets of the fist level and this makes the village and town authorities dependent on the percentage income defalcation norms set by the district budgets. Representatives of the local public authorities repeatedly said that these norms are not always justifiable and are sometimes influenced by subjective elements, the sympathies of the district authorities and not only. According to the Deputy Minister, it is very important to fix constant norms of income defalcations to the state budget by budget levels in the draft law and propose a transparent and fair mechanism for covering the differences in the financial capacities (for leveling up and balancing) by allocating general endowments from the state budget to the local budgets of the first and second level. These endowments would be calculated by formulas common to every budget level. The law says that special endowments will be allocated from the state budget to the local public authorities for fulfilling certain duties that will be fixed in the law on the state budget every year. At the first stage, the local authorities will be empowered to fully finance the education sector. In order to implement these stipulations, the bill empowers the Government with the right to create, as part of the state budget, a fund of up to 2% of the basic expenditure for covering the possible discrepancies (risks) related to the reformation of the system of interbudget relations. The fund will be used during the first two years of the implementation of the law. Nina Lupan describes the mechanism for covering the discrepancies proposed in the bill as interesting. The leveling up of the financial possibilities of the “disfavored” local budgets, i.e. those that have a reduced fiscal basis, will be up to 90% carried out according to the level of the average income that applies to the given group of budgets. For that reason, all the local budgets have been divided into six groups, according to the income per capita. Presently, the balancing of this group of budgets is carried out at the level of 100%. No general endowments will be allocated if the revenues of the local budgets exceed 90% of the average incomes per group, but are not larger than 120%. If the revenues make up 120% of the average incomes per group, the local authorities will transfer only 80% of the sum that exceeds the balancing level to the fund for supporting the local budgets (the defalcations in the present system make up 100% of the sum that exceeds 120%). According to the authors of the bill, this mechanism stimulates the local authorities to extend the fiscal basis and to develop the local businesses and contains also elements of solidarity. This means that the budgets with a larger fiscal basis will concede a part of the money to the budgets with insufficient fiscal basis. The Ministry of Finance assessed also the costs of leveling up the local budgets incurred by the state budget. If the new law was applied from 2008, the cost would be about 1 billion lei (this year). But the Ministry considers that the law on the local public finances could be implemented only from 2010, because the budget law for 2009 started to be drafted, while the bill on local public finances is yet to be finalized, after the final version is agreed with the local governments, national and foreign experts. “These consultations will still last, but we do everything possible for the bill to be passed through the Government and submitted to the Parliament by this yearend so that when the budget process for 2010 starts, the stipulations of the new law on local public finances could be taken into account,” the Deputy Minister of Finance Nina Lupan said.