Ministry of Finance completes formulation of bill on local public finances

The Ministry of Finance has finalised the drafting of a new bill on local public finances and posted it on its website www.minfin.md for public debates. The civil society can submit proposals on the bill until February 6, 2008, Info-Prim Neo reports. Recently, Minister of Finance Mihai Pop said that the law would take effect only one year after adoption as a number of normative documents for putting it into practice must be worked out and the public functionaries familiarised with the new legislative framework. The date when the law should be implemented aroused controversy between the authorities and experts of the Institute for Development and Social Initiative (IDIS) “Viitorul” that took part in the formulation of the bill. The experts consider that the authorities postponed the approval of the law for too long, during the 17 years of independence, while many of the former Soviet countries implemented the reform of local public finances immediately after the collapse of the Soviet Union. Analysing the impact, IDIS “Viitorul” says that the present system of local finances is unbalanced and inefficient and works under exceptions and discretionary allocations. The present law on local public finances approved in 2003 deprived the local authorities of first level (the mayor’s offices) of the most important source of incomes, except taxes, the experts said. The other incomes transferred to the local budgets represent the product of “informal” talks between mayor’s offices and district administrations. Experts of IDIS “Viitorul” say that the mayor’s offices should levy 70% of the income tax paid by individuals and 100% of the tax on real estate and transfer them to the local budgets. The municipal budgets should include the entire income taxes, taxes on real estate and private taxes collected, plus 10% of the volume of VAT collections. Under such circumstances, the local public authorities should collect the taxes by themselves and form their budgets, while the money from the state budget would be used only to finance the national defence, education, maintenance of public order, public services. Experts of IDIS “Viitorul” propose an optimist scenario under which the mayor’s offices would have guaranteed incomes in the near future. The poor should receive funds by clear mechanisms and calculate them independently. They should have non-fiscal incomes that they can use as they want as this would stimulate them to increase them so as to have stable profits in the future and be able to plan the yearly and investment budgets. This will enable them to become reliable players on the capital market, to take out loans, to learn how to manage the available resources and, consequently, to attract European funds for local investments. According to the executive director of IDIS “Viitorul” Igor Munteanu, if the problem of local public finances is not solved in the way proposed by the experts, Moldova could compromise the legislative initiatives regarding the administrative decentralisation and the local public administration adopted in 2006 as well as other macroeconomic reforms that will be adopted. In the absence of a new system of local finances, these laws will not change much the situation of the local authorities in Moldova and this will make the mayor’s offices be more dependent on occasional subsidies transferred according to political criteria.