Financing of local and regional self-government units in decentralized countries is of great importance, both for the development of the overall economy, as well as for the development of local and regional self- government units which carry out the logic of polycentric development. To satisfy this postulate it is necessary to find the optimal method of financing. Local and regional self-government units, in order to have the tasks performed, have to ensure revenues in their budgets which are proportional to expenditures, from their own sources, of shared (assigned) taxes and grants from state and, in the Republic of Croatia, county budgets.
1. The revenues of local and regional self-government units in the Republic of Hungary
The local self-government units accumulate funding for their responsibilities from their own revenues, assigned (shared) central taxes25, revenues received from other economic organizations, the normative contributions of the central budget as well as subsidies. The self-government's own revenues are local taxes as per point II.1.b) assessed and levied by the local authorities in compliance with the law; business income, income derived from charges,26 capital gains,27 privatization receipts,28 loans,29 other income.30
25
See point II.1.c). 26
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As explained in detail in the previous chapters, in economic terms the local self-government units are treated uniformly in the Republic of Hungary – except that the self-governments of the counties have no taxation rights – and therefore despite the municipal and county governments have varying tasks and powers, they do not differ in terms of assets and revenues, and the same set of uniform rules shall be applied for their financial management.
Local taxes provide taxation power and therefore autonomy to the local self-government,31 and essentially they could not be calculated to the wider range of state subsidies either. In contrast, the example of tax- ability test of the local governments could be mentioned that used to be previously in force in the Hungarian legislation, according to which the state determined the amount of subsidies provided for the local authorities by taking into account the taxing opportunities of the local authorities, irrespectively whether the total actual tax rate applied or not. Accordingly, the local authority which refused to levy the maximum rate of tax set forth by the legal provisions, received less subsidy with this not-levied and not-collected amount.
In accordance with the authorization of Act C of 1990 on Local Taxes under limits defined in the act, the representative body of the local government could introduce local tax regimes by a decree within its area of jurisdiction. The taxable subject is the real property and the related property rights, employment, and the temporary stay within the territory of the municipality as a not permanent resident, furthermore business activity. Actual tax liability may be established only by a municipal decree.
Within the right of taxation, the local government is entitled to introduce the statutory tax categories, to define the tax rates and the related
27
Dividends, interest, and foreign exchange gains. 28
E.g. real estate sales. 29
Financial institutions, bond floatation. 30
E.g. fines, donations, gifts. 31
Joining the European Union generated judicial harmonization obligations for Hungary even regarding local taxes, in order to avoid harmful competition as regulated by the Chapter of Competition. The Hungarian act on local taxes – being unique in Europe – provided wide powers for the local self-government units: they became entitled to decide upon the introduction and operation of the taypes of taxes that generate significant revenue. The tax rate of the levied tax as well as the specification of allowances are determined exclusively by the local government as well.
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benefits and exemptions, as well as to establish the detailed rules of local taxation. The municipality is entitled to reduce or dismiss the local tax imposed thereby due to reasons of equity, however, the regulation may be modified only for the benefit of the taxpayer: any amendment instituted during the year may not increase the tax obligations of taxpayers in the same calendar year. The tax rate may be defined with due consideration of local characteristics, the financial requirements of the local government and the capacity of taxpayers, in observation of the upper limits prescribed by the act.32 The local self-governments may provide exclusively such allowances and exemptions for the undertakings, for which the act specifically authorizes them. In respect of any particular tax category, taxpayers may only be obliged to pay one type of tax.33
2. Revenue of local and regional self-government units in the Republic of Croatia
Revenue of local and regional self-government units:
- income from movable and immovable objects in their possession;
- income from companies and other legal entities in their ownership and revenue from concessions granted by local self- government units;
- revenue from the sale of movable and immovable objects in their possession;
- gifts, inheritances and legacies;
- municipal, town and county taxes and fees and duties, whose rates, within the limits specified by law, are determined independently;
- government assistance and grants provided by the state budget or a special law;
32
According to a research done between 2002 and 2007 based on approximately 2,500 pieces of eight-page-questionnaires, raising the rates of local taxes (unlike for example the increase of the excise tax burden) is rejected by the groups of society in Hungary. See C. Szilovics, Adózási ismeretek és adózói vélemények Magyarországon (2002-2007) [Taxation Knowledge and the Opinion of the Taxpayers in Hungary (2002-2007)] (Pécs, G&G Kiadó 2009)
33
V. Srb and R. Perić, Javne financije-knjiga I [Public Finance – Volume 1] (Osijek, University J. J. Stossmayera Faculty of Law in Osijek 2004) p. 91.
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- compensation from the state budget for performing services of the state administration, which were conveyed to them;
- other revenue determined by law.
The Law on Financing of Local and Regional Self-Government Units determines the resources of funds and financing services from the scope of the counties, municipalities and cities.
a) County revenue
- Revenue from the own property of the local self-government:
o income from movable and immovable objects in the possession of the county,
o income from companies and other entities owned by the county, o revenue from the sale of movable and immovable objects in the
possession of the county, o gifts, inheritances and legacies. - County taxes (see point II.2.b).
- Fines and confiscated assets for the offenses that are prescribed by the county itself.
- Other revenue determined by special law.
b) Municipal and town revenue
- Revenue from own property:
o income from movable and immovable objects in the possession of the municipality or town,
o income from companies and other entities owned by the municipality or town,
o revenue from concessions granted by local self-government units, o revenue from the sale of movable and immovable objects in the
possession of the municipality or town, o gifts, inheritances and legacies. - Municipal and town taxes (see point II.2.c)
- Fines and confiscated assets for the offenses that are prescribed by the municipality or town themselves.
- Administrative fees in accordance with a special law. - Residence fees in accordance with a special law.
- Utility charges for the use of municipal or city facilities and institutions. - Utility charges for the use of public or municipal urban areas.
- Other revenue determined by special law.
3. Concluding remarks
The local self-governments of two countries have similar income structure; they manage their finances from the same sources and cover the obligatory and optional functions specified in Chapter III above with
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similar types of funds. The types of income are the same, the self- governments provide the funds covering their budgetary expenses from their own revenues, assigned (shared) central taxes, furthermore different grants and subsidies received from the central budget.