How Much Would Each Municipality Receive in Case of Fiscal Decentralization?
During the presentation of "Regional Profiles 2017", the IME proposed the redirection of 1/5 of income taxation revenues to municipalities. This is a proposal that the IME has also put forward in previous periods, a detailed version of which is available in the article „Fiscal Policy and Regional Development: Recommendations for Changes in Income Taxation” (2014). At the beginning of this year, we also pointed the attention at the trend of rising local taxes - "Municipalities Will Continue Raising Taxes Unless We Change the Model " (2017).
IME's proposal is that income taxes should continue to be collected in the same way - by the NRA, which will afterwards automatically transfer 1/5 of the proceeds to municipalities following the principle "money follows the ID card" – i.e. revenues end up where the person is registered. Our calculations indicate that this resource would amount to BGN 634 million in 2018, which means almost doubling the tax revenues of municipalities. This reform would greatly improve the state of municipal budgets, creating opportunities for both repayment of debts and new capital expenditures. There will also create incentives for local authorities to work for more investment, higher employment and wages.
The map below shoes how these BGN 634 million would be allocated to individual municipalities. IME’s calculations are based on the number of employees and wage levels in each municipality, with only two municipalities missing. Such an account is most likely made at the NRA but is not currently publicly available. The overall conclusion is that all municipalities would benefit from the reform, while those who concentrate more economic activity (higher employment and higher wages) will get a resource that would make them much more independent than the central government.
By how much would the budget of Bulgarian municipalities increase if they receive 1/5 of income tax revenues? (2018 projection, BGN)
Source: NSI, IME calculations