Although the Estonian government plans to increase local government financing by 2020, giving local authorities more money alone will not solve the problems of some municipalities, finds a newly published report.
Giving local authorities more money alone will not solve the problems of municipalities whose financial opportunities are significantly weaker than those of other, Estonia's National Audit Office says in its newly published report.
Local governments have little influence on their incomes, as 83 percent of their revenue is decided by the state. Although money is allocated to local authorities on a uniform basis, its actual distribution is uneven, the report says.
Owing to the money distribution principles, 37 municipalities, or 17 percent of the total, enjoy above average basic income per resident while the basic income per resident of 176 municipalities is below average. Expenditures per resident of local governments with an above average basic income are at the same time nearly a fifth larger than those of the rest.
The report indicates that with continued use of the current local government financing model, existing capability gaps among self-governments could carry over into the post-administrative reform situation.
Redistribution of money through the budget equalization fund does not reasonably even out imbalances as the calculations are based on local authorities' expenses at the turn of the century and do not take into account regional specifics and investment needs, the audit office observes.
The audit office believes that a partial reform of the distribution of local governments' principal revenue source — personal income tax — which has been under discussion in the Ministry of Finance as well, might have a stronger impact on creating more equal opportunities.
Although the state is supposed to compensate local governments for the expenses connected with performing state functions, this is not always the case, which affects the performance of local authorities' other functions. The Estonian government and the Riigikogu have not yet decided exactly which tasks will be laid on local governments and how they will be funded in the future.
The audit showed that most local governments are not satisfied with the ongoing funding negotiations between the state and representatives of local governments.
Editor: Aili Vahtla