The Government's decision to raise the revenues allotted to the local budgets from the state budget will cover, in the short term the revenue voids triggered by the enforcement of the flat tax, but will consolidate local autonomy in the long term.
When more and bigger salaries are out in the open, and the taxation base will increase, town halls and local boards will see their total revenues go up 30%, from the income tax alone.
In the first month of the year, some mayors issued gloomy forecasts, because of the introduction of the flat tax: hospitals will be left with no money for pharmaceuticals, there will be no more money for investments, the schools will be harmed. The income tax cut to 16% has mainly eaten into local budget revenues.
Thus, the authorities have hurriedly done now what should have been done ever since the flat tax was introduced: the funds obtained from the income tax and transferred from the state budget to the local budgets will go up from 63% to 82%, as the Government decided at the end of last week, in an Emergency Ordinance.
This way, town halls will receive 47% of the taxes paid by those operating in the respective areas, instead of the previous 26%, whereas the county budgets will absorb 13% of the collected taxes, up from the previous level of ten percent.
And, since time is running out, the decision will enter effect in February - five days after the month is over the money will be transferred to the accounts of local authorities.
The tax increases applied in order to balance the budget (double taxes for small enterprises, the increase to 10% of taxes on gains derived from stocks, the introduction of taxes on real estate transactions operated by natural persons) only bring revenues to the state budget.
Consequently, the adjustment was the second move that the Government had to make in order to fill the voids created in the budget by the flat tax. This is good news for the over 20 town halls that had issued bonds worth more than 1,000 billion ROL (25 million euros) and the measure is in line with the requests of several city mayors (Timisoara for instance) who had asked that a bigger part of the collected taxes should remain with the local budgets.
In line with the 2005 budget draft, the transfer to the local budgets from the income tax is 1.8 billion euros, while 3.2 billion euros from VAT will also head for the local budgets.
In the first eleven months of last year, the revenues of local budgets totalled 3.5 billion euros, with 2.6 billion euros coming from the state budget (from the income tax and VAT).
In the long run, this substantial increase will trigger a growth in revenues. The quotas are smaller now, but, as soon as they bounce back to their old levels (due to a broader taxation base), the local authorities will have much more money to operate with.
On the other hand, this will lead to bigger gaps between the strong urban areas and the poorer rural areas. sorin.pislaru@zf.ro
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