EKIP– Expert Club for Economics and Politics A Different Opinion
The lagging behind of most regions in the country compared to the major economic centers and the need for fiscal decentralization are topics that have been discussed for decades. Everyone knows that there is a problem and something needs to be done about it if we do not want Bulgaria to turn into a semi-desert with only a few major cities that concentrate almost the entire population of the country. Even economic development should not be an end in itself, but this does not mean that we should not address the real problem of the lagging behind of certain regions compared to others. In this article, I will briefly explain how fiscal decentralization would improve the situation of municipalities and in the long run could lead to a better social and economic environment throughout Bulgaria.
1. More financial resources for municipalities
The first and most obvious benefit of fiscal decentralization is that it would provide more own financial resources to municipalities. A brief review of the Ministry of Finance data on the financial situation of municipalities in Bulgaria shows that they suffer from a chronic shortage of their own financial resources. Capital transfers from the central government through the Republican Budget are a key source of financing, without which municipalities in the country, especially small ones, simply cannot function.
This dependence of local government on the central government is problematic for a number of reasons, but the biggest one is that it leads to poor local governance. In the first chapter of last year’s report on the urban planning policy of the Sofia Municipality, we explained in detail why excessive centralization leads to ineffective governance. It should be obvious that local government is always more capable of dealing with problems specific to its territory. After all, this is its main function. Local government has much more accurate and detailed information about the most pressing problems and needs of citizens in a particular region.
The problem is that it is unable to deal with these specific local problems if it does not have the necessary funding. Providing quality public services of any type, alas, requires money (socialists should take note). The municipalities themselves, of course, collect resources through local taxes, but they often turn out to be insufficient. Local taxes in our country are low, which is a good thing and it is not a good idea to change them – this is a competitive advantage of our country. What can be done is for part of the personal income tax or even corporate income tax that is collected to remain in the municipalities where it is actually collected.
2. More independence from the central government
Secondly, fiscal decentralization will make local government more independent from the national government. This is particularly important in order to avoid the pernicious influence of political dependence. The government is emanating from a certain political party (or parties), which, obviously, has certain political biases for this reason. A GERB government is far more likely to support municipalities where the municipal government is controlled by GERB representative(s) than those of the BSP, for example. The opposite is also true.
There is nothing strange or even reprehensible about this in itself. Politics is politics. But, as you can guess, party interests and biases can very often harm the interests of local communities. In a highly centralized country like Bulgaria, the central government can simply deny the resources that certain local authorities, which are controlled by the political opposition, need. And because political biases at the local level, especially when we are talking about smaller areas, often remain unchanged for a long time (sometimes for generations), certain areas can remain chronically underfunded.
The political dependence of the province on the central government is a very deep problem that leads to more corruption, nepotism and creates long-term structural economic problems. The current local elections are actually indicative in this regard. In the budget for the current 2019 year, the government included over 500 million leva for transfers to the municipalities. This marked a significant increase in the amount of transfers compared to previous years. Why did this happen? Because there are elections, of course, and through these transfers the government is, quite obviously, trying to "stimulate" loyalty among the municipal authorities and their electorate in order to win the local elections.
3. A more favorable social and economic environment
If the problems of financial resource shortage and excessive dependence on the central government are solved through fiscal decentralization, this will certainly lead to a better social and economic environment at the local level, and subsequently for the whole of Bulgaria. The most important effect of this reform is that it will lead to real competition between the different municipalities and districts in the country.
Initially, it is enough for even one municipality to take advantage of the new opportunities that fiscal decentralization provides. The moment this happens, it will automatically create pressure on the other municipalities and regions to also "break" their policies. Otherwise, the initiative region will gain a serious competitive advantage over all others and will begin to attract businesses and residents to itself, to the detriment of the rest of the country. The higher level of competition between municipalities will lead to an improvement in the quality of local policies in the long term and hence - an improvement in the economic development and quality of life of the entire country.
And of course, the most important and sought-after effect of this reform will be convergence in the economic and social development of the different regions in the country. The most serious structural imbalance in the Bulgarian economy is the huge lag of certain, mostly smaller, municipalities and districts behind the larger ones. The report on the economic development of small regional centers in the country, which we published a month ago, clearly shows that over the past decade, these small municipalities have lagged even further behind the average levels of economic and demographic development for the country.
Conclusion
Achieving convergence between cities like Silistra on the one hand and Plovdiv on the other goes first through fiscal decentralization. There is no other way. I deliberately do not mention Sofia in this comparison, because being the capital, it is a city that will always have an additional competitive advantage, which cannot be fully compensated. But the distance in the development of Sofia and the rest of Bulgaria can certainly be shortened. Fiscal decentralization is the most important step in this direction.
Finally, I would like to call on all candidates in the current local elections to raise this topic more actively. Politicians in parliament and central government are unlikely to voluntarily part with some of their power in order to make municipalities more independent. This will only happen if the municipalities themselves start actively and massively lobbying for fiscal decentralization.
