4th Congress on Financing Infrastructure, Municipalities and Local Authorities in Central, Eastern and South-Eastern European and Mediterranean Countries, Russia, the Caucuses and the CIS
Istanbul, 13-14 February 2007
Statement by Mr Yavuz MILDON, President of the Chamber of Regions of the Congress
The question of the financing of local authority infrastructure and local finance in general is a focus of public debate in all the countries of Europe and beyond.
No government, no parliament and no other authority is in a position to dispense with such a debate. It is a debate in which our citizens expect us to provide convincing responses, on which we must expect to be judged. For it is on the quality of local infrastructure and the public services provided that our citizens judge not only the quality of our governance, but also the value of our democracy. We stressed this point in Moscow last November when the Congress of Local and Regional Authorities of Europe adopted an opinion on a preliminary draft recommendation of the Committee of Ministers on local and regional public services.
Like human rights, democracy and decentralisation have a cost. But it is a cost inherent in our choice of society. Local and regional democracy also has a cost, therefore, but that is a distinctive and necessary feature of our civilisation.
At the same time, as regards both public finance and the conduct of local affairs, citizens expect their elected representatives to make the best possible use of the resources for which they are responsible, be they own or shared resources or grants.
The Congress – which I am representing here – is very committed to finding appropriate solutions in the area of local finance and the proper use of local funds. It has repeatedly addressed this issue in its work. It is not alone. Within the Council of Europe, the Committee of Ministers, via its Steering Committee for Local and Regional Democracy and the newly created Centre of Expertise for Local Government Reform, has made a major contribution to the setting of appropriate standards and practices at European level.
I should like to refer to a number of instruments which are indispensable not only for the experts, but for all practitioners, elected representatives and decision makers at all levels of government.
Before that, however, I should like to pay a vibrant tribute to DEXIA for its outstanding study of local and regional public finance in the European Union, published in November 2006 on the basis of sound and very useful data collected and processed by Eurostat. This study is on every Congress member’s bedside table. It shows in particular that sub-national public expenditure has been increasing steadily for years within the European Union, in relation to extended responsibilities transferred by central administrations and a growing demand in local utilities and services. In 2005, sub-national public expenditure totalled 2,726 billion euros, the equivalent of 15.9% of European GNP. Sub-national authorities are strengthening their position as leaders in public investment: with 176 billion euros invested in 2005, they were responsible for two-thirds of all public capital expenditure. Taxation represents an increasing share of the total income of sub-national authorities, particularly as a result of fiscal reforms transferring taxes or replacing state grants. The financial fundamentals of the sub-national sector are sound: debt and deficit remain under control, thanks in particular to improved joint monitoring by the different tiers of government and a tightening of prudential rules.
I believe that these conclusions could easily be applied to Europe as a whole.
After this brief diversion, I should like to return to my subject: the Council of Europe instruments in the field of local and regional finance, which are our common heritage.
First of all, I should like to quote the provisions of the Charter of Local Self-Government itself, which is one of the basic Council of Europe conventions. Article 9 of this Charter, on the financial resources of local authorities, provides as follows:
1 Local authorities shall be entitled, within national economic policy, to adequate financial resources of their own, of which they may dispose freely within the framework of their powers.
2 Local authorities’ financial resources shall be commensurate with the responsibilities provided for by the Constitution and the law.
3 Part at least of the financial resources of local authorities shall derive from local taxes and charges of which, within the limits of statute, they have the power to determine the rate.
4 The financial systems on which resources available to local authorities are based shall be of a sufficiently diversified and buoyant nature to enable them to keep pace as far as practically possible with the real evolution of the cost of carrying out their tasks.
5 The protection of financially weaker local authorities calls for the institution of financial equalisation procedures or equivalent measures which are designed to correct the effects of the unequal distribution of potential sources of finance and of the financial burden they must support. Such procedures and measures shall not diminish the discretion local authorities may exercise within their own sphere of responsibility.
6 Local authorities shall be consulted, in an appropriate manner, on the way in which redistributed resources are to be allocated to them.
7 As far as possible, grants to local authorities shall not be earmarked for the financing of specific projects. The provision of grants shall not remove the basic freedom of local authorities to exercise policy discretion within their own jurisdiction.
8 For the purpose of borrowing for capital investment, local authorities shall have access to the national capital market within the limits of the law.
This article, together with Congress Recommendation 79 (2000) on “the financial resources of local authorities in relation to their responsibilities: a litmus test for subsidiarity”, and Committee of Ministers Recommendations Rec(2004)1 on financial and budgetary management at local and regional levels and Rec(2005)1 on the financial resources of local and regional authorities, effectively constitute the Council of Europe’s acquis in the field of local and regional finance. The Council of Europe has also published a handbook on local and regional finance.
If there is one question which is of particular concern to me it is that of local and regional authorities’ own resources. Indeed, local authorities’ own taxes constitute an element of autonomy which their representative bodies derive from their election by the citizens. In establishing local taxes, local elected representatives make a commitment vis-à-vis their electorate. That commitment constitutes a kind of responsibility on the part of elected representatives regarding the provision of services to the citizens. If, on the other hand, financial resources are not raised directly from the electorate, but come from other sources, it is easier for elected representatives to shirk responsibility for proper use of those resources. Furthermore, the availability of own tax revenues is a safeguard for local elected representatives, enabling them to know what resources they can count on in the long term.
But I am aware that this seminar is not the most appropriate framework for elaborating on my thoughts (see appendix).
It should be noted, however, that, in the Congress, we are currently preparing a draft protocol to the European Charter of Local Self-Government to strengthen the international safeguards relating to self-government and subsidiarity. This text contains several provisions on local finance, but its distribution is still restricted for the time being. It also contains important provisions relating to own funds. For instance, a substantial share of local authorities’ financial resources should be derived from charges which they are free to set and from local taxation (whether exclusive or shared), the level of which they are able to decide, where appropriate within limits predetermined according to law. This proportion must be sufficiently large to give local authorities a real margin for manoeuvre in the discharge of the responsibility incumbent on them in respect of the exercise of their own powers. The local taxation system must ensure reasonable stability and continuity of public services while guaranteeing a measure of flexibility such that tax revenues can be adjusted to changing costs.
I should like to draw your attention to the fact that the Centre of Expertise for Local Government Reform (on whose advisory board the Congress is represented by two members, including the Chair of the Institutional Committee), has prepared a benchmark on local finance (see doc CELGR(2006)5) in co-operation with the Local Government Public Service Reform Initiative, a branch of the Open Society. This benchmark will be used by the centre in its assistance activities to Council of Europe member states, in particular the countries of central and eastern Europe, to promote good practices in the field of local finance on the basis of the Council of Europe’s acquis in that field. I urge you to make the greatest possible use of this centre.
Lastly, I should like to inform you that within my chamber – the Chamber of Regions of the Congress – we are currently preparing a draft report on regional tax policies (running to 90 pages). This report is to be given a first reading by the Group of Independent Experts on 2 March and by the Institutional Committee on 12 April 2007. A second reading will be useful for the adoption of the report, together with a recommendation, in November 2007.
According to the preliminary information available to me, the report contains a number of outstanding findings, but, because of the status of this text, I am unfortunately unable to discuss them with you. At any rate, I can tell you that I agree with its proposals, which are to devote more attention to the financial autonomy of regions within the Congress and to include that aspect in its monitoring procedures (ie its procedures for considering how the member states are implementing the obligations and commitments deriving from European law).