GOLD Report I - UCLG

EURASIA104United Cities and Local GovernmentsIn theory,resources have tobe sufficient forfunctions(connexityprinciple); inpractice functionsare adjusted toresources, andadequacy dependson the financialcapacity of thepublic budgetsII.3. Evolution of Relationships BetweenCentral and Local GovernmentsRelationships between central governmentand local self-government are complex. Asa rule, they cooperate closely. For instance,in Russia federal state institutions and thoseof local self-government have agreements ofcooperation, and jointly participate in therealization of special programs.Different state structures are responsiblefor local government matters. In the RussianFederation, a decree of the Presidentestablished a specialized ministry –the Ministryof Regional Development of the RussianFederation– which is vested, interalia, with the powers to determine andimplement the policy of the state in thesphere of local self-government. In Moldova,the Agency of Regional Developmentperforms such functions.In other states, matters of local governmentlie mainly in the province of sectoraldepartments of appropriate state bodies.Thus, in Azerbaijan the Administration ofthe President has a division responsible forwork with municipalities; the Ministry ofJustice has formed a specialized center onmatters of local self-government; in theParliament there is a standing committeeon regional issues.III. Functions, managementand financesIn theory, resources have to be sufficientfor functions (connexity principle); in practicefunctions are adjusted to resources,and adequacy depends on the financialcapacity of the public budgets. However,much has still to be done to improve thefinancial system and the management inorder to use scarce resources more effectively.III.1. Financial ManagementThe most acute problem of local governmentis the shortage of financial resources. This lackof funds inevitably impedes the execution oflocal-government functions.Local taxes. The principal indicator of financialpower of local self-government is the rightto impose taxes. In most countries of theregion, the share of local taxes in the totalrevenue of local government is extremely low.Azerbaijan is an exception, with the share oflocal taxes and duties in municipal budgetsreaching 24.5% (of this, 22.6% is attributedto local taxes).In Armenia, local communities may levy onlylocal fees and payments. Rates of local fees,within the frameworks prescribed by law, areset by municipal councils at the initiatives ofheads of municipalities prior to the adoption ofannual budgets. Rates of local duties are definedby municipal councils on the proposals ofheads of municipalities in the sums necessaryfor exercising appropriate actions. On November27, 2005, constitutional amendmentswere adopted permitting the imposition oflocal taxes.The Constitution of Belarus (article 121) andannual laws on the republic’s budget enumeratelocal taxes and duties that may be establishedby local councils of deputies. Forinstance, the law “On the Budget of the Republicof Belarus for 2006” prescribes the followinglocal taxes and duties for the 2006financial year: tax on retail sale, tax on services,special purpose duties, duties from users,duties from purveyors, and health-resortduties. The share of local taxes and duties instate revenues is about 2.1%.The Russian Federation has only two localtaxes: the land tax and the tax on physicalpersonal property. Representative bodies oflocal self-government define, within the frameworkprovided by the Tax Code of the RussianFederation, tax rates and the procedureand terms for paying taxes. Other elements oflocal taxation are prescribed by the Tax Code.According to preliminary data for 2005, localtaxes comprise only 4.29% of revenues oflocal budgets. Local self-governments in theRussian Federation have been constantly