The Property Tax in the Slovak Republic: Major Reforms and Striking Results

Brigham Young University BYU ScholarsArchive Faculty Publications 2006-09-01 The Property Tax in the Slovak Republic: Major Reforms and Striking Results Phillip J. Bryson [email protected] Follow this and additional works at: https://scholarsarchive.byu.edu/facpub Part of the Economics Commons BYU ScholarsArchive Citation Bryson, Phillip J., "The Property Tax in the Slovak Republic: Major Reforms and Striking Results" (2006). Faculty Publications. 989. https://scholarsarchive.byu.edu/facpub/989 This Peer-Reviewed Article is brought to you for free and open access by BYU ScholarsArchive. It has been accepted for inclusion in Faculty Publications by an authorized administrator of BYU ScholarsArchive. For more information, please contact [email protected], [email protected]. The Property Tax in the Slovak Republic: Major Reforms and Striking Results BY PHILLIP J. BRYSON, PHD This article is based on a presentation given on August 24, 2005, at the International Property Tax Institute’s 8th International Conference on Property Tax in Transition held in Prague, Czech Republic. hen the communist era ended Brussels and also to add a regional level Wwith the Velvet Revolution in 1989, of government to share the burdens of Czechoslovakia embarked on a program subnational public service provision. of transition to a market democracy. Legislation provided for the necessary Public sector foundations featured the institutional changes in both countries, creation of local government finance and but it was in Slovakia that the reform intergovernmental fiscal arrangements, of public administration was seen as a including limited use of local user fees. complement to, rather than a substitute After institutions were established on for, fiscal decentralization. the basis of legislation, the two countries This article reports on recent Slovak ef- agreed in 1993 to go separate ways in what forts to pursue these institutional changes. came to be called the Velvet Divorce. The First, it will review the early characteristics division opened the way for the pursuit of of Slovak fiscal decentralization focusing divergent fiscal practices, but for the first on the property tax as the most important decade of the separation, there were no source of locally generated revenues. fiscal changes to signal movement into Next will be a discussion of the divergent new, divergent directions. developments in the fiscal systems of the Efforts to establish genuine fiscal two republics despite their similar fiscal decentralization were not impressive decentralization programs. The reforms in either country before talk of acces- of public administration pursued in the sion to the European Union began. As early 2000s is the next topic; here, too, that happened, both republics became some of the implications of the widely dis- committed to adopt “reforms of pub- cussed Slovak introduction of the “single lic administration” and to move from tax” along with other changes that were two levels of governance—central and part of a new fiscal system implemented at municipal—to four. They prepared to the beginning of 2005. The final section submit themselves to governance from offers some concluding observations. Philip J. Bryson, PhD, is the Douglas and Effie Driggs Professor of Economics in the Mar- riott School of Management at Brigham Young University. He earned his PhD in economics from Ohio State University. Journal of Property Tax Assessment & Administration • Volume 3, Issue 2 19 Fiscal Decentralization in the any formal consultation of the Slovak Early Slovak Transition people, political leaders unilaterally de- The Republic of Slovakia has a popula- cided to abandon the federation. Slovak tion of 5.364 million in an area of 49,012 leaders rejected any partnership with the square kilometers. The Slovak population Czechs, along with the Czech preference density approximates that of Portugal, for a rapid transition to a market orienta- Hungary, and France, with significantly tion. Both before and after the opening more space for the average Slovak than of the reform era, the Slovaks were that available for the average Czech. Slova- substantially less comfortable with depar- kia has 109 citizens per square kilometer ture from the order and security of the of territory to the Czech Republic’s 131. Soviet ways than were the Czechs. This This compares to 228 citizens per square philosophical difference was evident in kilometer for Germany, 105 in France, 28 a provision of the new Slovak constitu- in the United States, and 32 for Europe tion which “establishes the possibility to as a whole. (Štatistický úrad Slovenskej stop...the process of privatization and/or republiky 1997). restrict business activities and to reverse Slovakia was a part of federal Czecho- various measures that already had been slovakia from 1918 to 1993. After the taken in this respect.” (Valko 1997, 76) end of WWII, democracy faltered and As one would expect, however, the the federation continued as a Soviet- Slovak self-government and fiscal sys- type Socialist Republic. With the end tems continued for a time to resemble of the Soviet Union, the Warsaw Pact, those developed jointly with the Czechs and the Council for Mutual Economic late in the Czechoslovakian era. In the Assistance (CMEA), both the Czechs aftermath of the Velvet Revolution, both and the Slovaks have been in transition republics encouraged municipalities to to democratic, market systems. Reestab- seek independence from some of the lishing local autonomy and utilizing the forced amalgamations of the previous property tax as a fundamental revenue era. Under socialist rule, local autonomy source to finance municipal services are had largely been lost. From 1950 until potentially vital elements of this transi- 1989, decisions about the quality and tion. An effective property tax must be type of public services were made by based upon the market value of property, central governments in Prague and since the market is a non-arbitrary reflec- Bratislava. Regional governments existed tion of the incomes and the preferences during this period only to administrate that determine property values. and facilitate the policies of the central A property tax system based on market government. Local government activity real estate values is just now becoming was also limited almost exclusively to a reality in Slovakia. For economic and such “state administration” activities. political reasons, a normally functioning It should be remembered that the real estate market, like the new market sys- economic transition of these countries tem generally, has been developing only followed hard on the heels of an era gradually. Legacies of the socialist era and in which centralism had been rather constraints on the privatization of prop- absolute. Funding decisions had been erty have not been the only roadblocks. based on political and party influence Early in the transition, the Slovak central and evinced no close relationship to the government preferred to ignore local self- citizenry’s needs or demands for public government, postponing the dramatic services, especially in the area of capital progress that was to emerge later. expenditures. Many local services were Nevertheless, transition reform efforts provided by the central government, e.g., launched after the Velvet Revolution police, public utilities, fire protection, were rather successful. In 1992, without and education. Socialist systems also 20 Journal of Property Tax Assessment & Administration • Volume 3, Issue 2 provided a number of services western sisted in the development of a professional governments do not, including housing, core of local public managers. There is which was produced and managed by the also an organization of city finance direc- central government just as medical care tors whose operations are similar to those was. Still, permitting local governments of the Government Finance Officers As- to function largely symbolically actually sociation in the United States. ran counter to Slovak tradition. Theses groups offer regular training and When the transition era began in 1989, professional development. They strive to local governments increased in strength influence policy relative to intergovern- and number. There are currently 2,781 mental financial relationships and local of them and only a few have a popula- service provision. The existence and activi- tion in excess of 50,000. The majority ties of these types of groups appear to have of Slovak municipalities have fewer than been positively influenced by the former 500 inhabitants and many have less than U.S. Agency for International Develop- 100. Comparing the number of cities per ment (USAID) mission in Bratislava, which 10,000 inhabitants in nine Central and assisted in establishing local administrative Eastern European countries reveals that infrastructure in Slovakia and in training Slovakia (like only the Czech Republic) managers of local governments. has significantly more cities than other In Bratislava, the Association of Cities countries in the region (see table 1). and Towns of Slovakia (Združenie Miest A Of these neighboring countries, only Obci Slovenska [ZMOS]) represents local Hungary’s cities and towns compare in governments in their interaction with number to those of the former Czechoslo- the central government. This association vakia. The diminutive size of Slovak and is similar to those of numerous other Czech municipalities raises the question countries. It participates in drafting and

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