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Oleksandra Betliy Fiscal Decentralization in Ukraine Is It Run

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Oleksandra Betliy Fiscal Decentralization in Ukraine Is It Run 124 (DE)CENTRALIZATION UNDER EXAMINATION OLEKSANDRA BETLIY 125 he governance system at the local The first relates to fiscal decentralization, level in Ukraine for many years according to which the local authorities re- has had built-in conflict as it does ceived more taxes, but with more responsibil- not clearly define the responsi- ities. The second refers to the administrative bilities of elected local authori- issues of decentralization, including the or- Fiscal Tties and the local administrations, which are ganization of amalgamated territorial com- a part of the executive branch of power. The munities. The latter, however, is not possible local government entities traditionally had lit- without the former. Through decentralization, tle impact on their financing – both in regard local entities receive powers to carry out gov- to revenue and expenditures. Such a situation ernance, healthcare, education, regional de- Decentralization failed to create any real incentives for local velopment, roads maintenance, etc. Overall, authorities to be efficient and improve their the decentralization reform is listed among performance. one of the biggest successes of Ukraine’s re- forms in the last four years. THE BACKGROUND OF THE REFORM in Ukraine: Between 1991 and 20141, the Ukrainian government did little towards strengthen- ing the regions. Most decisions were taken THE DECENTRALIZATION at the central level, whereas local governments Is It Run REFORM LAUNCHED were fiscally dependent on the central budget. IN 2014 AIMS Moreover, local government entities were (and still are) represented by local self-gov- AT INCREASING ernance with little powers2, while their exec- THE FINANCIAL utive branches (local administrations) are de facto the territorial subdivisions of the central Smoothly? 3 AUTONOMY OF LOCAL government . GOVERNMENT About 60% of local revenues were received ENTITIES PROVIDING in the form of central fiscal transfers, while the share of tax revenues declined from 62% MORE FINANCING, in 2001 to 30% in 20154. Moreover, tax rev- AS WELL AS MORE 1 Ukraine gained its independence in 1991. POWERS 2 Local self-governance is conducted either directly, by local communities, or indirectly, by elected local councils (village, town, city, rayon, and oblast coun- TO THE LOCAL LEVEL cils), which are formed primarily by elected local dep- uties and mayors. See http://zakon0.rada.gov.ua/laws/ show/280/97-%D0%B2%D1%80. The decentralization reform launched in 2014 3 The heads of local administrations are appointed by the President of Ukraine on the submission of the Cab- aims at increasing the financial autonomy inet of Ministers. See http://zakon2.rada.gov.ua/laws/ of local government entities providing more show/586-14. financing, as well as more powers to the local 4 Such changes were partially explained by legal level. In Ukraine, decentralization in no way amendments, but also by low efficiency of local taxes. For details see OECD (2018) Maintaining the Momen- OLEKSANDRA means federalization. By now, it basically tum of Decentralization in Ukraine, OECD Multi-level BETLIY combined two major pillars. Governance Studies. 126 (DE)CENTRALIZATION UNDER EXAMINATION OLEKSANDRA BETLIY 127 enues were primarily comprised of shared • creation of appropriate material, financial, THE AMALGAMATED TERRITORIAL taxes (personal income tax, excise, and en- and organizational conditions to ensure COMMUNITIES AS A CORNER STONE vironmental tax). Own local tax revenues the implementation of own and delegated FOR FISCAL STRENGTHENING are generated by use charges, administra- AFTER functions by local self-government bodies. One of the key steps within the decentral- tive fees, revenues from assets, land tax, THE EUROMAIDAN ization reform are the voluntary municipal and property tax, among others. The decentralization is to be based mergers, which started in 2015. The forma- REVOLUTION IN 2014, on the trans fer of powers (responsibilities) tion of capable basic level of local self-gov- As the administrative territorial reform was from the center to the lowest possible local ernment was based on the Law on “Voluntary not introduced during the years of independ- THE NEW GOVERNMENT level, the respective shift of financing re- Amalgamation of Territorial Communities”7. ence, in 2014, Ukraine was comprised of 24 IDENTIFIED sources, and supervision of local government It is aimed at the concentration of human oblasts and Autonomous Republic of Crimea, entities by the central government. capital, infrastructure, and land resource which were at the time divided into 490 ray- DECENTRALIZATION at a local level, which would strengthen ons (districts). More than 11,000 communities AS ONE OF ITS TOP According to the Concept of the Reform communities. The capable community will (villages and towns) existed, while only about of Local Self-Government and the Territo- then be able to provide quality public ser- 1,000 local government entities received di- PRIORITIES rial Organization of Power, the decentraliza- vices (including education and healthcare) rect central fiscal transfers as the rest did tion was planned to start with amendments to the population. not receive direct central fiscal transfers but to the Constitution, according to which received them indirectly through rayons’ aimed at strengthening the development the reform of powers of local councils and lo- budgets. Several levels of transfer provisions of Ukraine and improving the well-being cal administrations were to be streamlined. and numerous key expenditure units result- of the population. However, since the approval of amendments ed in high fiscal non-transparency as well appeared politically unfeasible6, the reform as inefficiencies, which also reduced fiscal Later, the decentralization and the reform has started on the basis of the old Consti- sustainability. Territorial disparities were high of state governance were defined among tution. Yet, the Parliament still approved THE COMMUNITIES with little possibility of local government the Top-5 priorities of the Strategy the amendments to the Budget Code ARE STIMULATED to impact the situation. “Ukraine-2020”, which was approved by and the Tax Code, which changed the tax President Petro Poroshenko in 2015. The distribution between local and central gov- TO MERGE THROUGH THE AIM Government Action Plan until 2020 (adopt- ernments. Furthermore, all essential legisla- OF THE DECENTRALIZATION REFORM ed in 2016) also lists decentralization reform tion was approved for the implementation THE FINANCIAL IN UKRAINE among the priorities. These two strategic of the decentralization reform – including STIMULUS. IF THEY DO After the Euromaidan revolution in 2014, documents define the decentralization the mergers of territories, regional govern- the new government identified decentrali- as the fiscal decentralization. Meanwhile, ment policies, and provision of administrative MERGE, THEY RECEIVE zation as one of its top priorities. The decen- the Association Agenda between Ukraine services at local level. HIGHER REVENUES tralization reform was launched with several and the European Union (EU) focused pri- important decisions taken by the government marily on the issue of the decentralization The decentralization envisages the creation very fast. of power. of administrative service centers at local government entities to enable the provision “Amalgamated hromada8 is the unification First, in April 2014, the government adopted According to the Concept of the Reform of Lo- of most services locally. As of June 2018, 756 of several settlements with a single admin- the Concept of the Reform of Local Self-Gov- cal Self-Government and the Territorial Organ- Administrative service centers have already istrative center. Any amalgamated hromada ernment and the Territorial Organization ization of Power, the major tasks of the decen- been created (452 of them by rayon state ad- (community) with a city as an administrative of Power,5 which was followed by the ap- tralization reform included ensuring: ministrations), which is a substantial progress center is an urban hromada, any amalgamat- proved Action Plan for its implementation. • the access to quality public services; in the fulfillment of the task of better access ed hromada with an urban-type settlement These documents envisaged the implemen- • optimal division of powers between local to administrative services for the population. as an administrative center is a settlement tation of the broad-based decentralization and central executive bodies; • justification of territorial basis for activity 6 Jarábik, B. and Y. Yesmukhanova (2017) Ukraine’s 7 Law №333-2014 from April 1, 2014. Available [online]: of local self-governance and local ad- Slow Struggle for Decentralization. Available [online]: http://zakon5.rada.gov.ua/laws/show/333-2014- 5 The Resolution of the Cabinet of Ministry, N°333-p https://carnegieendowment.org/2017/03/08/ %D1%80 from April 1, 2014. Available [online]: http://zakon5.rada. ministrations to ensure access to quality ukraine-s-slow-struggle-for-decentralization- gov.ua/laws/show/333-2014-%D1%80 public services provided by them; pub-68219 8 Hromada is an amalgamated territorial community. 128 (DE)CENTRALIZATION UNDER EXAMINATION OLEKSANDRA BETLIY 129 hromada, and any amalgamated hromada The communities are stimulated to merge common problems faced by communities. with a village as an administrative center through the financial stimulus14. If they do According to the Ministry of Regional Devel- is a rural hromada”.
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