How can small municipalities be empowered? - Report/Differentiated fiscal package and review of unconditional transfer
Many municipalities in the country are financially unable to provide the necessary services because they fail to collect revenues and properly manage natural resources. This is one of the reasons for undertaking the new administrative-territorial reform, where according to the preliminary draft, the merger of 15 units is suggested.
But how can small municipalities be economically empowered? Local finance experts in the 2025 report suggest measures that can be taken to increase their financial performance and improve the quality of services.
Specifically, taking into account the effects produced by the 2014 reform, the report states that in order to improve the effectiveness of the reform, it is recommended to increase sustainable sources of local revenue through the creation of a national support mechanism for the development of new sources of revenue (tourism, service fees, asset management).
It is also recommended to draft a differentiated fiscal package, which allows small municipalities to apply more flexible tax rates to boost local revenues.
The report suggests, among other things, reviewing the unconditional transfer formula to balance territorial inequalities.
Given that the level of local spending remains significantly lower than the average of EU and OECD countries, even after the territorial reform, a reformatting of the transfer system is required: strengthening the role of unconditional transfers to guarantee budgetary flexibility and real decision-making autonomy for municipalities; reviewing the transfer allocation formula, better reflecting differences in fiscal capacity, social needs and service delivery costs;
It is also suggested to reduce administrative expenses in municipalities with low efficiency and reorient local budgets towards increasing capital expenditures, especially investments with a direct impact on local economic development and improving the quality of life of citizens.
The report concludes that a special program is also needed for the recruitment of young professionals in rural areas (with bonuses, additional payments, motivational schemes); Use of a national mechanism for investment projects, where municipalities with low fiscal capacities receive additional funds for capital projects; Promotion of joint projects through inter-municipal cooperation for infrastructure, roads, waste management, etc.; Standardization of municipal structures according to size and functions; Digitalization of processes in the provision of services to reduce operating costs and improve institutional capacities.
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