Project description

Title: Reform of intergovernmental finance systems in Serbia
Commissioned by: German Federal Ministry for Economic Cooperation and Development (BMZ)
Country: Republic of Serbia
Lead executing agency: Ministry of Finance of the Republic of Serbia
Overall term: 2006 to 2012

Context

With the adoption of the new Law on Local Government Finance in 2007, Serbia is continuing its process of alignment with EU standards. The Law’s objectives include decentralisation of property tax and, for the first time, transparent fiscal equalisation. This is intended to reduce the municipalities’ dependence on financial transfers from central government and increase the stability and predictability of their finance systems. A further aim is to redress economic imbalances between municipalities.

Various problems have affected the implementation of the reform, however, including a lack of expertise, resources and capacities at the municipal level and the extreme diversity of the municipalities. The opportunities for municipal representatives to influence the reform process have depended to a large extent on existing power (political) relationships and personal contacts. The communication between the various tiers of government was uncoordinated and lacking in transparency. The Serbian Standing Conference of Towns and Municipalities (SKGO) faced the major challenge of coordinating the interests of the municipalities and representing these interests to central government during the reform process.

Objective

Municipal finances have been placed on a more reliable and autonomous basis. There is a sustainable culture of discussion and negotiation between the representatives of national and local authorities, the participation of the municipalities in the decision-making process has increased, and they are accepted as equal partners.

The Serbian Standing Conference of Towns and Municipalities (SKGO) is recognised as the voice of the municipalities and represents municipal interests effectively.

Approach

The project approach involves delivering advisory services at three levels. At the national level, the responsible ministries and Parliament are being advised on the creation of legal frameworks. At the local level, selected pilot municipalities are being supported as they assume their new responsibilities. Furthermore, the Serbian Standing Conference of Towns and Municipalities (SKGO) is being strengthened in its role of moderating between the two levels.

The project is implemented by the following measures:

• joint activities involving all stakeholders, to reduce fear of contact and create a culture of discussion
• development of expertise, sustainable structures and procedures for a network on municipal finances within the SKGO
• support for municipalities in raising real property tax, in order to make the most of the untapped income potential
• establishment of legislative procedures involving the Ministry of Finance, Parliament and the SKGO.

Results achieved so far

The two-year transition period ended in January 2009, and the transfer of the administrative responsibility for property tax from central to local level is now complete. All the municipalities now collect this tax themselves. Since assuming this responsibility, many municipalities have already substantially increased their revenue compared with previous levels. Some municipalities have, for the first time, established inter-communal arrangements for the collection of the tax in order to reduce costs.

The Serbian Standing Conference of Towns and Municipalities (SKGO) has established a network on municipal finances, modelled on the meetings of heads of German tax offices, which has proved to be a key factor in the success of the reform process. Alongside regular sharing of knowledge and experience, the network enables stakeholders to develop joint positions and design training that is geared to the needs of the municipalities.

The SKGO now plays an important role in the fiscal decentralisation process. Through the network, it is able to reach all Serbia’s municipalities for the first time and is accepted by the Serbian Government as the representative of the municipalities’ interests. Communication between different levels of authority is increasingly coordinated by the SKGO.

Further information

• Ministry of Finance of the Republic of Serbia
  www.mfin.sr.gov.yu
• Serbian Standing Conference of Towns and Municipalities (SKGO)
  www.skgo.org