Bulgaria’s Reform May Be Swept Under Rug Once Again

Gerrit Lundens: Dancing in an Inn (1640) // Public domain

In March 2022, the IME released the movie 2% in Your Municipality. It tells the story of the challenges faced by the local government in Bulgaria, gives context to the debate regarding the financial autonomy of municipalities and presents in detail the idea of tax sharing – transferring 1/5 of income tax revenues in the country.

This idea has been discussed many times, and recently IME presented detailed accounts of the expected effects on municipalities.

The movie features representatives of local authorities from different types of municipalities – the mayors of Gabrovo, Troyan, Polski Trambesh; deputy mayors of Sofia Municipality and Plovdiv; representatives of the Municipality of Stara Zagora, as well as representatives of the National Association of Municipalities and various other people.

Despite the nuanced points of view on the matter, what makes a strong impression is the unifying thread in everyone’s mind that municipalities are poorly funded and that there is a clear vision of how to change this through tax sharing and the formation of a more transparent link between the local economy and the municipal budget.

The movie consists of five parts, which gradually develop the idea of the income tax revenue sharing. The focus falls on the role of the municipalities in the life of every citizen, the regional economy, and the efforts of local authorities to attract investment, the dependance on the state and European funds for local public investment, the path to greater financial autonomy of municipalities, the transfer of some of the revenues from the income taxation and the instruments for equalization and support of the smaller and poorer municipalities in the country.

A relatively complete picture of the discussion on financial decentralization, which, however, is constantly evolving.

In the last weeks, we saw debates between the state and the municipalities, which discussed options to increase the resources for local development, but once again these evolved in the direction of centralized solutions. It is proposed, for example, to create a large investment fund for regional development, which will finance projects at the local level and solve the huge capital investment problem of the municipalities.

This proposal does not provide a sustainable solution and preserves the dependance of municipalities on the state. There is also a distrust of the effect of more freedom towards regional imbalances, which are very clearly seen in the current model. It is exactly these issues that are discussed in-depth in IME’s movie, which provides a very clear pathway for possible solutions.

In the upcoming weeks, the IME will send its proposal regarding the reinstitution of the debate on financial decentralization to the new government along with a suggestion to abandon the model of resource draining from the regions, which makes them fully dependent on the central government.

These proposals will also include a model for equalization of poorer and smaller municipalities, which already works in different parts of Europe and preserves solidarity without hindering the greater financial autonomy of municipalities.

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