At a glance

LRG Spending
as percentage of total public spending
Charts and data
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Figure 8 Composition of local and regional government expenditure by function - Local governments, average, 2019

Figure 28 Share of green transition expenditure and decentralisation

Figure 24 Lower corruption coincides with higher decentralisation
(subnational expenditure as % of general government expenditure)

Decentralisation reforms in Estonia: Devolution to amalgamated municipalities

A local government amalgamation reform was implemented in 2017-2018 and merged 213 municipalities into 79. The county governments were abolished and their tasks redistributed between the central and local governments in 2018. County centre municipalities were mainly attributed small-scale tasks such as registering marriages and divorces. More significantly, responsibility for foster childcare services was assigned to local governments. Another significant change is in secondary education, where the central government is opening more and more State “gymnasiums” or secondary schools all over the country while local governments are closing theirs. However, special education schools for children with disabilities are being transferred by the Ministry of Education to municipalities on a case-by-case basis pending agreement. The central government’s strong financial position has made it possible to increase the local government’s financial base (share from personal income tax, equalisation fund, other grants).

Tax incentives for municipal waste reduction in France / Municipal financial support programmes and subsidies

Tax incentives for municipal waste reduction in France

Household waste is responsible for 4% of greenhouse gas emissions in France. The Energy Transition Law for Green Growth (TECV, 2015) set targets to reduce household waste by 10% (from 2010 levels and by 2020), increase the volume of recycling or organic recovery to 65% (by 2025). Two categories of tax incentives were introduced:

The household waste collection tax incentive for citizens (TEOMI). The household waste collection tax (TEOM) is a property tax paid by citizens (EUR 7.1 billion in 2020). Intermunicipal cooperation entities finance household waste management mainly through the TEOM. Since 2014, local governments have the option of adding an incentive tied to the quantity or type of waste collected. They can also opt to introduce a charge (i.e. fee to be paid for the service rendered) instead of the tax. This user service charge is less commonplace (EUR 550 million).

As of 2020, only 55 intermunicipal cooperation entities (out of a total of 1 254) have set up an incentive share for TEOM (EUR 33.5 million). The target for 2025 aims to have 25 million inhabitants taking part in this incentive pricing scheme; but as of 2020, only 5.9 million inhabitants were concerned by both schemes.

The main impediments to implementation are higher costs (communication with citizens, purchase of new equipment, training personnel), risk of counterproductive behaviour, such as illegal dumping or incineration, and lack of political will to carry out a service organisation review.

Gradual increase in State tax on polluting activities (TGAP). The TGAP is paid by local governments according to the volume of waste deposited or incinerated. In order to reduce waste tonnage over the 2021-2025 period, relevant tax rates were gradually increased. At the same time, the VAT rate on sorting activities has been lowered. The central government estimated that the rate increase would cost local governments EUR 104 million in 2021 and EUR 210 million in 2025. It is not possible to offset this increase through a reduced VAT rate or the volume of waste landfilled or incinerated.

Further information sources:

1. Terra Nova : la gestion du service des déchets ménagers par les collectivités locales en France - La Banque Postale
2. Tarification incitative parmi les modes de financement du service public déchets | Optigede - Ademe


Municipal financial support programmes and subsidies

Household waste is responsible for 4% of greenhouse gas emissions in France. The Energy Transition Law for Green Growth (TECV, 2015) set targets to reduce household waste by 10% (from 2010 levels and by 2020), increase the volume of recycling or organic recovery to 65% (by 2025). Two categories of tax incentives were introduced:

Decentralisation reforms in Estonia: Devolution to amalgamated municipalities

In Austria, the municipal investment programme of the federal government is an investment package of EUR 1 billion, primarily covering 2020/2021, and a second municipal package of EUR 1.5 billion for 2021. It is a matching grant with 50% federal funding and the remaining 50% partly covered by the state (Land) or EU funds and partly by the municipalities. The amount of funding per municipality is capped according to demographic conditions. This second municipal package consists of EUR 500 million in additional aid for 2021 (a EUR 400 million increase in revenue shares and EUR 100 million in structural funds) and EUR 1 billion in advances on future revenue shares to resolve the urgent problem of securing liquidity. In light of the favourable economic environment, municipalities are not required to repay the advances. There is also the fiscal equalisation extension, which is partial compensation (EUR 310 million) for the shortfall in local revenue resulting from the eco-social tax reform.

The Disaster Fund of the Federal Government of Austria was established in 1966 to finance measures to avert future disasters and repair any damages that occur. The majority (75%) of the Disaster Fund's resources (EUR 480 million in 2019) have been used for preventive measures, mainly to mitigate future flood and avalanche damage, e.g. passive flood protection and water quality surveys. The remaining funds have gone towards damage management and firefighting equipment.

Subsidies for preventive measures (EUR 352 million) have been used to a large extent by the federal government. In 2019, municipalities received EUR 20 million for damage control and EUR 43 million for fire department emergency equipment. In the event where there is damage to the assets of the provinces and municipalities, the Disaster Fund reimburses 50 percent of the loss.

In Estonia, centrally subsidised local energy efficiency programmes aimed at supporting local government energy saving investments in public buildings have been operating since the middle of the past decade. They are financed by CO2 sale revenues. This budget support is available to promote the construction of nearly-zero energy local government buildings (EUR 20 million) and the conversion of existing local government buildings (EUR 10 million). These energy-saving measures reduce the maintenance costs of public buildings. Other increasingly common local energy efficiency development measures involve the retrofitting of street lighting with LED technology, the increased use of new heating technologies by renovating boiler rooms and heating systems and transitioning consumers to local heating networks.

In Turkey, the National Zero Waste Project aims to manage waste in accordance with sustainable development principles, leaving a clean Turkey and a liveable world to future generations. The programme was launched in 2017 and is being implemented by the Ministry of Environment, Urbanisation and Climate Change and localised by the Union of Municipalities of Turkey (UMT).

Municipalities have been encouraged to use zero-waste models in their public buildings. UMT has been providing technical assistance to municipalities to ensure their preparedness for the higher-level certification. The Zero Waste Blue Project has also been launched to protect the seas and coasts of Turkey.

The Zero Waste Project hopes to reach a 35 percent recovery rate target (proportion of waste recycled from all recyclable materials) in 400 000 buildings by 2023. Potential economic savings have been calculated at TRY 17 billion, with direct employment for 100 000 people and annual savings of TRY 20 billion.

The project is based on the “Zero Waste System”, a seven-step roadmap to be followed by the companies, institutions or organisations involved in the programme. The roadmap was developed by the Ministry of Environment, Urbanisation and Climate Change. UMT has been organising national contests for municipalities to promote certain topics, e.g., the Zero Waste Project and Idea Contest organised in 2020 that awarded grants of TRY 500 000 (EUR 31 000) to20 municipalities.

As of 2020, the Zero Waste Management System has been implemented in 76 000 public buildings, with an initial recovery rate of 13% that has continually increased, eventually reaching 19%. Between 2017 and 2020, the project helped save 397 million tons of raw material, 315 million kilowatt-hours of energy, 345 million cubic meters of water and 50 million barrels of oil. During the same period, 17 million tons of usable waste were collected, 2 billion tons of greenhouse gas emissions were prevented and 209 million trees were saved by the project.

Local tax reforms in Austria and France

In Austria, three major tax reforms aimed at relieving the burden on companies or the population were introduced in the past decade. They reduced the local revenue from shared taxes, although this revenue shortfall was partly compensated through fiscal equalisation grants. The eco-social tax reform covering the 2020-2024 period is particularly significant as it will lead to municipal revenue losses of EUR 2.1 billion. Revenue from the newly introduced CO2 tax will accrue exclusively to the federal government. No new climate-related taxes have been introduced at the local level.

In France local business tax (EUR 30 billion) was abolished in 2010, for being too dynamic and penalizing investment and employment. It was replaced by:

- contribution on companies’ added value (CVAE), which brought in EUR 19 billion in 2020 and was shared between municipalities and inter-municipal cooperation entities (26.5%), departments (23.5%) and regions (50%);

- property tax on businesses (CFE) (EUR 8 billion, 2020), which brought in EUR 8 billion in 2020 and was collected by municipalities and inter-municipal cooperation entities (see Box 4 above).

In 2021, these taxes on production (turnover, added value, developed land) were further reduced in order to not penalise companies’ competitiveness. This was done by halving the CVAE for all companies through the elimination of the regions’ share and by dividing the industrial establishments’ real estate rental value by two (for CFE and TFPB).

These losses in local tax revenue were offset through State transfers (EUR 3 billion). The regions benefitted from a new VAT share (EUR 9 billion). Municipalities and inter-municipal cooperation entities were compensated through State allocations, which took the tax base into account but not the rates levied.

Further information source: Le débat d'orientation budgétaire (D.O.B.) illustré - Janvier 2021 - La Banque Postale

Local and regional governments


ccre
54.3%
of public investment, incl.

ccre
88.2%
in public housing

ccre
73.8%
in environmental protection

ccre

LRG debt is low

ccre
Local and regional debt:
4.8% of GDP
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