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The following OECD assessment and recommendations summarise Chapter 3 of the Economic Survey of the Czech Republic 2006 published on 8 June 2006.
Contents
Review of financing and public spending in the regions and municipalities
calls for changes to improve efficiency
Successful public-spending reform requires concerted efforts by central-government ministries and agencies but also by municipal and regional governments. Policy has to work on three fronts to ensure that sub-national government delivers efficiency improvements: economies of scale, financing systems and accountability.
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There are over 6 200 municipalities in the Czech Republic and international evidence on the minimum-efficient scale of local government suggests a large number of them are too small from an economic perspective. Therefore, opportunities to encourage greater economies of scale have to be fully exploited. One route is to strengthen financial incentives for mergers through further steepening of the tax allocation schedule, one-off compensation for the costs of mergers and the removal of biases in grant formulae that favour small-scale government operations. The authorities should also seek ways of encouraging more co-operation in the provision of services. On this front, a proposal to alter tax allocation rules to benefit municipalities who sign comprehensive co-operation agreements looks promising. In addition, there is potential for rationalising the networks of offices providing central-government services.
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In sub-national government financing, the broad thrust of policy should be towards giving more flexibility, in particular by switching from earmarked grants to block grants or increased tax allocation. However, caution is needed because some spending areas are due to undergo system-wide reform and central-government leverage through earmarked grants may be important to successful implementation. In addition, cost and output indicators are not yet widely used, so the tools for the local population to oversee revenue use are not fully in place. At the same time, greater room for regions and municipalities in discretionary taxation is warranted, for example through widening of the statutory limits on real-estate taxation.
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In the budgeting system some tightening of the debt rules is needed: the sanctions are rather soft and the inclusion of debt repayment in “debt servicing” is problematic. Various measures should also be taken to improve transparency. In particular, there should be further development of the public database of regional and municipal accounts and wider powers for the Supreme Audit Office to audit municipalities.
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In terms of accountability, additional incentives to participate in cost and output benchmarking projects are required if they are to become comprehensive nationwide systems. Oversight and transparency in public procurement also need improvement. The lead taken by Prague’s municipal authority in publishing details of all its procurement contracts on line should be followed. In e-government, the set-up cost for users of electronic signatures needs to be brought down and better co-ordination of public databases would reduce red tape for businesses.
International comparison of the average number of inhabitants per municipality
Thousands
Source: Dexia Bank.
How to obtain this publication
The Policy Brief (pdf format) in English and Czech can be downloaded. It contains the OECD assessment and recommendations, but not all of the charts included on the above pages.
The complete edition of the Economic Survey of the Czech Republic 2006 is available from:
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SourceOECD for subscribing institutions and many libraries
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OLISnet, under "Publication Locator", for government officials with accounts (suscribe)
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Additional information
For further information please contact the Czech Republic Desk at the OECD Economics Department at webmaster@oecd.org. The OECD Secretariat's report was prepared by Philip Hemmings and Alessandro Goglio under the supervision of Andreas Wörgötter. The drafting team was assisted by Lubomir Chaloupka (on secondment from the Czech Ministry of Finance) and Edward Whitehouse (OECD pensions specialist).
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