dr Justyna Łukomska-Szarek

Częstochowa University of Technology

ASSESSMENT OF BUDGET MANAGEMENT IN LOCAL SELF-GOVERNMENTS IN POLAND

The paper highlights considerations of budget management in local self governments in Poland. Scientific investigations have been focused on analysis and assessment of both level and structure of budget revenues and expenditures generated by gminas (gmina is a principal unit (lowest level) of territorial division in Poland) throughout 2001-2006 as well as on explanation of issues related to taxonomy and classification of fundamental groups of budget revenues and expenditures.

Key words: budget, budget revenues, budget expenditures, local self-governments.

1. Fundamentals of budget management in local self-governments in Poland

Independently of the assumed concept, financing of activities plays a particular role in economic and financial mechanisms of gmina self-government. The scope of these activities should depend on revenues that gminas can spare for covering of related expenditures [2].
A varied system of financial resources in Poland becomes a source of self-government revenues. Part of these revenues come from external sources, allocated by the state in the form of subventions, subsidies and share in personal income tax and corporate income tax and from internal ones, formation of which is influenced by these self-government units [7]. Budget revenues in gminas can be divided into two fundamental groups, namely [14]:

- own revenues, both internal (from taxes, payments, share in taxes being state budget revenues and capital and property incomes)

- and external (transfer-based), basically coming from state budget (general and target subsidies).

Other classifications divide gmina revenues (according to opportunities to raise them) into obligatory ones– obtained from regular sources and facultative ones – from potential sources [18]. Own revenues mainly mean revenues allocated in a fixed way, on the basis of legal acts, to self-governments disposal [8]. They can be defined as revenues ‘relating to local budgets in an inseparable way i.e. permanent, without restrictions from the state and without its share in a part of revenues coming from each source, allocated to be managed by self-government organizations’ [6, 15]. From economic point of view, gmina revenues are divided into those from property and other own revenues [10]. Revenues from taxes and payments have fundamental importance to the structure of gminas own revenues [9, 3]. An important sources of financing include also revenues from managing municipal assets. Own budget resources are used to finance local self-government tasks and are also the basis to apply for external financing [11]. Generally they are insufficient to cover current budgetary expenses, thus local self-government units are able to obtain transfer revenues, i.e. general and target subventions and subsidies.

Gmina revenues result from the tasks which local self-government have been assigned [13]. Their level and structure depend on the scope of these tasks and duties imposed by legal acts. They should be associated with realization of public goals assigned to be realized by a particular gmina. These expenditures are assigned for realization of own initiatives and commissioned tasks [17]. Amount of expenditures for own initiatives and expenditures for government administration and other tasks commissioned by the acts reflect the nature of the relationship between the state and a particular gmina as a local self-government unit. The structure of expenditures in gminas should be dominated by the expenditures for own initiatives while expenditures for the tasks commissioned by government administration should play a marginal role [12].

Other classification divides budget expenditures into current, debt service and property expenses. Current expenditures encompass a wide range of services from the area of public utility and financing of current social services [11]. They encompass expenditures for remuneration and remuneration-related costs of purchase of goods and services necessary for current activities, costs of current repair works, expenditures related to functioning of gmina offices and bodies as well as business trips [4].

Property expenditures are associated with maintaining fixed assets at a particular level or purchase of new assets [16]. They also include expenditures for purchase and acquisition of shares, contribution to commercial law companies and partnerships and establishment of foundations as well as gmina investment expenditures and target subsidies for financing and co-financing of costs of investment [18].

Expenditures for debt service encompass in particular gmina budget expenditures for the paid interest and discounting receivables on gmina securities, interest on incurred debt and loans and payments resulting from guarantees and warranties [1].

2. Analysis and assessment of budget revenues and expenditures in local self-government in Poland in 2001-2006

Level of budget revenues and their structure determines the quality of tasks realized by gmina self-government in terms of satisfying fundamental needs in local society. The analysis of gmina self-government revenues in Poland has been conducted with a dynamic approach, which enabled assessment of direction of transition within gmina budget revenue structure. These data are presented in detail in Table 1.

Table1. Local self government revenues in 2001-2006

	2001		2002		2003		2004		2005		2006
	mln PLN	Structure [%]	mln PLN	Structure [%]	mln PLN	Structure [%]	mln PLN	Structure [%]	mln PLN	Structure [%]	mln PLN	Structure mln PLN
Total, of which:	32161,8	100,0	34545,8	100,0	36046,3	100,0	40308,5	100,0	45813,2	100,0	51724,3	100,0
- own revenues	15355,5	47,8	16002,0	46,3	17055,7	47,3	19444,4	48,2	22300,4	48,7	24507,9	47,4
- grants/subsidies	3775,6	11,7	4288,6	12,4	3773,0	10,5	5042,9	12,5	7432,4	16,2	10336,2	20,0
- general subventions	13030,7	40,5	14255,1	41,3	15217,6	42,2	15821,2	39,3	16080,2	35,1	16880,1	32,6

Sources: Own calculations based on the GUS, RIO data.

In 2001-2006 gmina revenues rose by ca. PLN 19.9 billion, from 32.1 billion in 2001 to 51.7 billion in 2006. Conducting vertical analysis of budget revenues reveals that in 2001 own revenues accounted for 47,8% of revenues in total, grants/subsidies 11,7% and general subventions 40,5%. Those years saw changes in this structure, in 2001 the share of own revenues in revenues in total decreased to 46.3% while in 2003-2006 it was at the level of 47-48%. Target subsidies in the analysed period were characterized by upward tendency from 11,7% to 20% of all gmina revenues, excluding 2003, when the level of this indicator maintained at the level of 10,5%. The subsidies are a part of revenues whose level depends mainly on the scope of the realized tasks and the method of financing. In comparison to 2004, their level even doubled. Only in 2001-2003 the share of general subvention in revenues in total increased from 40.5% to 42.2%. In 2004 the share of general subvention allocated for realization of gmina tasks decreased to 39,3%, in 2005 to 35,1%, and in 2006 it reached the level 32,6%.

Chart 1. Structure of own revenues in local self-government in Poland in 2003-2006

Sources: Own calculations based on the GUS, RIO data.

Economic tendency was most significantly reflected in the level of own revenues earned on e.g. share in personal and corporate income tax, taxes and payments being gmina revenue and the income of a property nature. Conducting analysis of the data presented in Chart 1 enables observation that last years saw downward tendency for the share of incomes on taxes and local payments in the revenues in total. In 2003 the structure index was maintained at the level of 23,3%, while in 2006 – at the level of 19,3%. This fact generally resulted from the gmina council resolutions on reduction of upper tax rates, particularly in terms of immovable property taxes, rural taxes and means of transport taxes. For instance in 2006 gminas did not obtain PLN 1.5 billion from local taxes, which means 6,2% of own revenues. The reduction of upper tax rates depleted most significantly, similarly to 2005, the revenues in rural gminas.

In 2003-2006, after implementation of changes in legal acts in terms of gminas share in taxes being state budget revenues, an increase of such revenues of 3,5% was observed. Since the index of structure of share of gminas revenues in corporate income tax in general was maintained at a constant level of 1%, this increase was mainly influenced by rising share in personal income tax. This share was 13,6% and 13,7% in 2004 and 2005, respectively, while in 2006 it reached 14,2% of the revenues generated in total by self-government. The revenues from municipal assets was maintained at the level of 4% of the revenues in total, with the exception of 2005, when this value was by 0,5% lower.

Table 2. Local self-government expenditures in 2001-2006

	Total [mln PLN]	Property expenditure [mln PLN]		Current expenditure [mln PLN]	Structure [%]
					Total	Property expenditure		Current expenditure
			Of which: investment expenditure				Of which: investment expenditure
2001	32916	5834,8	5742,4	27081,3	100	17,73	17,44	82,27
2002	34950	6087,7	5994,8	28862,9	100	17,42	17,15	82,58
2003	36595	6251,1	6173,5	30344,2	100	17,08	16,87	82,92
2004	40941	7476,2	7391,5	33465,6	100	18,26	18,10	81,17
2005	45837	8354,9	8218,7	37482,6	100	18,20	17,90	81,80
2006	53179	10834,7	10691,5	42344,9	100	20,37	20,10	79,63

Sources: Own calculations based on the GUS, RIO data.

Chart 2. Level of budget revenues and expenditures in local self-government in Poland in 2001-2006

Sources: Own calculations based on the GUS, RIO data.

In all the analysed years the budget expenditures exceeded revenues. The financial result was therefore characterized in most of the gminas by budget deficit, which is illustrated by Chart 2. Level of budget expenditures by local self-government is on the one hand determined by financial opportunities and on the other – by the nature of the realized goals. Comparison of the level of local expenditures in Poland, including investment expenditures in 2001-2006 is presented in the Table 2.

Analysis of the data contained in Table 2 indicates dominating share of current expenditures in expenditures in total, being more than 80%. In 2001-2003 they showed upward tendency, in 2004-2005 they maintained at the level of over 81% and in 2006 a drop in this value to 79,63% was observed.

In 2001-2005 investment expenditures dropped despite significant increase in revenues; the reason for such a situation was a very rapid increase in expenditures for financing of current tasks. In 2005-2006, thanks to absorption of European Union funds, an acceleration of investment expenditures growth rate from 11,2% in 2005 to 30,1% in 2006 occurred. A dynamics of investment expenditures was high: in municipal gminas (gmina is Polish equivalent for a township) an increase by 35,5% was observed, in municipal and country gminas – by 30,2%, while in country gminas – by 27,3%. In 1999-2003 the share of investment expenditures in the expenditures in total decreased. In 2004 this factor increased to 18,1% (from 16,9% in 2003), while in 2005 a drop in investment expenditures down to 17,9% occurred. In 2006, however, as a result of higher dynamics, a share of expenditures for investment activities increased to 20,1%. In municipal gminas a rise of the share by 3,4 % was observed, in municipal and country gminas – by 2,1% and, in country gminas – by 1,5%.

Summary

One of the symptoms of self-governments is financial independence of local self-governments and its main prerequisite is to ensure gmina efficient sources of incomes in order to realize all the planned expenditures. Last years showed downward tendency in share of incomes on taxes and local payments in revenues in total. This resulted mainly from the resolutions by gmina councils on reduction of upper tax rates, particularly in terms of immovable property tax, rural tax and means of transport tax. The presented investigations have also revealed that the structure of budget expenditures was dominated by current expenditures (ca. 80%). The performed analysis of investment activity shows that the local self-government in Poland has not used its full potential over last few years and the percentage of investment expenditures in expenditures in total comprised ca. 16-20%. The extent and rate of development processes in each gmina are precisely determined by the level of own revenues, owned property, opportunities to incur debts. The needs of an investment nature in the investigated time period have made gminas realize investment expenditures at the level higher than these units could allocate from obtained revenues, which impacted on the increase in their debt level, although this level if far from a statutory limits.

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