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Ways to improve the budget equalization system in Ukraine
Abstract
Under the conditions of the decentralization reform, the budget equalization system in Ukraine underwent significant changes, which took place in terms of the transition from vertical equalization of expenditures to horizontal equalization of revenues. Today, a mixed budget equalization system is being formed in Ukraine, with an emphasis on horizontal equalization of revenues and the use of separate tools for vertical equalization of expenditures. The main problems of budget equalization in Ukraine include the insufficient amount of own revenues of local budgets, the high level of dependence of local budgets on transfers from the state budget, the insufficient justification of the procedure for calculating the tax capacity indicator, the low level of financial autonomy of communities, the lack of a clear division of powers between state authorities and local governments, transfer of powers to the level of local government without adequate financial support, significant differentiation of regions by the level of socio-economic development. The problem of restoring the district level of local government is in a “frozen” state. The budget equalization system of Ukraine should be improved in terms of creating equal financial opportunities for access to public services. In the medium- and long-term perspective, it is advisable to strengthen the role of expenditure equalization tools, supplement the representative tax system with a number of taxes (property tax, single tax, excise duty), create an independent agency for periodic analysis of the state of the budget equalization system and develop proposals for its reform, restore the practice of using agreements on interregional development, agreements on regional development, and programs for overcoming the depressed state of the territory. The new equalization system should be based on state service standards. With the transition to medium-term planning of local budgets, it is necessary to ensure the stability and predictability of the volume of transfers to local authorities and the transparency of the order of their distribution.
The article summarizes and systematizes the theoretical aspects of the formation of local self-government, taking into account the European experience of implementing administrative and territorial reform, outlines the range of problems that arose in the process of decentralization reform in Ukraine during 2015-2021, identifies the positive and negative consequences of local selfgovernment reform in Ukraine. A significant number of communities do not have the resources to perform new functions, the transfer of certain functions to the local level is not always appropriate, there is a need to consider the possibility of "recentralization" of certain powers from the local level to a higher one. The district level of local self-government was almost leveled and it cannot represent the common interests of communities. At the legislative level, there is no clearly defined division of powers between local self-government bodies and executive bodies. This creates a threat of "creeping" centralization of resources, when the government can transfer certain powers to the local level without financial support.
The reform of local self-government in Ukraine led to the expansion of the powers of territorial communities and an increase in their financial resources. There was a problem of correspondence of powers and financial resources. The methodology for assessing the capacity of territorial communities was not developed during the years of the decentralization reform. The article proposes a set of measures aimed at increasing the self-sufficiency of territorial communities in terms of determining their powers and size, improving the mechanism of horizontal budget equalization, redistribution of taxes between the central government and local self-government, taking into account European experience, increasing the share of non-targeted transfers, developing standards for the provision of public services.
The implementation of local self-government reform in Ukraine is accompanied by a number of risks. The article considers the following as the main risks: differentiation of communities according to the level of their own incomes, lack of a clear distribution of powers, imbalance between powers and resources, insufficient self-sufficiency of communities, dependence on inter-budgetary transfers, imbalance of budget equalization mechanisms, low level of qualification of community leaders, insufficient control over on the part of the state, contradictions between local and state interests, corruption, lobbying for the distribution of interbudgetary transfers, blind copying of the experience of developed countries. These risks are mostly interrelated and should be considered as a whole. The ambiguity of the manifestation of positive results and risks of decentralization in different countries is largely due to the influence of many factors and relations within the socio-economic systems of the national, subnational and local levels. This leads to a very cautious copying of the experience of other states and requires an in-depth analysis of opportunities and potential threats during decentralization within each country, to comprehensively take into account socioeconomic and political factors, as well as factors of an objective and subjective nature. Leveling the above-mentioned risks requires improvement of legislative regulation mechanisms and financial equalization tools.
In the article analyzing the problems of formation and development of the vertical financial equalizing in the context of processing which begans after acquisition Ukraine of sovereignty. The basic stages and progress of the vertical financial equalizing educing in UkraineTaking into account it suggestions of relatively basic ways of further reformation of the system of the vertical financial equlizing in Ukraine in the context of transition to the economy with development market, concordance of budgetary legislation of country with a legislation about organization of executive power and local self-government and other laws which determine their functions.
Introduction. With the conduction of the reform of decentralization of power in Ukraine in the model of financial equalization, the emphasis is placed on aligning budgets on incomes with the use of separate equalization tools by expenditures. The introduction of the new alignment system involves a number of problems. Purpose. Solving the problems of financial equalization in Ukraine in the conditions of modern reforms and finding the ways of its improvement. Results. The investigation of features and instruments of financial equalization in the context of conducting modern reforms in Ukraine has made it possible to identify issues that do not contribute to the reduction of vertical and horizontal budget imbalances, but also increase them. The main problems of financial equalization of local budgets are allocated, namely: inconsistency of incomes with expenditure powers of local budgets; instability of local budget revenues over time due to frequent changes in tax and budget laws of the state; violation of the transparency of transfer of transfers; a lack of clear separation of expenditure powers between the levels of government and others. The modernization of the modern equalization system should be aimed at creating equal financial opportunities for the sustainable development of individual territories and the country as a whole, providing macroeconomic stability and economic growth, promoting the improvement of quality of public services and their compliance with the developed state standards. Conclusions. There are proposed the directions of perfection of the modern system of financial equalization in the part of changes in the procedure for enrollment of personal income tax to local budgets by the place of residence of the person, and not by the place of employment; changes in the approaches of calculating the index of tax capacity; a reasoning of the necessity of development and approval of new state service standards for the social sectors.
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