Fiscal autonomy and fiscal dependency in local governments

I participated as a speaker in the first of the Local Reform Meetings, held in Istanbul on Saturday, November 30, themed "Central Administration and Local Governments in Authority Sharing: Fiscal and Administrative Autonomy," where the opening speech was delivered by Mr. Murat Karayalçın, Founding President of the Local Reform Initiative Association. The meeting, which featured highly useful findings, suggestions, and contributions, took place in 3 sessions.  

In the first session, we listened with pleasure to the opening speech by Mr. Murat Karayalçın, Founding President of the Local Reform Initiative Association and former Minister of Foreign Affairs, who also served as the chairman of the Social Democratic Populist Party (SHP) for a period, and the presentation titled "Administrative Autonomy" by our professor Prof. Dr. Ruşen Keleş, facilitated by Dr. Buğra Gökçen.

In the second session, I gave a comprehensive presentation on "Fiscal Autonomy and Sustainable Municipalism," facilitated by Prof. Dr. Burhan Şenatalar from Istanbul Bilgi University. 

In the forum section held during the third session, Assoc. Prof. Dr. Ulaş Bayraktar, Dr. Cuma Çiçek, and Fikret Toksöz evaluated the fiscal and administrative problems of local governments and their solutions from different perspectives, facilitated by Prof. Dr. Hatice Kuruluş.

In my presentation titled "Fiscal Autonomy and Sustainable Municipalism," which consisted of 4 parts, I presented detailed information and data on fiscal autonomy, sustainable development, and sustainable municipalism, respectively, and then attempted to set forth expectations from the central government in the final part of the presentation.

The last paragraph of Article 127 of the 1982 Constitution stipulates that local administrations shall be provided with revenue sources proportional to their duties. Both the Municipal Law No. 5393 and the Metropolitan Municipality Law No. 5216 define municipalities in their 3rd articles as "public legal entities with administrative and financial autonomy, established to meet the local common needs of the residents of the town, and whose decision-making body is formed by being elected by the voters." 

The provision of services by the units closest to the public and the allocation of revenue sources proportional to their duties to local governments in the delivery of these services are also emphasized in the European Charter of Local Self-Government. Our country signed the 18-article European Charter of Local Self-Government in 1988, ratified it in 1992 with reservations on 10 paragraphs, and the Charter entered into force in 1993. A total of 47 countries have signed the European Charter of Local Self-Government, which generally aims to make local governments more effective within the framework of realizing and protecting the administrative, political, and fiscal autonomy of local governments and ensuring that public services are performed by the management units closest to the citizens. 34 of these countries have placed reservations on various paragraphs of the Charter. 

The concept of "Local Self-Government" is defined in Article 3 of the Charter as follows: "Local self-government denotes the right and the actual ability of local authorities to regulate and manage a substantial share of public affairs under their own responsibility and in the interests of the local population, within the framework of the law."

Fiscal autonomy is defined in Article 9 of the Charter, titled "Financial Resources of Local Authorities." Turkey has placed reservations on the 4th, 6th, and 7th paragraphs of this article. 

1) Within the framework of national economic policy, local authorities shall be provided with adequate financial resources of their own, of which they may dispose freely within the framework of their powers. 

2) The financial resources of local authorities shall be commensurate with the responsibilities provided for by the constitution and the law. 

3) At least a part of the financial resources of local authorities shall derive from local taxes and charges of which, within the limits of statute, they have the power to determine the rate. 

4) The financial systems on which resources available to local authorities are based shall be of a sufficiently diversified and buoyant nature to enable them to keep pace as far as practically possible with the real evolution of the cost of carrying out their tasks. 

5) The protection of financially weaker local authorities calls for the institution of financial equalization procedures or equivalent measures which are designed to correct the effects of the unequal distribution of potential sources of finance and of the financial burden they must support. Such procedures or measures shall not diminish the discretion local authorities may exercise within their own sphere of responsibility. 

6) Local authorities shall be consulted, in an appropriate manner, on the way in which redistributed resources are to be allocated to them. 

7) As far as possible, grants to local authorities shall not be earmarked for the financing of specific projects. The provision of grants shall not remove the basic freedom of local authorities to exercise policy discretion within their own jurisdiction. 

8) For the purpose of borrowing for capital investment, local authorities shall have access to the national capital market within the limits of the law. 

In general, the level of fiscal autonomy is measured by how the power of taxation is used by local governments. Depending on the use of the taxation power, the level of fiscal autonomy is shaped accordingly.

In Broad Fiscal Autonomy; The relevant bodies of local governments have the authority to determine the subjects, taxpayers, tax bases, rates, and other conditions of these taxes. At this stage, the power of taxation is used by local governments in its broadest form.

In Limited Fiscal Autonomy; The power of taxation is transferred to local governments to a limited extent. It is a method that expresses the transfer of the authority to assess, accrue, and collect certain taxes deemed appropriate for allocation to local governments, without the transfer of legislative power to local governments.

In Central Dependency; It is a stage where the authority to assess and collect is used entirely by the central state, and local governments are only transferred shares from the taxes collected according to various criteria.

Many regulations and practices in our country increase the dependency of local governments on the center and negatively affect the administrative and fiscal autonomy of local governments.

? The fact that local governments are significantly dependent on transfers from the central government in terms of revenue, 

? The Council of Ministers being given the authority to change the rates of transfers to be made by law at any time, 

? Despite the borrowing limit being determined by law, the requirement to obtain permission from the Ministry of Environment, Urbanization and Climate Change to engage in domestic borrowing exceeding a certain limit, 

? Practices such as including appropriations in the budgets of some central public administrations, especially the Ministry of Treasury and Finance, whose distribution is not known in advance…

In Turkey, the dependency rate of municipalities on central government tax revenues is quite high. Approximately 80% of the total revenue of the 30 metropolitan municipalities, which receive a share from general budget tax revenues by taking into account the parameters of population, surface area, and the amount of tax collected in that province, comes from general budget tax revenues. This rate is at an average of 66% in district municipalities. The high level of this rate shows that local governments are excessively dependent on the central government in fiscal terms. High fiscal dependency rates can be considered an advantage by providing a guaranteed income to municipalities on the one hand. However, on the other hand, the situation of being excessively dependent on central government tax revenues also causes a decrease in the central government budget share due to the slowdown in the Turkish economy and the decline in tax revenues. Guaranteed income can also cause municipalities to refrain from making efforts to increase their own revenues. 

In the last part of my presentation titled "Fiscal Autonomy and Sustainable Municipalism," we talked about the debt problem in local governments and the problems caused by deductions made from share revenues due to public debts. Finally, mentioning the understanding of sustainable municipalism in local governments (municipalism that uses its resources economically, efficiently, and effectively together with other funds to be provided, distributes them in a balanced and fair manner between the east-west, south-north, and center-rural parts of the city, ensures fiscal discipline, is predictable, makes its strong structure and activities sustainable by increasing its institutional capacity, prioritizes its investments and expenditures in line with the needs of the city, and aims to meet the needs of today's generation of citizens by establishing a balance between economic, social, and environmental dimensions without compromising the meeting of the needs of future generations), the following expectations from the central government regarding regulation, supervision, and resource allocation were put forward: 

? Re-regulation of Share Distribution by Taking Service Requirements into Account 

? Provision of Equalization Allowance 

• To those falling below the average in tax shares coming from the Central Government 
• To those falling below their potential revenue due to disasters 

? Payment of Taxes Collected at Customs in the Provinces Where the Taxable Event Occurs 

? Sustainable Municipalism Index and Performance-Oriented Appropriation Allocation 

? Establishment of a Municipal Conciliation Commission 

? Reduction of Deduction Rates Made from Municipalities' Treasury Shares 

? Reduction of Uncertainties Regarding Monthly Revenue Estimates and Making the Non-Deduction Period Predictable & Longer-Term 

? Other Findings and Suggestions to Increase Fiscal Autonomy and Reduce Fiscal Dependency… 

In our country, in line with the legal framework of the division of duties between the central government and local governments, while some services are performed by the central government, others are performed by local governments. However, in terms of the financing of public services, some problems arising from legislation or practice regarding revenue sharing are noticeable. In order to implement local democracy on the basis of fiscal autonomy based on rational and optimal service delivery, there is a need for regulations that will first determine the shares allocated to local governments from general budget tax revenues according to objective criteria and reduce fiscal dependency rates by expanding the taxation authority of local governments to a certain extent. In the provision of public services, central government and local government organizations are not substitutes for each other, but complements.