Different starting points
The municipal systems created in Czechia, Poland, Romania and Hungary after the fall of the socialist regimes, were founded on fundamentally similar concepts of self-governance. Local administration consists of a regional (and/or county) level and a municipal level. The primary decision-making body is the locally elected municipal council and competences tend to include a mix of mandatory and voluntary tasks. Mandatory tasks are split between delegated functions of public authority (maintaining registries, issuing permits, certificates, official documents, etc.) and locally managed policies, such as education, healthcare, spatial planning, social housing, public transport, etc. However, despite similarities in concept, municipalities retain significant differences across countries in terms of the scope of competences, accompanying revenues and level of financial autonomy as well as differing democratic traditions. More importantly, by the start of the Covid-19 crisis, municipal autonomy had already been severely degraded in Hungary and had experienced similar attacks in Poland.
The system of self-governing local governments in Hungary was in need of serious structural overhaul after its first two decades. Municipalities experienced two, mutually reinforcing tendencies before 2010: the national government delegating an ever increasing share of tasks and responsibilities to the local level without attaching sufficient funding and a significant increase in indebtedness in order to finance local development.
After the 2010 elections in Hungary the solution of the Fidesz-KDNP government was to recentralise competences and resources from the local to the national level in multiple steps, relying on its constitutional majority in Parliament. First, various administrative functions were transferred from the municipalities to administrative districts representing the state, later the provision of primary and secondary education was also transferred to the state level. The shifting of competences was accompanied by the transformation of the mode of financing the local level, the most important changes being: more rigid spending rules for earmarked transfers, making loans available only upon government authorisation, previously shared taxes were entirely redirected to the central budget (personal income tax) or were reduced (vehicle tax), a new type of solidarity tax was introduced that more affluent municipalities are required to pay to contribute to the costs of public education. As a result, the share of local governments in total government spending decreased from 25% to 13% from 2013 to 2017, which is markedly lower than the EU average of 23%. The drop in municipalities’ share in public investments was even more significant from 60% to 21% by 2020. And even this reduced level of funding for development investments has been subjected to political favoritism. The financial draining of municipalities meant that they became highly dependent on non-transparent, particular government decisions for any type of local development. In 2019 the Hungarian opposition’s first significant electoral success in a decade took place in this context, eliciting further escalation of centralisation tendencies during the pandemic.
The PiS government in Poland has often been compared to Hungary’s Orbán-government in its tendency to polarise society with populist narratives, to crack down on civil society and independent media, to disrespect the separation of powers and the system of checks and balances. However, the PiS-government faced a very different context than the Fidesz-government when it came to consolidating power over the local level. First and foremost Polish municipalities enjoy constitutional protection, which is effective, since PiS lacks constitutional majority, and even the government-aligned President has occasionally fulfilled his role in the system of checks and balances (but went along with the ruling coalition’s plans in most cases). Furthermore, local governments enjoyed higher levels of public trust in 2016 than the central government, and according to research even the two-round mayoral elections have provided a buffer against government encroachment. Regardless, the central government did make attempts to impose new limitations on local autonomy. In terms of competences, water management (including sewage and flood prevention), agricultural advisory centres, management of family benefits were stripped from local governments and more recently the role of the state was strengthened in the management of schools. The government attempted to increase its political control over local administration in multiple ways through the reform of administrative courts and by introducing a term limit for mayors (originally planned to have retroactive force, but eventually only applied to office held from 2018 onward). Nonetheless, an over 30% share of local governments in public expenditure (table 1), the highest in the region, still suggests a fairly decentralised system in terms of competences. Local governments also retain substantial revenue through personal and corporate income tax (shared) and have access to property taxes and other locally sourced taxes as well as maintain borrowing autonomy. A reduction of the personal income tax did affect the revenues of municipalities adversely, but this measure only came into force during the pandemic. Voivodships (regional governments) are responsible for the distribution of over 40% of EU structural funds independently of the national government, which further reinforces local autonomy.
Local governments in the Czech Republic and Romania experienced no similar pressures prior to the pandemic. If anything, Romanian local authorities have been tasked with additional responsibilities (in the fields of education, healthcare, local police) over the years. Despite the much smaller size and fragmentation of municipalities in Czechia, the competences and resources are allocated in a similarly decentralised system as in Poland. It is important to note that not all municipalities share the same rights and responsibilities in Czechia, so it is difficult to generalise their situation.
Czech and Romanian municipalities differ significantly in terms of the source of their revenues. Czech municipalities have the lowest share of government transfers and highest share of taxes in their revenue out of the four countries, though most of it is in the form of shared taxes (VAT, personal income tax, corporate tax). Romania, by contrast, has the highest exposure to government transfers with over 80% of municipal revenue coming from subsidies and the lowest share (approx. 10%) of tax revenue of the four countries. The distribution showcases the highly hierarchical, centralised administrative structure in Romania.
Despite highlighting the differences in the administrative systems across countries, it is important to note that in each of these cases municipalities are highly dependent both on earmarked central transfers and on legislation regarding taxation.