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THE ROLE OF LOCAL GOVERNMENT AUTHORITIES IN PUBLIC FINANCE
MANAGEMENT IN FOREIGN COUNTRIES
Bauyetdinov M.J.
docent
of TDIU, DSc
Eshbanbetov E.M.
Master's student of TDIU
The autonomy of local government authorities represents a crucial and intriguing issue. Several
factors contribute to the establishment of such autonomy, among which financial independence
stands out as one of the most significant. In the Polish legal system, the fundamental principles
of the finances of local self-government units are accorded the highest legal status, having been
incorporated into the Constitution of 1997. The financial autonomy of local self-government
entities is expressed through their ability to independently generate financial resources and to
allocate and utilize these resources at their own discretion. For the state, what is particularly
important is not merely the receipt of funds from the state budget, but rather the establishment of
a legal basis for financial self-sufficiency. The degree of financial independence enjoyed by local
self-government bodies serves as a key indicator of their overall autonomy.
Keywords
: local self-government, financial autonomy, financial independence, structure of local
budgets, local revenues, local expenditures.
Introduction
In academic discourse, considerations regarding autonomy are often closely linked to the broader
process of achieving full statehood—particularly the attainment of a recognized status in
international relations. However, in light of the evolving trends in the development of self-
governance systems across Europe, the expanding scope of responsibilities assigned to local
governments, and the central theme of this conference, the study of autonomy in the context of
financial independence of local authorities is of particular relevance.
It is important to acknowledge that the issue of autonomy for local self-government bodies
cannot be approached using the same frameworks and objectives as those applied to autonomy
aimed at statehood. The process of defining and strengthening the legal foundations of local self-
government, especially in the context of financial independence, requires thorough analysis and
critical assessment. It is precisely this financial independence that enables local authorities to
fully carry out their functions as defined by law.
It should be emphasized that this discussion pertains to the concept of financial security of local
governments. As a systemic notion, financial security determines the degree of financial
independence of local self-government bodies and is practically reflected in their level of
autonomy over revenue generation{1}.
For instance, territorial self-governance reform in Poland has revealed that key decisions
regarding the sources of local government revenues are made outside the jurisdiction of local
authorities. This significantly limits the scope of financial autonomy. In practice, Polish local
governments have little influence over the volume and scale of their income. Nevertheless, the
existing legal framework, along with systems for redistribution and oversight of public funds,
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functions effectively and directly contributes to the stabilization of the local self-government
system. This stability fosters self-governance, financial self-reliance, and dependence on internal
capabilities.
Geographically closer to Poland, Ukraine presents a contrasting case. On one hand, it has
declared a desire for positive internal transformation and eventual membership in the European
Union; on the other hand, it is marked by a lack of substantive legal reforms in the sphere of
local governance. In practice, Ukraine remains entrenched in the administrative structures of the
previous political era. Despite commitments from the country’s highest authorities, including the
President, to implement reforms such as the decentralization of power, actual progress remains
limited{2}. Notably, Ukraine ratified the European Charter of Local Self-Government in 1997,
thereby undertaking an obligation to strengthen the rights and autonomy of its local authorities.
The subject of this study is the autonomy of local self-government bodies under conditions of
insufficient financial independence. The research underscores that local authorities remain
financially dependent on the central government. Their limited own-source revenues render them
reliant on subsidies from the central budget.
Literature Review Related to the Topic
According to the
Budget Code
and in alignment with the “Uzbekistan – 2030” Strategy, the
government aims to implement a flexible fiscal policy capable of adapting to both external and
internal shocks, with the overarching goal of ensuring long-term sustainable economic growth.
The key medium- and long-term objectives outlined in this strategy include:
– Elevating Uzbekistan to the group of upper-middle-income countries through sustained
economic
growth;
– Limiting the consolidated budget deficit to no more than 3% of GDP;
–
Ensuring
that
public
debt
does
not
exceed
50%
of
GDP;
–
Reducing
the
share
of
the
“shadow
economy”;
–
Gradually
transitioning
to
a
“results-oriented
budgeting”
framework;
– Aligning tax and customs legislation, as well as subsidies and incentives provided to various
sectors of the economy, with World Trade Organization (WTO) standards;
– Maintaining the social orientation of public budget expenditures.
Furthermore, Uzbekistan has adopted a comprehensive set of long-term measures for the
development of a “green economy,” in collaboration with the United Nations and in connection
with the 2030 Agenda for Sustainable Development. Since 2015, the Republic of Uzbekistan has
declared its support for the UN's 2030 Agenda, consisting of 17 Sustainable Development Goals
(SDGs) and 169 associated targets, and has undertaken broad efforts to advance sustainable
development within the country [3].
In contemporary, highly developed democratic countries, local governance constitutes a
fundamental component of the territorial structure of the state and functions as an institution of
relative autonomy. It serves as a mechanism for decentralizing state authority, operating within
and on the basis of the law, and emdiving a form of national self-governance. Local
government is characterized by several key features: it possesses legal personality, is partially
based on popular elections, and operates as a democratically structured entity acting in its own
name and under its own responsibility.
Administrative functions within the sphere of public governance are subject to the principles of
relative independence, are supervised by an independent judiciary, and involve mandatory
membership for all residents under the jurisdiction of the local government unit [4].
Legislation may assign self-governance responsibilities to communes, districts, and voivodeships
(the largest administrative divisions), including tasks within the scope of public administration.
These responsibilities may also extend to organizing and conducting general elections and
referendums. Urban and district communities may carry out additional public administrative
tasks based on agreements with state administration bodies. Furthermore, urban and district local
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government units may perform specific functions within the competence of other local
government bodies under inter-municipal agreements concluded between interested
administrative units.
To fulfill their legally mandated functions, local government bodies may establish organizational
units and enter into contracts with other entities, including non-governmental organizations.
Additionally, provinces, districts, and voivodeships have the right to engage in cooperative
relations with local and regional communities from other countries [5].
Analysis and Findings
Local government autonomy is one of the fundamental principles enshrined in the
European
Charter of Local Self-Government
(11 October 1981). This autonomy must be expressed through
the ability to independently determine territorial boundaries, shape internal organizational
structures, and allow elected local representatives to freely exercise their mandates. It is essential
that local authorities possess their own financial resources and enjoy the right to manage them
independently. These guarantees of autonomy are promoted and required at the European level
[6]. In this context, Ukraine serves as a classical example of the deficiency of democratic
principles, including a lack of local autonomy.
Recent conceptual developments indicate that the financial independence of local self-
government bodies manifests in two key dimensions: the autonomy of local government
revenues and the right to make independent decisions regarding expenditures. These two
elements must be supported by clear and transparent legal norms that ensure concrete and
reliable sources of revenue, along with extensive autonomy in managing expenditures for local
governance bodies.
As previously noted, the case of Ukraine—and of other post-socialist countries, such as
Poland—demonstrates that the issue of financial autonomy for local self-government remains
both pressing and significant. From the perspective of shared constitutional values, it is
necessary to ensure the clear and transparent distribution of responsibilities and accountability
between central government authorities and various levels of local self-government. This
requirement highlights the need for more in-depth discussions on local government autonomy.
It should be emphasized that although the latest phases of local government reform in Poland
have been aimed at expanding responsibilities (thus enhancing autonomy), local government
authorities contend that the financial resources provided for fulfilling these responsibilities
remain insufficient [7].
In recent years, certain developments in this field have provoked discontent among local
government bodies, as the financial resources allocated by the central government have proven
insufficient to support the tasks delegated to the local level. Although no constitutional violations
were identified, the Constitutional Court, in its ruling on this matter, stated: “The principle of
proportionality cannot be regarded as absolute, but the boundaries of interference with this
principle must be defined.” Within the jurisdiction of the Constitutional Court, changes to
sources of revenue are deemed permissible under the following conditions: there is no clear
disproportion between the volume of tasks and the level of income; local participation in state
revenues is not excluded; the legislature does not fundamentally infringe upon the financial
autonomy of local self-government bodies; and legally established income sources provide a
sufficient share in national revenue relative to their responsibilities and do not deprive local
governments of their revenue in practice.
Decisions regarding the implementation and financing of functions without centralization
represent a tangible example of cooperation between legislative, executive, and judicial
authorities in the realization of the idea of local self-government autonomy.
Returning to the core issue, it should be emphasized that although the financial system of local
self-government is regulated by several legal acts, the main catalogue of revenues is specified in
the
Law on Local Government Revenues
[8]. This law defines the sources of income for Poland’s
three-tier system of self-government—gmina (municipality), powiat (district), and voivodeship
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(province). The legislature has regulated financial management for each level separately within
specific chapters.
In the literature, the budget is regarded as an annual financial plan, adopted through a special
legislative procedure [9]. The primary aim of the budget is to plan the scheme of revenues and
expenditures. The core principles of budgeting include: the principle of unity, transparency,
balance, and accuracy. Of particular importance is the principle of a balanced budget.
Maintaining equilibrium between revenues and expenditures is a significant issue across various
levels of public administration.
The allocation of funds to local self-government bodies and their independence in seeking new
financial sources is based on the distribution of powers between central and local governments.
Over the years, the system of fund distribution in Poland has developed. One of the most
pressing issues is the budget deficit. According to the law, this deficit is covered by local self-
government bodies through the issuance of securities, loans, and borrowing.
Another important issue is the possibility of local self-government bodies engaging in economic
activities outside the scope of public benefit. According to Article 10 of the
Law on the
Management of Municipal Services
[10], local self-government bodies are permitted to establish
or join commercial enterprises outside the scope of public needs. The legislature has defined two
conditions: first, there must be a situation where local markets cannot satisfy community needs;
second, unemployment must exist and negatively affect the living standards of the population.
The restrictions mentioned in Article 10 do not apply to certain sectors such as banking,
insurance, consultancy, education, publishing, as well as companies that play an important role
in the development of society, including sports clubs. This allows local governments to earn
additional income through dividends. However, it is important to recognize that allowing
unrestricted commercial activities may negatively impact the legal responsibilities of local self-
governance.
Comparative Analysis of State Finances in Poland, Ukraine, and Uzbekistan
Poland
Ukraine
Uzbekistan
State Budget and
Taxes
-As a member of the
European
Union,
Poland’s
state
finances are aligned
with
European
standards.
-The tax system is
well-established,
with VAT (23%),
income
tax
(17-
32%), and corporate
tax (19%).
-Local
self-
government bodies
manage a portion of
tax
revenues
independently.
-Ukraine’s
state
budget is centralized,
but decentralization
processes
are
ongoing. -The tax
system
includes
VAT (20%), income
tax
(18%),
and
corporate tax (18%).
-There are issues
with tax collection,
and the informal
economy
is
widespread.
-In recent years, tax
reforms have been
implemented, with
VAT
at
12%,
income tax (12%),
and corporate tax
(15%).
-Budget allocation is
heavily centralized,
but
efforts
to
increase
financial
independence at the
local
level
are
underway.
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State Debt and
Financial Stability
-Poland’s state debt
is around 50-55% of
GDP,
which
is
considered stable.
-The
debt
management strategy
is clear and in line
with
EU
requirements.
Ukraine has a high
state debt (70-80%
of
GDP),
with
significant reliance
on
external
assistance
(IMF,
World Bank).
-Financial stability is
seriously threatened
due to the ongoing
war with Russia.
Uzbekistan's
state
debt is relatively
lower (40-45% of
GDP), though recent
years have seen an
increase
in
borrowing.
-A
significant
portion of the debt is
directed
towards
state
investment
programs.
Local Finance and
Autonomy
-Local
self-
government bodies
in Poland have broad
financial authority.
-A large portion of
the budget is formed
and spent at the local
level,
ensuring
financial
independence
and
effectiveness in local
governance.
-Decentralization
reforms are ongoing,
but
financial
autonomy at the
local level remains
insufficient.
-Many communities
still rely on central
government
assistance.
-Local governments’
budgets
are
approved by the
central government.
-Reforms aimed at
increasing financial
independence
are
being implemented,
but they have not yet
been fully realized.
Poland
– Has a developed and integrated financial system.
Ukraine
– Faces financial difficulties due to issues related to economic and political stability.
Uzbekistan
– Has a transitional economy with ongoing financial reforms, but centralization
remains strong.
Conclusion
Understanding the autonomy of local self-government can benefit from looking back at ancient
Rome. The history of the Roman Empire, with its unique characteristics, was deeply intertwined
with the subjugation of various peoples and cultures. Roman jurists, while serving in government
at various times, tried to choose and propose the best institutions to ensure the integrity of the
empire. Ultimately, the model of granting autonomy to local governments proved to be the most
effective. However, some restrictions existed—local governments could only make decisions on
local matters. Municipalities or colonies could serve as examples of such autonomy.
An analysis of the historical and legal situation shows a clear tendency toward the development
of local self-government autonomy depending on political systems or historical periods. The
necessity to maintain a certain degree of autonomy for local communities remains significant.
This includes the scope of financial management, control over expenditures, and ensuring
priority investments for local populations. The current issues in Poland and the European Union
regarding the development of local self-government institutions and the national social contract,
as outlined in the Constitution, are important and highly complex matters for various political
groups.
One of the main demands of this analysis is the creation of new forms of autonomous institutions
for local self-government bodies. The condition is to ensure that these institutions do not violate
the basic interests of the state and do not undermine the overall power of the state. Therefore, the
research should ensure the possibility of periodic implementation of broader consultations with
the public and the introduction of new and additional tools for financial management in local
self-government bodies. A real example of this is the issue of restrictions outlined in Article 10,
Clause 3 of the "Law on Municipal Services." Furthermore, it is necessary to return to the
restrictions outlined in Clauses 1 and 2 of the same law. These restrictions do not apply to local
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self-government bodies engaging in banking, insurance, business consulting, promotional
activities for local governance, education, publishing activities, or owning shares and stakes in
companies that play a significant role in the development of society.
The issue or question regarding new and diverse activities might not be significant nationwide,
but it could be extremely important for certain local self-government bodies due to their specific
location. Here, we are referring to the forms of profit derived from promoting special tourism
opportunities or leisure spots. There are some well-known examples of local self-government
bodies engaging in such activities—such as investments related to cable railways in Zakopane.
However, in my opinion, these are cautious steps that reflect a very careful interpretation of legal
norms.
Other examples of local self-government bodies with low budgets can be cited, which generate
income solely from agricultural taxes. Under the current legal situation, these bodies do not have
the opportunity to engage in banking, insurance, education, or publishing activities. These local
self-government bodies might possess characteristics that could be used for commercial purposes
in the modern world, but in this legal situation, they are restricted to receiving funds from the
central budget.
The discussion on the financial independence of local self-government bodies continues, and this
is a natural situation. However, the current problem is that although many legal norms provide
local self-government bodies the opportunity to demonstrate their creativity, some small groups
are forced to operate only under stagnation conditions. Finally, the differences in the capabilities
of various local self-government bodies, the volume of investments, and the scope of efforts to
combat unemployment are increasing. It must be clearly stated that this is partly due to the
shortcomings in existing legal norms.
References
1.
M. Kosek-Wojnar, Problem samodzielności finansowej jednostek samorządu
terytorialnego, Zeszyty Naukowe Wyższej Szkoły Ekonomii w Bochni, No. 2, 2004, p. 11.
2.
Presidential
statement
posted
on
its
website,
http://www.president.gov.ua/news/25730.html
http://www.president.gov.ua/news/25571.html
http://www.president.gov.ua/news/25902.html
[access: 2013-08-01].
3.
UN. (2024). Report on the Sustainable Development Goals 2024. United Nations
Department of Economic and Social Affairs. Retrieved from
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Jarosław Matwiejuk, Samorząd terytorialny w polsce,
Warszawa 2013
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M. Szypliński, Organizacja, zadania, i funkcjonowanie samorządu terytorialnego, Toruń
2011, s. 97
6.
B. Sitek, D. Barańska, K. Naumowicz,
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W. Breński,
Poczta Polska – mechanizmy dostosowawcze na drodze do Unii Europejskiej,
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M. Chmaj,
Prawo samorządu terytorialnego
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