Report on the development of budgetary management of municipalities, voluntary associations of municipalities and regions as at 30 June 2023
In the middle of this year, regional budgets are in the best financial condition since 2013. Although the management of regional budgets has to struggle with the economic downturn caused by still high inflation, the regions and municipalities in June 2023 perform very well, as per demonstrated by the historically highest surplus budget. The improvement in the balance of territorial budgets is primarily due to the higher collection of tax revenues and a higher volume of received transfers. According to the management results of territorial budgets, regions and municipalities continue to invest at an increased rate. Capital expenditures of territorial budgets continue to grow significantly, even at a time of still high inflation, which leads to higher prices for accepted loans and credits, but also devalues savings in current bank accounts.
Territorial self-governing units continue the trend of accumulating their savings in bank accounts and at the same time reducing their debt. The year-on-year reduction in debt together with the year-on-year increase in capital expenditure with regard to inflation is considered positive, as it confirms the good financial situation of municipalities and regions, which are able to finance some of their investment activities even without the involvement of external sources. On the other hand, the accumulation of large savings at the bank account, even for the purpose of planning larger investment actions implemented mainly from own resources, is still considered undesirable, as these deposits lose their value due to inflation.
While the previous macroeconomic predictions of the Ministry of Finance counted on the recovery of the economy already at the end of this year, according to the updated outlook, the necessary recovery will occur following year. The reason is high inflation, which although in June increased by 9.7% year-on-year and became single digits for the first time, still has a deep impact on household consumption. Inflation continues to contribute to an increase in the national collection of tax revenues (mainly due to the growth of VAT collection), and thus also to the tax revenues of territorial budgets, but at the same time it also increases their expenditure side (e.g. higher prices for loans, construction works, increases in energy prices). Based on the economic results achieved, it can be concluded that the territorial budgets should maintain a good financial position even at the end of this year, despite the fact that the economy will stagnate.
Management of Local Governments
In June 2023 municipalities, regions and voluntary associations of municipalities operated with a budget surplus of CZK 61.2 billion. The economic result increased against last year by 19.9%, i.e. CZK 10.2 billion (see chart no. 1). If we reduce the budget balance by the direct costs of education and subsidies for private schools1, the economic surplus reached CZK 38.7 billion and increased by 44.9% year-on-year, i.e. by CZK 12 billion. Territorial budgets are still performing very well in the middle of 2023, which is also evidenced by the amount of the surplus, which reached the highest value in history.
The total revenues of local budgets reached CZK 436 billion in June 2023 and increased by 14.6%, i.e. by CZK 55.4 billion. Adjusted total revenues1 amounted to CZK 308.1 billion. Their own revenues amounted to CZK 241.3 billion and increased by 13.4% in comparison with last year, i.e. by CZK 28.4 billion. The independence of territorial budgets from the state budget, which represents the share of own revenues in total adjusted revenues, was 78.3% and decreased year-on-year. This growth was caused by a rise in tax revenues, which reached CZK 204.9 billion and increased by 14.1%, i.e. by CZK 25.3 billion. In the middle of year 2023, there is a year-on-year increase in transfers received by territorial budgets, by 15.4%, i.e. by CZK 26 billion, to CZK 194.7 billion. This was mainly due to received non-investment transfers, which increased by 15.4% year-on-year, i.e. by CZK 24.3 billion, to CZK 182.2 billion. Investment received transfers reach CZK 12.6 billion in June 2023 and year-on-year increased by 15.3%, i.e. by CZK 1.7 billion.
The total consolidated expenditures of local budgets in June 2023 amounted to CZK 374.8 billion and increased by 13.7% in comparison with last year, i.e. by CZK 45.2 billion. Adjusted total expenditures1amounted to CZK 269.4 billion. There is year-on-year growth in current expenses, which at the end of June recorded an increase of 13.5%, i.e. by CZK 37.6 billion, and reached CZK 316.6 billion. In terms of sectors, current expenditures were directed mainly to the education sector (due to direct costs of education and subsidies to private schools) and to the transport sector. The capital expenditures in the middle of this year increased by 15%, i.e. by CZK 7.6 billion, to CZK 58.8 billion. In 2023 local governments realized consolidated expenditures for aid to Ukraine in the amount of CZK 4.6 billion (mainly the capital city of Prague).
Management of regions
The regions returned to good financial condition in the middle of 2023, because they already managed with a budget surplus. While their economic results in May ended in a deficit, so in June they reached a budget surplus CZK 24.5 billion. The surplus increased compared to last year by 1.4%, i.e. by CZK 0.3 billion and exceeded the budget balance from 2019, i.e. before the outbreak of the pandemic COVID-19. How described in chart no. 2, although the budget balance decreased compared to 2021, it is still the second best economic result since 2013. If we reduce the budget balance by the direct costs of education and subsidies for private schools1, the economic surplus reached CZK 5.5 billion and increased more than twice. In June of this year 12 regions had a positive budget balance.
The total revenues of the regions in June amounted to CZK 205.5 billion and increased by 16.6%, i.e. by CZK 29.3 billion. Adjusted total revenues1 reached CZK 93.1 billion. Their own income reached CZK 52.2 billion (year-on-year increase by 13.3%, i.e. by CZK 6.1 billion) and represent 56% of total income adjusted for direct education costs. This share indicates a certain dependence of regions on received transfers from the state budget and state funds and their relatively lower self-sufficiency in contrast to municipalities. Improvement of region´s own income was caused by the growth of tax revenues, which increased by 14.8%, i.e. by CZK 6 billion, to CZK 46.5 billion.
The total expenditures of the regions in June 2023 amounted to CZK 181 billion and increased by 19% compared to last year, i.e. by CZK 28.9 billion. Adjusted total expenditures1reached CZK 87.7 billion. The total expenditures of the regions were directed mainly to field of education and school services (CZK 102.8 billion), transport (CZK 27.7 billion) and social services (CZK 19.4 billion).This growth was mainly caused by an increase in current expenses, which increased by 14.7% compared to last year, i.e.by CZK 20.7 billion, to CZK 161.5 billion. The major part of the total current expenses (specifically 74.8%) consists of transfers that the regions transferred to contributory and similar organizations, in the amount of CZK 120.8 billion. Most of these funds were intended for direct education costs. In June 2023 capital expenditures also increased by 72.5 %, i.e. by CZK 8.2 billion, to CZK 19.5 billion, despite of actual inflation. In 2023 the regions realized expenditures for aid to Ukraine and its population in the amount of CZK 3.9 billion.
Debt and balance on the regions' bank accounts
At the end of the first half of 2023, the debt of the regions, including the contributory organizations, amounted to CZK 29 billion and compared to 2022 increased by 14.5%, i.e. by CZK 3.7 billion. Although there is a year-on-year increase in debt, there is also a year-on-year increase in capital expenditure. Regions as well finance their investment activities with the help of received borrowed funds.
In the first half of 2023, the regions are continuing the trend of accumulating their savings. In June of this year, the amount of regional deposits in bank accounts amounted to 110.4 billion, which represents an increase in savings by 55% compared to 2022, i.e. by CZK 39.2 billion. After deducting the direct costs of education and subsidies for private schools1, the deposit on regions ‘bank accounts reached CZK 91.4 billion, so savings increased by 28.3% year-on-year, i.e. by CZK 20.1 billion. As can be seen from graph no. 3, while the debt of the regions has increased by 8.1% since 2013, the balances on bank accounts are growing dynamically, namely by 324.9%. In general, high levels of funds deposited on bank accounts are currently considered not entirely desirable, as these deposits lose their value due to inflation.
Management of municipalities
The management of municipalities continues in the results of previous months and shows a budget surplus in the half-year. Even in June 2023, the municipalities recorded the historically highest positive values of the budget balance, in the amount of CZK 36.1 billion (see graph no. 4). Year-on-year, the economic result increased by 35.6%, i.e. by CZK 9.5 billion. If we reduce the budget balance by direct costs of education and subsidies for private schools1, the economic surplus reached CZK 32.6 billion and increased by 36.4% year-on-year, i.e. by CZK 8.7 billion. Without the capital city, the total consolidated revenues of the municipalities in the half-year amounted to CZK 166.4 billion, expenses to CZK 148 billion, and the result of budget management ended in a surplus of CZK 18.5 billion. Budget of the city of Prague ended up with a surplus of CZK 17.7 billion, with total revenues of CZK 69 billion and expenses of CZK 51.3 billion. During this period, 1 411 municipalities managed a deficit (22.6% of the total number of municipalities).
The total revenues of municipalities in June 2023 reached CZK 235.4 billion and increased by 12.7%, i.e. by CZK 26.6 billion compared to 2022. Adjusted total revenues1 reached CZK 219.8 billion. Their own income amounted to CZK 188.5 billion (year-on-year growth of 13.4%, i.e. by CZK 22.2 billion) and represented the majority of total adjusted income. Compared to regions, municipalities are relatively more self-sufficient and thus do not show significant dependence on received transfers from the state budget and state funds. Increase in own income of municipalities was caused mainly by the growth of tax revenues, which increased by 13.9%, i.e. by CZK 19.3 billion to CZK 158.4 billion.
The total expenditures of municipalities in June 2023 amounted to CZK 199.3 billion and increased by 9.4 %, i.e.by CZK 17.1 billion compared to last year. Adjusted total expenditures1 reached CZK 187.2 billion. The total expenditure of the municipalities was directed mainly to the field of education and school services (CZK 32.4 billion), to territorial self-government (CZK 32 billion) and to transport (CZK 31.4 billion). The year-on-year growth of total expenses was caused by an increase in current expenses, which increased by 14.7% compared to last year, i.e. by CZK 20.7 billion, to CZK 161.5 billion. On the contrary, the capital expenditures of municipalities in June this year decreased slightly year-on-year, namely by 0.7%, i.e. by CZK 0.2 billion, to CZK 39.4 billion. In 2023, the municipalities realized expenditures for aid to Ukraine and its population in the amount of CZK 695.2 million.
Debt and balance on the municipalities' bank accounts
Municipal debt in June 2023 amounted to CZK 64.8 billion, and in comparison to 2022 decreased by 8.9%, i.e. by CZK 6.3 billion. The year-on-year reduction in debt and at the same time the year-on-year decrease in capital expenditure corresponds to the still high rate of inflation, which leads to higher prices for loans and credits. However, it is important to point out that the municipality always has a certain amount of savings to a greater or lesser extent, so there is no need to use borrowed funds for some smaller investment projects.
At the end of the first half of 2023, the municipalities had deposited funds in bank accounts in the amount of CZK 363.9 billion, which represents an increase in savings by 9.8%, i.e. by CZK 32.4 billion, compared to 2022. After deducting the direct costs of education and subsidies for private schools1, the balance of savings reached CZK 360.4 billion, so deposits increased by 8.7% year-on-year, i.e. by CZK 28.9 billion. As well as regions, municipalities follow the trend of accumulation of savings. As can be seen from chart no. 5, since 2013, the balances of municipalities ‘savings have been growing dynamically (+ 227.8%), while the debt of municipalities has been decreasing (- 29.8%) in the same period. Like other municipalities, the capital city accumulated deposits, despite low interest rates. In general, high amounts of money deposited in regular bank accounts are considered not entirely desirable at the current time of still high inflation rates, as these savings are being devalued.
Management of voluntary associations of municipalities
In June 2023, voluntary associations of municipalities reported total revenues of CZK 2.6 billion (year-on-year increase of 7.2%, i.e. CZK 0.2 billion) and total expenses of CZK 2 billion (year-on-year decrease of 2.7%, i.e. by CZK 0.02 billion). The budget balance ended in a surplus of CZK 0.5 billion (year-on-year growth of 71.2%, i.e. by CZK 0.2 billion).
1 The direct costs of education and subsidies for private schools represent funds from the state budget, which are distributed and directly allocated to the schools and school facilities by regions and Prague. It is therefore a non-investment flow transfer and the region and Prague cannot dispose of these funds in any way. For this reason, the total revenues and expenses of the regions and Prague are reduced so not to distort their results of management.