Report on the development of budgetary management of municipalities, voluntary associations of municipalities and regions as at 31 May 2023
The economy of territorial self-governing units reports still good results in May of this year. This was mainly due to the management of municipalities (especially the capital city of Prague), which achieved the second highest budget surplus since May 2013. On the contrary, the situation made worse on the side of the regions, which recorded a negative budget balance at the end of May. The economic results indeed fell year-on-year, but in favor of investments, which reached historically high values in May. Regardless of the year-on-year decline, the prediction for this year's performance of territorial budgets remains optimistic. The Ministry of Finance expects that the territorial budgets should again end up with a surplus in 2023, which is also evidenced by the financial results from this May.
This month is still associated with the effects of the invasion of Russian troops in Ukraine and double-digit inflation. The invasion put pressure on the expenditure side of the territorial budgets to help Ukraine and its population. However, it is important to mention that these expenses are almost completely compensated from the state budget. Inflation in May increased by 11.1% year-on-year, so inflation continues to slow down and even ended up slightly below the forecast of the Czech National Bank. There is therefore an expected slowdown in price growth, which should gradually lead to a year-on-year reduction in price growth to single-digit values and to an approach to the limit of the Czech National Bank tolerance in the second or third quarter of the following year. Persistent inflation, however, continues to contribute to an increase in expenses (e.g. an increase in the price of construction works, an increase in energy prices), but at the same time also to an increase in tax revenues of the territorial budgets. According to the most actual prediction from April 2023, this year´s tax revenues of municipalities and regions should exceed their collection from 2022. Inflation also has an impact on the planned investment activities of regions and municipalities. While last year inflation led to a decline in the planned investment activities of the territorial budgets, this year it seems for this time that the impact on investments will not be so fatal.
Local Governments
In May 2023 municipalities, regions and voluntary associations of municipalities operated with a budget surplus of CZK 16.8 billion. The economic result decreased against last year by 10.4%, i.e. CZK 2 billion, but exceeded the results from the period of the first wave of the pandemic COVID-19 (see chart no. 1). Adjusted total budget balance1 amounted to CZK 16.4 billion and decreased by CZK 3.5 billion2.
The total revenues of local budgets reached CZK 326.6 billion in May 2023 and increased by 10.9%, i.e. by CZK 32 billion. Adjusted total revenues1 amounted to CZK 229.1 billion. Their own revenues amounted to CZK 182.8 billion and increased by 14.4% in comparison with last year, i.e. by CZK 23 billion. This growth was caused by a rise in tax revenues, which reached CZK 153.7 billion and increased by 14.8%, i.e. by CZK 19.8 billion.
The total consolidated expenditures of local budgets in May 2023 amounted to CZK 309.9 billion and increased by 12.3% in comparison with last year, i.e. by CZK 34 billion. Adjusted total expenditures1amounted to CZK 212.7 billion. The current expenditures in May amounted to CZK 269.3 billion (CZK +29.6 billion) and the capital expenditures reached CZK 40.6 billion (CZK +4.4 billion). In 2023 local governments so far realized consolidated expenditures for aid to Ukraine in the amount of CZK 3.7 billion (mainly the capital city of Prague).
Regions
In May of this year, the economy of the regions recorded the worst results since 2013. The budget balance ended up with a deficit of CZK 0.1 billion and thus significantly decreased year-on-year by 103.7%, i.e. by CZK 4 billion. The reason is the significant growth of current and capital expenditures of the regions, which exceeded the growth of the revenues. This drop is even more noticeable if we adjust the budget balance of the regions by the direct costs of education and subsidies for private schools. The economic result then reached a negative value of CZK 0.4 billion, thus decreasing year-on-year by CZK 4.1 billion2.
How described in chart no. 2, the total revenues of the regions in May amounted to CZK 152.5 billion and increased by 8.8%, i.e. by CZK 12.3 billion. Adjusted total revenues1 reached CZK 67.1 billion. Their own income reached CZK 40.9 billion (growth of 14.5%, i.e. by CZK 5.2 billion). Improvement of region´s own income was caused by the growth of tax revenues, which increased by 14.9%, i.e. by CZK 4.7 billion, to CZK 36.4 billion.
The total expenditures of the regions in May 2023 amounted to CZK 152.6 billion and increased by 11.9% compared to last year, i.e. by CZK 16.3 billion. Adjusted total expenditures1 reached CZK 67.5 billion. This growth was caused by an increase in current expenses, which increased by 9.8% compared to last year, i.e.by CZK 12.6 billion, to CZK 141.1 billion. The transfers that the regions transferred to contributory and similar organizations reached CZK 107.3 billion and represent 76% of total current expenses. Most of these funds were intended for direct education costs. The capital expenditures of the regions continues to rise in May of this year, even at a time of still double-digit inflation, which leads to higher prices for loans and credits, but also devalues savings in current bank accounts. The investment activity of the regions increased by 47.4%, in comparison with last year, i.e. by CZK 3.7 billion, to CZK 11.5 billion. In 2023 the regions so far realized expenditures for aid to Ukraine and its population in the amount of CZK 3.1 billion.
Municipalities
Management of municipalities continues to do very well this year. At the end of May, the municipalities reported the second highest surplus budget balance, amounting to CZK 16.3 billion. Year-on-year, the economic result increased by 11.2%, i.e. by CZK 1.6 billion (see chart no. 3). Budget of Prague, the capital city of Czech Republic, which accounts for more than half of the total municipal surplus, ended in a surplus of CZK 7 billion in May with total revenues of CZK 50.8 billion and expenditures of CZK 43.8 billion. Without the capital city, the total consolidated revenues of the municipalities at the end of May amounted to CZK 127 billion, expenses to CZK 117.7 billion, and the result of budget management ended in a surplus of CZK 9.3 billion.
The total revenues of municipalities in May 2023 reached CZK 177.8 billion and increased by 12.5%, i.e. by CZK 19.8 billion compared to 2022. Adjusted total revenues1 reached CZK 165.7 billion. Their own income amounted to CZK 141.4 billion (growth of 14.4%, i.e. by CZK 17.8 billion) and represented the majority of total adjusted income. Increase in own income of municipalities was caused mainly by the growth of tax revenues, which increased by 14.8%, i.e. by CZK 15.1 billion to CZK 117.4 billion.
The total expenditures of municipalities in May 2023 amounted to CZK 161.5 billion and increased by 12.7%, i.e.by CZK 18.2 billion compared to last year. Adjusted total expenditures1 reached CZK 149.4 billion. The growth was mainly caused by an increase in current expenses, which increased by 15% compared to last year, i.e. by CZK 17.3 billion, to CZK 132.4 billion. The capital expenditures of municipalities also increased against last year (specifically by 3.2%, i.e. by CZK 0.9 billion) and reached CZK 29.1 billion. In 2023 the municipalities so far realized expenditures for aid to Ukraine and its population in the amount of CZK 616.5 million. Expenditures are the largest in the case of capital city of Prague.
Voluntary associations of municipalities
In May 2023, voluntary associations of municipalities reported total revenues of CZK 2.1 billion (year-on-year increase of 16%, i.e. CZK 0.3 billion) and total expenses of CZK 1.6 billion (year-on-year decrease of 2.4%, i.e. by CZK 0.04 billion). The budget balance ended in a surplus of CZK 0.5 billion (year-on-year growth of 193.7%, i.e. by CZK 0.3 billion).
1 The total revenues and expenditures without direct education costs and subsidies for private schools, which regions and capital city of Prague directly allocated to the relevant schools and school facilities.
2 The adjusted budget balance of 2022 is only an estimation, as the expenditures financed by received transfers for direct education costs and private school subsidies have not yet been clearly identified in the reports FIN 2-12 M.