Report on the development of budgetary management of municipalities, voluntary associations of municipalities and regions as at 31 December 2023
The Czech Republic has faced a decline in the real economy and high inflation since the second half of last year. Even this year, which was associated with economic stagnation and temporary slowing of the pace of price inflation, the expected revitalization of economic growth did not occur. Although it might seem this economic situation should have a negative impact on the management of territorial self-governing units, according to the results, this is not the case. At the end of the year, territorial budgets managed the historically highest positive budget balance of CZK 72.2 billion. Territorial self-governing units are therefore in the best financial condition over the last decade. As already indicated by the progress of regional budget management in the middle of the year, regions and municipalities are able to face the economic downturn without the help of the state budget, as a result of sufficient own income, which results from a significant surplus of the operating balance and the amount of savings.
From the middle of 2023, the inflation begins to come down, which was especially noticeable in the last months. The price level in December rose by 6.9% year-on-year and fell by 0.4 percentage points compared to November. It is important to note that December year-on-year inflation would be 2.7 percentage points lower without government measures to help with sharply risen energy prices implemented in the last quarter of 2022. Even so, average inflation in 2023 reached the third highest value since the independent Czech Republic was established.
Inflation caused an increase in expenditure of the territorial self-governing units and at the same time an increase in the national collection of tax revenues (mainly due to the growth of VAT collection). The tax revenues of the territorial budgets are thus developing according to the macroeconomic predictions of the Ministry of Finance, and the tax revenues in the case of regions even exceeded the predicted growth by more than CZK 1 billion, and in the case of municipalities even by CZK 6 billion. Inflationary pressures led to an increase in the price of investments and thus to a certain decrease in the planned investment activities of regions and municipalities. Despite this, the investment activities of the territorial self-governing units grew during the year. Only the regions made record investments. On the contrary, municipalities and especially capital city Prague in 2023 restricted investments. The territorial self-governing units did not fully use their investment potential of CZK 42 billion this year. The non-use of investment potential has become a trend, especially in municipalities and capital city, which have not used their investment opportunities in most of the period since 2013.
While the regions slightly increased their debt compared to 2022 and, at the same time, increased year-on-year investment expenses, municipalities (including the capital city) reduced their debt year-on-year, but also investment expenses. Territorial budgets this year accumulated funds in bank accounts to 479.7 billion CZK, which, considering the low interest rates on deposits and ongoing inflation, was not very profitable, and even for the purpose of future realization of investments mainly from own resources. In times of inflation, when the purchasing power of money is being lost, investments are one of the ways to preserve its purchasing power. It is therefore incredible why municipalities, especially Prague, did not invest and, on the contrary, saved. Deposits in bank accounts thus pointlessly lost value.
Management of Local Governments
Municipalities, regions and voluntary associations of municipalities in 2023 operated with a highest budget surplus in history of CZK 72.2 billion (see chart no. 1). The economic results demonstrate the truly excellent financial condition of territorial budgets.
The total revenues of local budgets reached CZK 841.6 billion in 2023 and increased by 13.2%, i.e. by CZK 98.1 billion. Adjusted total revenues amounted to CZK 646 billion. Their own revenues1 amounted to CZK 524.5 billion and increased by 14.9% in comparison with last year, i.e. by CZK 67.9 billion. The independence of territorial budgets from the state budget, which represents the share of own revenues in total adjusted revenues, was 81.2% and increased year-on-year. This growth was caused by a rise in tax revenues, which reached CZK 447.4 billion and increased by 15.5%, i.e. by CZK 60.1 billion. In 2023, there is a year-on-year increase in transfers received by territorial budgets, by 10.5%, i.e. by CZK 30.1 billion, to CZK 317 billion. This was mainly due to received non-investment transfers, which increased by 8.7% year-on-year, i.e. by CZK 22 billion, to CZK 275.2 billion. Investment received transfers reach CZK 41.8 billion in 2023 and year-on-year increased by 24.1%, i.e. by CZK 8.1 billion.
The total consolidated expenditures of local budgets in 2023 amounted to CZK 769.4 billion and increased by 8.3% in comparison with last year, i.e. by CZK 58.7 billion. Adjusted total expenditures1 amounted to CZK 573.8 billion. At the end of 2023, current expenditures reached CZK 603.3 billion (year-on-year growth of 8.6%, i.e. CZK 47.6 billion), while the dominant part of these current expenditures was made up of transfers that regions and municipalities transfer to contributory organizations and similar organizations. Capital expenditure in December reached CZK 166.1 billion and increased by 7.2% year-on-year, i.e. by CZK 11.1 billion.
In 2023 local governments realized consolidated expenditures for aid to Ukraine in the amount of CZK 6.7 billion (mainly the capital city of Prague). Since the beginning of the conflict, these expenses amounted to CZK 11.8 billion. Almost all expenses of territorial self-government units are compensated from the state budget.
Management of regions
In 2023, the regions managed a record budget surplus, amounting to CZK 16 billion. While last year the budget balance in December decreased slightly year-on-year, at the end of 2023 the economic result more than doubled year-on-year (see chart no. 2). This was mainly due to a significant improvement in the economy of the Pilsen Region and the Vysočina Region. Only the Karlovy Vary region had a negative budget balance at the end of 2023.
The total revenues of the regions in 2023 amounted to CZK 356.8 billion and increased by 13.9%, i.e. by CZK 43.4 billion. Adjusted total revenues1 reached CZK 185.5 billion. Their own income reached CZK 119.8 billion (year-on-year increase by 17.2%, i.e. by CZK 17.6 billion) and represent 64.6% 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 16.5%, i.e. by CZK 15.1 billion, to CZK 106.7 billion.
The total expenditures of the regions in 2023 amounted to CZK 340.8 billion and increased by 11.5% compared to last year, i.e. by CZK 35.1 billion. Adjusted total expenditures1 reached CZK 169.5 billion. The total expenditures of the regions were directed mainly to field of education and school services (CZK 189.5 billion), transport (CZK 64.6 billion) and social services (CZK 26.7 billion).This growth was mainly caused by an increase in current expenses, which increased by 8% compared to last year, i.e.by CZK 21.3 billion, to CZK 289.9 billion. The major part of the total current expenses (specifically 75.3%) consists of transfers that the regions transferred to contributory and similar organizations, in the amount of CZK 218.4 billion. Most of these funds were intended for direct education costs. In 2023 capital expenditures also increased by 37.1%, i.e. by CZK 13.8 billion, to CZK 50.9 billion. With regard to the ever-higher rate of inflation that accompanied the year 2023, the increased investment activity is advantageous. In 2023 the regions realized expenditures for aid to Ukraine and its population in the amount of CZK 5.5 billion.
Debt and balance on the regions' bank accounts
In 2023, the debt of the regions, including the contributory organizations, amounted to CZK 26 billion and compared to 2022 increased by 2.7%, i.e. by CZK 0.7 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.
The regions are continuing the trend of accumulating their savings. In 2023 amount of regional deposits in bank accounts amounted to 93 billion, which represents an increase in savings by 30.5% compared to 2022, i.e. by CZK 21.7 billion. As can be seen from graph no. 3, while the debt of the regions has decreased by 3% since 2013, the balances on bank accounts are growing dynamically, namely by 257.8%. 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
In 2023, municipalities managed the historically highest budget balance surplus of CZK 55.7 billion and thus confirm their excellent financial condition. Year-on-year, the economic result increased twice (see graph no. 4). Without the capital city, the total consolidated revenues of the municipalities in 2023 amounted to CZK 352.3 billion, expenses to CZK 325.9 billion, and the result of budget management ended in a surplus of CZK 26.4 billion. Budget of the city of Prague ended up with a surplus of CZK 29.3 billion, with total revenues of CZK 140.8 billion and expenses of CZK 111.5 billion.
The total revenues of municipalities in 2023 reached CZK 493,1 billion and increased by 12.7%, i.e. by CZK 55.6 billion compared to 2022. Adjusted total revenues1 reached CZK 468.8 billion. Their own income amounted to CZK 403.1 billion (year-on-year growth of 14.2%, i.e. by CZK 50 billion) and represented the majority of total adjusted income. Compared to regions, municipalities are 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 15.2%, i.e. by CZK 45 billion to CZK 340.7 billion.
The total expenditures of municipalities in 2023 amounted to CZK 437.4 billion and increased by 6.1 %, i.e.by CZK 25.2 billion compared to last year. Adjusted total expenditures1 reached CZK 413.1 billion. The total expenditure of the municipalities was directed mainly to the field of transport (CZK 79.6 billion), education and school services (CZK 71.7 billion), and territorial self-government (CZK 69.1 billion). The year-on-year growth of total expenses was caused by an increase in current expenses, which increased by 9.3% compared to last year, i.e. by CZK 27.2 billion, to CZK 321.7 billion. The capital expenditures of municipalities in 2023 decreased slightly year-on-year, namely by 1.7%, i.e. by CZK 2 billion, to CZK 115.7 billion. In 2023, the municipalities realized expenditures for aid to Ukraine and its population amounted to CZK 1.2 billion.
Debt and balance on the municipalities' bank accounts
Municipal debt in 2023 amounted to CZK 64 billion, and in comparison to 2022 decreased by 10%, i.e. by CZK 7.1 billion. The year-on-year reduction in debt corresponds to the still high rate of inflation, which leads to higher prices for loans and credits.
In 2023, the municipalities had deposited funds in bank accounts in the amount of CZK 386.8 billion, which represents an increase in savings by 16.7%, i.e. by CZK 55.3 billion, compared to 2022. 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 municipal savings have been growing dynamically (+ 248.3%), while the debt of municipalities has been decreasing (- 30.6%) 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 2023, voluntary associations of municipalities reported total revenues of CZK 5.8 billion (year-on-year increase of 9.6%, i.e. CZK 0.5 billion) and total expenses of CZK 5.4 billion (year-on-year decrease of 2.3%, i.e. by CZK 0.5 billion). The budget balance ended in a surplus of CZK 0.4 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.