Report on the development of budgetary management of municipalities, voluntary associations of municipalities and regions as at 31 March 2024
Territorial budgets are in excellent financial condition in the first quarter of this year. While the revenue side of the territorial budgets is repeatedly strengthened mainly by own revenues, which increase the self-sufficiency of territorial budgets, at the same time, there is a reduction on the expenditure side, both in terms of current and capital expenses. It is not so surprising that the regions and municipalities managed in March with the highest budget surplus in their entire history. This significant surplus is mainly due to subsidies for direct education expenses and subsidies for private schools, which the regions received from the budget of the Ministry of Education, Youth and Sports, but did not provide them to schools and school districts by the end of March.
The domestic economy was essentially healed in the first quarter of this year, as it grew by 0.2% year-on-year, mainly as a result of higher household consumption and foreign demand. Inflation stabilized in March, at the 2% target of the Czech National Bank, due to the restrictive monetary policy and weakened domestic economic activity. Economic prosperity is also reflected in the management of the territorial budgets, specifically in the growth of own incomes of regions and municipalities, especially non-tax incomes. Tax revenues also increased year-on-year, which were mainly influenced by the growth of corporate income tax collection, growth of personal income tax collection depending on wage growth, but also an increase in VAT collection, as the impact of increased household demand. The decline was occurred only in non-investment transfers received by territorial budgets.
Compared to the end of 2023, the territorial budgets reduced their debt and, on the contrary, increased the balance of funds in bank accounts. While the slight decrease in the debt of the regions corresponds to their lower investment activity, the reduction of debt and the increase of their capital expenditure in the case of municipalities confirms the good financial situation of the municipalities, which are able to finance some of their investment activities even without the involvement of external sources. The stabilization of inflation and the recovery of the economy could lead to an increase in the planned investment activities of regions and municipalities this year.
Management of Local Governments
In March 2024 municipalities, regions and voluntary associations of municipalities operated with a budget surplus of CZK 70.6 billion (year-on-year an increase by 175.6%, i.e. CZK 45 billion) and reported the historically highest budget surplus (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 38.6 billion and increased by 74.7% year-on-year, i.e. by CZK 16.5 billion.
The total revenues of local budgets reached CZK 224.2 billion in March 2024 and increased by 5.7%, i.e. by CZK 12.1 billion. Adjusted total revenues1 amounted to CZK 158.7 billion. Their own revenues amounted to CZK 129.8 billion and increased by 13.9% in comparison with last year, i.e. by CZK 15.8 billion. This growth was caused by a rise in non-tax revenues, which reached CZK 24.3 billion and increased by 55.6%, i.e. by CZK 8.7 billion. Tax revenues are also growing, reaching CZK 103.6 billion and increasing by 6.9% year-on-year, i.e. by CZK 6.7 billion. Transfers received by territorial budgets in March 2024 decreased year-on-year by 3.8%, i.e. by CZK 3.7 billion, to CZK 94.4 billion. This reduction was only due to non-investment received transfers, which fell by 6.9% year-on-year, i.e. by CZK 6.5 billion, to CZK 87.6 billion. On the contrary, investment received transfers increased by 70.2% year-on-year, i.e. by CZK 2.8 billion and reached CZK 6.8 billion.
The total consolidated expenditures of local budgets in March 2024 amounted to CZK 153.7 billion and increased by 17.6% in comparison with last year, i.e. by CZK 32.9 billion. Adjusted total expenditures1 amounted to CZK 120 billion. The current expenditures in March amounted to CZK 134.3 billion (year-on-year decline of 19.3%, i.e. CZK 32.1 billion), while the dominant part of it was represented of transfers that regions and municipalities transfer to contributory organizations and similar organizations. The capital expenditures reached CZK 19.4 billion (year-on-year decline of 3.7%, i.e. CZK 0.8 billion).
Management of regions
In March 2024 the regions managed a positive budget balance of CZK 42.7 billion, which is six times higher than previous year (see Chart No. 2). If we reduce the budget balance by the direct costs of education and subsidies for private schools1, the economic surplus reached CZK 14.4 billion and increased by 220%, i.e. by CZK 9.9 billion.
The total revenues of the regions in March 2024 amounted to CZK 109.3 billion and increased by 4.4%, i.e. by CZK 4.6 billion. Adjusted total revenues1 reached CZK 51.8 billion. Their own income reached CZK 32.2billion (year-on-year increase by 26.4%, i.e. by CZK 6.7 billion) and represent 62.2% of total income adjusted for direct education costs. The regions' own revenues increased in March mainly due to the growth of non-tax revenues, by 178.3% year-on-year, i.e. by CZK 4.6 billion, to CZK 7.2 billion. In March 2024, the tax revenues increased by 9.5%, i.e. CZK 2.2 billion, to CZK 25 billion. Regions received transfers in the amount of CZK 77.1 billion, i.e. by 2.7%, i.e. by CZK 2.1 billion less against last year. This was mainly due to the decline of non-investment transfers, which decreased by 5% year-on-year, i.e. CZK 3.8 billion, to CZK 73.6 billion. Investment transfers received by the region increased year-on-year, reaching CZK 3.5 billion in March and year-on-year rose of 94.6%, i.e. by CZK 1.7 billion.
The total expenditures of the regions in March 2024 amounted to CZK 66.7 billion and decreased by 31.7% compared to last year, i.e. by CZK 31 billion. Adjusted total expenditures1 reached CZK 37.4 billion. This decay was caused by a decrease in current expenditures, which fall by 31.9% compared to last year, i.e.by CZK 29.1 billion, to CZK 62.2 billion. The reason behind the year-on-year reduction in current expenses is primarily that the regions had not provide schools and school facilities funds received from the Ministry of Education, Youth and Sports for direct education expenses and subsidies for private schools1. The transfers that the regions transferred to contributory and similar organizations reached CZK 42.1 billion and represented 67.6% of current expenses. Most of these funds were intended for direct education costs. Capital expenditures also decreased by 29.5%, i.e. by CZK 1.9 billion, to CZK 4.5 billion
Debt and balance on the regions' bank accounts
At the end of March 2024, the debt of the regions, including the contributory organizations, amounted to CZK 25.6 billion and compared to 2023 increased by 1.8%, i.e. by CZK 0.5 billion. The slight decrease in debt corresponds to lower investment activity in the regions. As Chart No. 3 demonstrates, the growth of regional debt since 2019 corresponds to a drop in basic interest rates, which the Czech National Bank reduced to 1% in response to the pandemic in March 2020 and even to 0.25% in May. The debt continued to grow in 2022, despite the fact that interest rates have risen by 3.25 p.p. since the beginning of the year and reached their all-time high since 1999.
In the first quarter of 2024 the regions are continuing the trend of accumulating their savings. In March of this year, the amount of regional deposits in bank accounts amounted to 134.6 billion, which represents an increase in savings by 44.8% compared to 2023, i.e. by CZK 41.6 billion. After deducting the direct costs of education and subsidies for private schools1, the deposit on regions ‘bank accounts reached CZK 106.2 billion, so savings increased by 14.3% year-on-year, i.e. by CZK 13.3 billion. As can be seen from Chart No. 3, while the debt of the regions has decreased by 4.7% since 2013, the balances on bank accounts are growing dynamically, namely by 417.9%2.
Management of municipalities
Municipalities managed a budget surplus of CZK 27 billion in the first quarter of 2024. The budget balance increased year-on-year by 49.9%, i.e. by CZK 9 billion, mainly due to an increase in tax and non-tax revenues (see Chart No. 4). If we reduce the budget balance by the direct costs of education and subsidies for private schools1 by direct expenditure on education and subsidies for private schools1, the budget balance is only CZK 23.4 billion and increased by 36.1% year-on-year, i.e. by CZK 6.2 billion. Without the capital city, the total consolidated revenues of the municipalities in March amounted to CZK 83.3 billion, expenses to CZK 67.6 billion, and the result of budget management ended in a surplus of CZK 7.7 billion. Budget of the city of Prague ended up with a surplus of CZK 11.4 billion, with total revenues of CZK 33.2 billion and expenses of CZK 21.8 billion.
The total revenues of municipalities in March 2024 reached CZK 116.5 billion and increased by 6.4%, i.e. by CZK 7 billion compared to 2023. Adjusted total revenues1 reached CZK 108.5 billion. Their own income amounted to CZK 97.3 billion (year-on-year growth of 10.3%, i.e. by CZK 9.1 billion) and represented 89.7% of total adjusted income. Own revenues are repeatedly strengthening, especially due to the growth of tax revenues, which in March of this year increased by 6.1% year-on-year, i.e. by CZK 4.5 billion, to CZK 78.6 billion. At the end of March this year, municipalities received transfers in the total amount of CZK 19.2 billion and year-on-year they received them by 10.1%, i.e. by CZK 2.1 billion less. Non-investment transfers, which amounted to CZK 16.2 billion at the end of March, decreased year-on-year by 14.4%, i.e. by CZK 2.7 billion. Investment transfers received by municipalities increased year-on-year by 25%, i.e. by CZK 0.6 billion, to CZK 2.9 billion.
The total expenditures of municipalities in March 2024 amounted to CZK 89.4 billion and decreased by 2.2 %, i.e.by CZK 2 billion compared to last year. Adjusted total expenditures1 reached CZK 85.1 billion. The year-on-year decline of total expenses was caused by an decrease in current expenses, which fell by 3.8% compared to last year, i.e.by CZK 3 billion, to CZK 74.5 billion. The year-on-year decrease in current expenses is mainly due to the fact that the city of Prague had not provided schools and school facilities funds received from the Ministry of Education, Youth and Sports for direct education expenses and subsidies for private schools1. In March 2024 current expenditures increased by 6.8%, i.e. by CZK 0.9 billion, to CZK 14.9 billion.
Debt and balance on the municipalities' bank accounts
Municipal debt in March 2024 amounted to CZK 63 billion and in comparison to 2023 decreased by 1.7%, i.e. by CZK 1.1 billion. The slight decrease in debt and the year-on-year increase in capital expenditures confirm the good financial situation of the municipalities, which are able to finance their investment activities even with a lower involvement of external funds. As Chart No. 5 demonstrates, municipal debt has been growing since 2019, depending on decrease in the basic interest rates, which the Czech National Bank reduced to 1% in March 2020 and even to 0.25% in May in response to the pandemic. At a time of low interest rates, loans have become a beneficial option to finance investments. The year-on-year reduction in municipal debt in 2021 was probably a response to the uncertain economic situation in connection with rapidly rising inflation and the subsequent increase in the base interest rate. On the contrary, only a slight increase in municipal debt in 2020 does not correspond to the gradual decrease in basic interest rates, which made loans significantly cheaper.
At the end of the first quarter of 2024, the municipalities had deposited funds in bank accounts in the amount of CZK 388.7 billion, which represents an increase in savings by 0.5%, i.e. by CZK 2 billion, compared to 2023. After deducting the direct costs of education and subsidies for private schools1, the balance of savings reached CZK 385.1 billion, so deposits decreased by 0.4% year-on-year, i.e. by CZK 1.7 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 municipal savings have been growing dynamically (+ 250.1%3), while the debt of municipalities has been decreasing (- 31.7%) in the same period. Like other municipalities, the capital city accumulated deposits, despite low interest rates.
Management of voluntary associations of municipalities
In March 2024, voluntary associations of municipalities reported total revenues of CZK 1.7 billion (year-on-year an increase of 60.3%, i.e. CZK 0.7 billion) and total expenses of CZK 0.9 billion (year-on-year an increase of 20.9%, i.e. by CZK 0.2 billion). The budget balance ended in a surplus of CZK 0.8 billion (year-on-year growth by CZK 0.5 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.
2After adjusting for direct education costs and direct subsidies for private schools, the balances at BU increased by 308.9% compared to 2013.
3After adjusting for direct education costs and direct subsidies for private schools, the deposits in bank accounts increased by 246.8% compared to 2013.