Report on the development of budgetary management of municipalities, voluntary associations of municipalities and regions as at 30 June 2024
The territorial budgets are in excellent financial condition at mid-year, as evidenced by the highest surplus. While municipalities managed a budget surplus of CZK 6 billion higher year-on-year, the regions recorded a year-on-year growth of CZK 14.6 billion. However, this is not an exceptional situation, as territorial budgets have consistently shown very good economic results since the beginning of this year. This is due to the dynamic growth of the revenue side of territorial budgets caused by the year-on-year growth of their own revenues and, at the same time, the slow growth of expenditure caused by the year-on-year decline in current expenditure.
The self-sufficiency of regions and municipalities continued to strengthen in June, mainly in the form of increased tax revenue collections. The year-on-year increase in personal income tax collections was due to wage growth, but also to measures under the consolidation package, VAT collections due to higher household consumption and corporate income tax collections due to the payment of quarterly and half-yearly tax advances. For municipalities, there was a significant increase in real estate tax collections. The weakening of the revenue side was recorded only on the side of non-investment transfers received by territorial budgets, which fell year-on-year mainly due to a decrease in the compensatory allowance for regions for accommodation of persons from Ukraine and a decrease in funds provided from the Jan Amos Komensky Operational programme. On the other hand, investment transfers, which supported investment activities of regions and municipalities, continued to grow significantly in the middle of the year.
Compared to the end of 2023, territorial budgets reduced their debt in the middle of this year and, on the contrary, increased their cash balances in bank accounts. The slight decline in the regions' debt corresponds to their lower investment activity, but does not correspond to the fall in the interest rate, which the Czech National Bank cut in June for the third time this year. For the municipalities, the reduction in debt and the increase in their capital expenditure confirm the good financial situation of the municipalities, which are able to finance some of their investment projects even without the involvement of external resources.
Management of Local Governments
The territorial budgets are in exceptionally good financial shape at mid-year. In June 2024, regions, municipalities and voluntary associations of municipalities reported a record high positive balance of CZK 82.7 billion (see Chart No. 1), which increased by 35% year-on-year, i.e. by CZK 21.4 billion. If the economic result is adjusted for direct expenditure on education and subsidies to private schools1, the budget balance reached CZK 51.8 billion and increased by 33.8%, i.e. CZK 13.1 billion, year-on-year.
Total revenues of territorial budgets in June 2024 amounted to CZK 458.7 billion and increased by 5.2% year-on-year, i.e. by CZK 22.7 billion. After adjusting the revenues of regions and municipalities (in the case of the capital city of Prague) for direct expenditure on education and subsidies to private schools1, revenues amount to CZK 327.5 billion. Own revenues of territorial budgets reached CZK 267 billion and increased by 10.6% year-on-year, i.e. by CZK 25.6 billion. The self-sufficiency of territorial budgets, which represents the share of own revenue in total adjusted revenue2, continues to grow and stood at 81.5% at mid-year. The year-on-year increase in own revenue is mainly due to tax revenue, which increased by 6.8%, i.e. by CZK 13.9 billion, to CZK 218.8 billion. Furthermore, non-tax revenue grew by 32.6%, i.e. by CZK 10.9 billion, to CZK 44.2 billion this year. Transfers received by territorial budgets fell by 1.5% year-on-year, i.e. by CZK 2.9 billion, to CZK 191.8 billion. This was due to a decrease in non-investment transfers (down by 3.5%, i.e. by CZK 6.4 billion), which reached CZK 175.8 billion in June. In contrast, investment transfers continued to grow significantly year-on-year (up by 27.4%, i.e. by CZK 3.5 billion) and reached CZK 16 billion in the middle of the year.
The total expenditure of territorial budgets in June 2024 amounted to CZK 376.1 billion and increased slightly by 0.3% year-on-year, i.e. by CZK 1.3 billion. After adjusting the expenditure of regions and municipalities (in the case of the capital city of Prague) for direct expenditure on education and subsidies to private schools1, expenditure amounts to CZK 275.7 billion. Current expenditures amounted to CZK 315.9 billion and decreased slightly year-on-year (by 0.04%, i.e. by CZK 0.1 billion), with the dominant part of these current expenditures consisting of transfers that regions and municipalities transfer to contributory organizations and similar organizations. Capital expenditure amounted to CZK 60.2 billion in June and increased by 2.4% year-on-year (i.e. by CZK 1.4 billion), due to an increase in the purchase of local government shares.
Management of regions
The financial situation of the regions improved significantly in this half-year comparison. The regions managed the highest ever positive budget balance of CZK 39 billion. Year-on-year, the economic result increased by 59.5%, i.e. by CZK 14.6 billion (see Chart No. 2). If the budget balance of the regions is adjusted for direct expenditure on education and subsidies to private schools1, the economic result then reached CZK 11.7 billion and more than doubled year-on-year.
Total regional revenues in June this year amounted to CZK 211.7 billion and increased by 3% year-on-year, i.e. by CZK 6.2 billion. After adjusting regional revenues for direct expenditure on education and subsidies to private schools1, revenues amount to CZK 96.4 billion. During the year, the regions' own revenue has been growing systematically. In June, own revenue reached CZK 61 billion (up 17% year-on-year, i.e. by CZK 8.8 billion) and accounted for 63.3% of total adjusted revenue2. Own revenue strengthened year-on-year in June mainly due to the growth of non-tax revenue (102.1% year-on-year growth, i.e. CZK 5.6 billion), which reached CZK 11.2 billion. This was due to an increase in other non-tax revenue and other transfer refunds received. It was also due to the growth in tax revenue, which increased by 6.9% year-on-year, i.e. by CZK 3.2 billion, to CZK 49.7 billion. In June 2024, the regions received transfers in the amount of CZK 150.7 billion, i.e. 1.7%, i.e. CZK 2.6 billion less than in the previous year. Year-on-year, non-investment transfers received by the regions decreased by 2.2%, i.e. by CZK 3.3 billion and reached CZK 143.9 billion. Investment transfers received by the region amounted to CZK 6.8 billion in June this year and increased by 10.3%, i.e. by CZK 0.6 billion year-on-year.
The total expenditure of the regions in June 2024 amounted to CZK 172.7 billion and decreased by 4.6% year-on-year, i.e. by CZK 8.4 billion. Adjusting for direct education spending and subsidies to private schools1, expenditure is CZK 84.7 billion. Capital expenditure accounted for the largest share of the year-on-year decline in total expenditure, which decreased by 26.7%, i.e. by CZK 5.2 billion, to CZK 14.3 billion, despite an increase in investment transfers received. The year-on-year decrease in capital expenditure was mainly due to a reduction in expenditure on the acquisition of railway vehicles. Current expenditure decreased by 2% year-on-year, i.e. by CZK 3.1 billion, to CZK 158.4 billion. Transfers by regions to contributory and similar organizations amounted to CZK 114.8 billion and accounted for 72.5% of total current expenditure. Most of these funds were set aside for direct expenditure on education and subsidies to private schools
Debt and balance on the regions' bank accounts
The debt of the regions, including the contributory organizations, amounted to CZK 23.8 billion at the end of this half-year and decreased by 8.7%, i.e. by CZK 2.3 billion compared to the end of 2023. Although the slight decline in debt corresponds to lower investment activity in the regions, it does not correspond to the decline in the interest rate, which the Czech National Bank lowered in June for the third time this year. As Chart No. 3 demonstrates, the rise in regional debt since 2019 corresponds to the decline in base interest rates, which the Czech National Bank cut to 1% in March 2020 and even to 0.25% in May in response to the pandemic. Debt continued to rise in 2022, even though interest rates have climbed by 3.25 pp since the beginning of the year to reach their all-time high since 1999.
In June this year, the regions' bank account balances amounted to CZK 140.8 billion, which represents an increase in savings by 51.5%, i.e. CZK 47.8 billion, compared to the end of 2023. After deducting the funds received from the chapter of the Ministry of Education for direct expenditure on education and subsidies for private schools1, which the regions had not provided to schools and educational institutions by the end of June, the balances on the regional accounts reached CZK 113.5 billion in the middle of the year, so the deposits increased by 22.1%, i.e. by CZK 20.5 billion, compared to the end of 2023. As can be seen from Chart No. 3, while the regions' debt has decreased by 11.4% since 2013, the bank balances have been growing dynamically by 442%3. The regions are continuing this trend and have so far continued to accumulate their savings in the first half of 2024.
Management of municipalities
Municipalities are recording unprecedented mid-year results. In June, they reported a positive budget balance of CZK 42.1 billion and achieved the highest budget surplus since 2013. The budget balance increased by 16.5% year-on-year, i.e. by CZK 6 billion (see Chart No. 4). If we adjust the budget balance of municipalities (capital city of Prague) for direct expenditure on education and subsidies to private schools1, the economic result then reached CZK 38.5 billion and increased by 33.8% year-on-year, i.e. by CZK 13.1 billion. The Prague City Budget ended in a surplus of CZK 15.1 billion (a year-on-year decrease of 14.4%, i.e. CZK 2.5 billion) with total revenues of CZK 72 billion and expenditures of CZK 56.8 billion. Excluding the capital city, total revenues of municipalities amounted to CZK 180.2 billion, expenditures to CZK 153.3 billion and the budget result ended in a surplus of CZK 27 billion.
Total municipal revenues in June 2024 amounted to CZK 252.2 billion and increased year-on-year by 7.1%, i.e. by CZK 16.8 billion. After adjusting municipal revenues (Prague) for direct expenditure on education and subsidies to private schools1, revenues amount to CZK 236.2 billion. During the year, there is a systematic growth of own revenue of municipalities, which in the middle of the year amounted to CZK 205.2 billion (year-on-year growth of 8.9%, i.e. CZK 16.7 billion) and accounted for 86.9% of total adjusted revenue2. Own revenue strengthened year-on-year due to the growth of tax revenue, which increased by 6.8%, i.e. by CZK 10.7 billion, to CZK 169.1 billion. At the end of June this year, municipalities received transfers in the total amount of CZK 47 billion, which increased slightly by 0.1% year-on-year, i.e. by CZK 53.2 million. The insignificant increase in transfers was caused by a year-on-year decline in non-investment transfers (down by 5%, i.e. by CZK 2 billion), which amounted to CZK 38.2 billion at the end of June. Investment transfers received by municipalities increased year-on-year by 30.6%, i.e. by CZK 2.1 billion, to CZK 8.8 billion.
Total municipal expenditure in June 2024 amounted to CZK 210.1 billion and increased by 5.4% year-on-year, i.e. CZK 10.8 billion. After adjusting municipal spending (Prague) for direct education spending and subsidies to private schools1, spending amounts to CZK 197.7 billion. The year-on-year growth was mainly due to an increase in capital expenditure, which increased by 17%, i.e. by CZK 6.7 billion, to CZK 46.1 billion compared to the previous year. This was mainly due to expenditure on the purchase of equity shares and investment transfers to established contributory organizations for public road transport. The current expenditure of municipalities reached CZK 164 billion and increased by 2.6% year-on-year, i.e. by CZK 4.1 billion. The year-on-year increase in current expenditure is mainly due to an increase in expenditure on salaries of salaried employees and on roads for the purchase of services.
Debt and balance on the municipalities' bank accounts
The debt of municipalities (including contributory organizations) in the first half of 2024 amounted to CZK 62.5 billion and decreased by 2.4%, i.e. by CZK 1.5 billion, compared to the previous year. As Chart No. 5 demonstrates, municipal debt has been rising since 2019, in line with the decline in base interest rates, which the Czech National Bank cut to 1% in March 2020 and even to 0.25% in May in response to the pandemic. In times of low interest rates, loans have become a viable option to finance investments. The year-over-year reduction in municipal debt in 2021 was likely a response to the uncertain economic situation related to rapidly rising inflation and the subsequent rise in the base interest rate. Conversely, the only slight increase in municipal debt in 2020 is not entirely consistent with the gradual decline in base interest rates, which have made credit significantly cheaper. In the case of the capital. In the case of the City of Prague, there was even a year-on-year reduction in debt in 2020 and 2021.
At the end of June, municipalities (including contributory organizations) had CZK 417.7 billion in bank account, which represents an 8% increase in savings compared to the end of 2023, i.e. CZK 30.9 billion. After deducting the funds received from the Ministry of Education for direct expenditure on education and subsidies for private schools1, the balance in bank account reached CZK 414.1 billion in the middle of the year, so the deposits increased by 7.1%, i.e. by CZK 27.4 billion, compared to the end of 2023. As can be seen from Chart No. 5, the municipal balance has been growing dynamically since 2013 (+ 276.2%), while the municipal debt has been declining over the same period (- 32.2%). Like other municipalities, the capital city has been growing deposits dynamically since 2013, despite the low interest rates.
Management of voluntary associations of municipalities
In June 2024, the voluntary associations of municipalities managed total revenues of CZK 3.9 billion (year-on-year growth of 51.8%, i.e. by CZK 1.3 billion) and total expenditures of CZK 2.4 billion (year-on-year growth of 18.3%, i.e by CZK 0.4 billion). The budget balance ended in a surplus of CZK 1.5 billion (year-on-year growth of CZK 1 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.
2 Total revenue net of revenue from transfers for direct expenditure on education and from subsidies to private schools.
3 After adjusting for direct education costs and direct subsidies for private schools, the balances at BU increased by 336.8% compared to 2013.