Report on the development of budgetary management of municipalities, voluntary associations of municipalities and regions as at 30 September 2024
Territorial budgets have achieved exceptionally positive results in September 2024, with steady revenue growth and effective expenditure management ensuring record surpluses. Regions have reported year-on-year growth in budget balances and achieved their best-ever outturn. Municipalities, although facing a decline in the balance compared to the previous year, still recorded the second highest surplus since 2013. This decline was mainly due to a year-on-year increase in capital expenditure, which is key to improving public infrastructure, the quality of life of residents and the long-term development of regions. Municipal revenue grew more slowly than expenditure, affecting the resulting balance, but overall, municipal budgets remain in very good financial shape. Stability is further supported by falling inflation, which reached 2.6% in September and remains within the Czech National Bank's tolerance band.
An analysis of the revenue side of territorial budgets shows growth in both tax and non-tax revenues. For taxes, the key drivers were higher DPFO collections, reflecting rising wages and consolidation measures, and higher VAT collections due to an increase in household consumption. In contrast, DPPO collections declined year-on-year, reflecting advance tax payments. The real estate tax recorded a significant increase, bringing additional funds to municipalities. On the other hand, non-investment transfer receipts decreased year-on-year, mainly due to lower compensatory allowances for regions for accommodation of persons from Ukraine and for municipalities due to a decrease in funds received from the Jan Amos Komenský Operational Program. Regions also saw a decrease in investment transfers received from the Operational Program Environment and the Integrated Regional Operational Program. Municipalities, on the other hand, show an increase in investment transfers, which strengthens their investment activity.
The performance of territorial budgets was affected by the floods in September, which affected most of the Czech Republic. In connection with the preparation for and handling of emergency situations and the elimination of the consequences of the damage caused by the Boris flood, the territorial budgets have so far made expenditures amounting to CZK 46.2 million. CZK.
In September 2024, the Czech National Bank cut the base interest rate again, this time by 0.25 p.p. to 4%. This measure, the third in a row since the beginning of the year, reflects efforts to further ease monetary policy in order to support economic growth and reduce the cost of borrowing, especially mortgage borrowing. At the same time, it responds to slowing inflation, which is approaching the inflation target. However, this development has direct implications for savings products, as commercial banks are reducing interest rates on bank accounts and term deposits in response to the fall in rates. The reduction in interest rates will lead to lower revenues from the financial reserves of municipalities and regions, which may affect their budgets and encourage more efficient use of the funds deposited. Cheaper loan financing also provides an opportunity for larger investments.
Regions reduced their debt in September compared to 2023. Municipalities, on the other hand, combined debt reduction with an increase in capital expenditure, demonstrating their ability to finance investment projects without the involvement of external resources. Overall, cash continues to accumulate in the territorial budgets' general government accounts, despite low interest rates, which may indicate a more cautious approach to financing development projects.
Despite the overall positive performance, the current situation raises questions whether the surpluses of territorial budgets are sufficiently used for investments in infrastructure development and improvement of public services. The current high financial stability and low interest rates create opportunities for efficient use of funds for the long-term development of regions.
Detailed information is provided in the Monitor system (data for territorial budgets can be obtained in the Analytical section under Local organisations).
Management of Local Governments
In September 2024, regions, municipalities and voluntary associations of municipalities reported a record high positive balance of CZK 78.6 billion (see Chart No. 1), which increased slightly (by 1.7% year-on-year, i.e. by CZK 1.3 billion). If the economic result is adjusted for direct expenditure on education and subsidies to private schools1, the budget balance reached CZK 59.3 billion and decreased by 15.7%, i.e. CZK 11.1 billion, year-on-year.
Total revenues of territorial budgets in September 2024 amounted to CZK 648.6 billion and increased by 0.6% year-on-year, i.e. by CZK 3.7 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 482.7 billion. Own revenues of territorial budgets reached CZK 402.6 billion and increased by 3.5% year-on-year, i.e. by CZK 13.6 billion. The self-sufficiency of territorial budgets, which represents the share of own revenue in total adjusted revenue2, was 83.4% in September. The year-on-year increase in own revenue is mainly due to non-tax revenue, which increased by 23%, i.e. by CZK 11.5 billion, to CZK 61.6 billion. Furthermore, tax revenues, which grew by 0.3%, i.e. by CZK 1.1, to CZK 334.9 billion. Transfers received by territorial budgets fell by 4% year-on-year, i.e. by CZK 10.2 billion, to CZK 245.8 billion. This was due to a decrease in non-investment transfers (down by 3.4%, i.e. by CZK 7.8 billion), which reached CZK 222.3 billion in September, but also due to a decrease in investment transfers (down by 9.2%, i.e. by CZK 2.4 billion) and reached CZK 23.5 billion in September.
The total expenditure of territorial budgets in September 2024 amounted to CZK 570 billion and increased slightly by 0.4% year-on-year, i.e. by CZK 2.4 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 423.5 billion. Current expenditures amounted to CZK 462.8 billion and decreased slightly year-on-year (by 0.1%, i.e. by CZK 0.3 billion), due to a year-on-year decrease in non-investment transfers to foreign contributory and established contributory organizations for primary schools. Capital expenditure amounted to CZK 107.2 billion in September and increased by 2.6% year-on-year (i.e. by CZK 2.7 billion), due to an increase in the purchase of local government shares.
Management of regions
The financial situation of the regions improved significantly year-on-year in September. The regions managed the highest ever positive budget balance of CZK 32.1 billion. Year-on-year, the economic result increased by 49.1%, i.e. by CZK 10.6 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 12.9 billion and more than doubled year-on-year.
Total regional revenues at the end of September 2024 achieved CZK 282.2 billion and in comparison, with last year decreased slightly (fell by 0.6%, i.e. by CZK 1.7 billion). After adjusting regional revenues for direct expenditure on education and subsidies to private schools1, revenues amount to CZK 136.8 billion. During the year, the regions' own revenue has been growing systematically. In September, own revenue reached CZK 93.1 billion (up 6.7% year-on-year, i.e. by CZK 5.8 billion) and accounted for 68% of total adjusted revenue2. Own revenue strengthened year-on-year in September mainly due to the growth of non-tax revenues (67.1% year-on-year growth, i.e. by CZK 5.4 billion), which reached CZK 13.6 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 0.6% year-on-year, i.e. by CZK 0.4 billion, to CZK 79.2 billion.
In September 2024, the regions received transfers in the amount of CZK 189.2 billion, i.e. 3.8%, i.e. CZK 7.5 billion less than in the previous year. Year-on-year, non-investment transfers received by the regions decreased by 1.4%, i.e. by CZK 2.6 billion and reached CZK 179.8 billion. Investment transfers received by the region amounted to CZK 9.4 billion in September this year and decreased by 34.4%, i.e. by CZK 4.9 billion year-on-year.
The total expenditure of the regions in September 2024 amounted to CZK 250.1 billion and decreased by 4.7% year-on-year, i.e. by CZK 12.3 billion. Adjusting for direct education spending and subsidies to private schools1, expenditure is CZK 124 billion. Capital expenditure accounted for the largest share of the year-on-year decline in total expenditure, which decreased by 18.1%, i.e. by CZK 5.8 billion, to CZK 26.4 billion. 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 2.8% year-on-year, i.e. by CZK 6.4 billion, to CZK 223.7 billion. The year-on-year decrease in current expenditure is mainly due to a reduction in non-investment transfers to foreign contributory and established contributory organizations to private schools.
In September, the regional economy was affected by the floods caused by the Boris pressure low. As a result, in September 2024, the regions made expenditures directly related to the preparation and management of emergency situations and to the repair of damage caused by floods in the amount of CZK 24.5 million. CZK. The floods caused the most damage in the Moravian-Silesian Region, whose flood-related expenditure exceeded CZK 24 million.
Debt and balance on the regions' bank accounts
The debt of the regions, including the contributory organizations, amounted to CZK 24 billion at the end of September 2024 and decreased by 7.8%, i.e. by CZK 2 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 base interest rate, which the Czech National Bank has been gradually lowering since the beginning of this year. In per capita terms, debt was highest in the Karlovy Vary Region, followed by the Liberec Region.
In September this year, the regions' bank account balances amounted to CZK 132.3 billion, which represents an increase in savings by 42.3%, i.e. by CZK 39.3 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 September, the balances on the regional accounts reached CZK 113 billion at the end of September, so the deposits increased by 21.6%, i.e. by CZK 20 billion, compared to the end of 2023. As can be seen from Chart No. 3, while the regions' debt has decreased by 10.6% since 2013, the bank balances have been growing dynamically by 409.1%
Management of municipalities
In September 2024, municipalities reported a positive budget balance of CZK 45 billion and achieved the second highest budget surplus since 2013. However, municipalities occurred the highest budget surplus in 2023, therefore the budget balance decreased by 18.9% year-on-year, i.e. by CZK 10.1 billion. The Prague City Budget ended in a surplus of CZK 18.8 billion (a year-on-year decrease of 21%, i.e. CZK 5 billion) with total revenues of CZK 106.3 billion and expenditures of CZK 87.5 billion. Excluding the capital city, total revenues of municipalities amounted to CZK 267.7 billion, expenditures to CZK 241.5 billion and the budget result ended in a surplus of CZK 26.2 billion.
Total municipal revenues in September 2024 amounted to CZK 374 billion and increased year-on-year by 1.5%, i.e. by CZK 5.3 billion. After adjusting municipal revenues (Prague) for direct expenditure on education and subsidies to private schools1, revenues amount to CZK 353.5 billion. During the year, there is a systematic growth of own revenue of municipalities, which at the end of September amounted to CZK 308.4 billion (year-on-year growth of 2.6%, i.e. CZK 7.7 billion) and accounted for 87.2% of total adjusted revenue2. Own revenues strengthened year-on-year mainly due to the growth of non-tax revenues, which increased by 14.7%, i.e. by CZK 6 billion, to CZK 46.9 billion. Furthermore, capital revenue increased by 22%, i.e. by CZK 1 billion, to CZK 5.8 billion and tax revenue increased by 0.3%, i.e. by CZK 0.6 billion, to CZK 255.7 billion.
At the end of September, municipalities received transfers in the total amount of CZK 65.6 billion, down by 3.5%, i.e. by CZK 2.4 billion year-on-year. The decrease in transfers was caused by a year-on-year decline in non-investment transfers (down by 8.4%, i.e. by CZK 4.7 billion), which amounted to CZK 50.7 billion. Investment transfers received by municipalities increased by 18.4%, i.e. by CZK 2.3 billion year-on-year, to CZK 14.9 billion.
Total municipal expenditure in September 2024 amounted to CZK 329 billion and increased by 4.9% year-on-year, i.e. CZK 15.5 billion. After adjusting municipal spending (Prague) for direct education spending and subsidies to private schools1, spending amounts is CZK 308.6 billion. The year-on-year growth was mainly due to an increase in capital expenditure, which increased by 12.4%, i.e. by CZK 9 billion, to CZK 81.8 billion compared to the previous year. This was mainly due to expenditure on the purchase of property interests in local government activities, utilities and land development. The current expenditure of municipalities reached CZK 247.1 billion and increased by 2.7% year-on-year, i.e. by CZK 6.4 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.
In September, the municipalities were affected by the floods caused by the Boris pressure low. As a result, in September 2024, municipalities made expenditures directly related to the preparation and management of emergency situations and to the repair of flood damage in the amount of CZK 45.8 million. CZK. The floods caused the most damage in the municipalities of the Moravian-Silesian Region, whose flood-related expenditures exceeded CZK 20 million. CZK.
Debt and balance on the municipalities' bank accounts
The debt of municipalities (including contributory organizations) at the end of September 2024 amounted to CZK 62.5 billion and decreased by 2.4%, i.e. by CZK 1.6 billion, compared to the previous year. The year-on-year decrease in debt and, on the contrary, the increase in capital expenditure confirms the good financial situation of municipalities, which are able to finance their investment activities from their own funds. The highest number of municipalities with debt was in the Central Bohemian Region and, per capita, in the Vysočina Region.
At the end of September, municipalities (including contributory organizations) had CZK 418.9 billion in bank account, which represents an 8.3% increase in savings, i.e. by CZK 32.1 billion, compared to the end of 2023. As can be seen from Chart No. 5, the municipal balance has been growing dynamically since 2013 (+ 277.3%), while the municipal debt has been declining over the same period (- 32.3%). 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 September 2024, the voluntary associations of municipalities managed total revenues of CZK 5.4 billion (year-on-year growth of 40.8%, i.e. CZK 1.6 billion) and total expenditures of CZK 4 billion (year-on-year growth of 17.8%, i.e by CZK 0.6 billion). The budget balance ended in a surplus of CZK 1.4 billion (year-on-year growth of 211.4%, i.e. 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 expenditure on education and subsidies to private schools, balances in the general government accounts increased by 335% compared to 2013.