Report on the development of budgetary management of municipalities, voluntary associations of municipalities and regions as at 31 December 2024
The territorial budgets ended 2024 with a high surplus of CZK 52.1 billion. This result shows that territorial budgets are not fully efficient in managing public funds and reveals untapped investment potential that could have contributed to the development of infrastructure and the improvement of public services. Therefore, the budget surplus cannot automatically be seen as a positive phenomenon if it is achieved at the expense of investment activity. The surplus of the capital city of Prague accounts for more than half of the surplus of the municipalities and the management of the capital city has significantly contributed to the lack of investment potential at the local government level. However, even after deducting the impact of the capital city, it remains evident that municipalities as a whole have not fully exploited their investment potential. This conservative approach may in the long term lead to a lag in the construction and modernization of public infrastructure, which may negatively affect the quality of life of the inhabitants and contradict the basic mission of municipalities - to ensure the development of their territory and create conditions for a happy and dignified life of their citizens.
The long-term development of territorial budgets, including in 2024, reflects the cautious and conservative approach of local governments to budgeting. When drawing up their budgets, territorial self-government units have long underestimated expected tax revenues and planned for a decline this year, even though the Ministry of Finance's forecasts anticipated an increase. On the other hand, capital expenditure is systematically overestimated, further distorting the projected outturn. The systematic underestimation of revenue and overestimation of expenditure in the budgeting process leads to the repeated achievement of significant surpluses by territorial budgets instead of the planned deficits.
In 2024, territorial budget expenditure was affected by expenditure related to emergencies. Among the largest items were aid to Ukraine and its population amounting to CZK 1.7 billion and expenditure on flood damage caused by the Boris flood, which amounted to CZK 2.7 billion. Most of these expenditures were compensated from the State budget.
Local self-government units continue to favor the trend of debt reduction and accumulation of funds in bank accounts. However, this approach raises questions about the effectiveness of fiscal policy, especially in the context of untapped investment potential and rising government debt. While current account balances of territorial budgets and established contributory organizations continue to grow, their debt has been steadily declining, reflecting a continued preference for a conservative savings strategy, which, combined with lower investment activity, may have a negative impact on the long-term growth and infrastructure development of the regions. The capital expenditure of territorial budgets is to some extent dependent on investment transfers, although local governments have significant cash reserves that would allow them to make investments even without a significant amount of investment transfers received. Given that interest rates are currently at a relatively low level, local governments could consider investing not only from their own resources but also through loan financing to support the development and modernization of local authorities.
Detailed information available on the website Monitor - an information portal of the Ministry of Finance of the Czech Republic (data for territorial budgets can be obtained in the Analytical section under Territorial organizations).
Management of Local Governments
In 2024, municipalities, voluntary associations of municipalities and regions managed a surplus of CZK 52.1 billion, thus achieving the third highest positive budget balance ever. Compared to the previous year, when the highest ever balance was recorded, there was a decrease of 27.9%, i.e. CZK 20.1 billion (see Chart No. 1). For a deficit of CZK 96.7 billion budgeted by the territorial budgets for 2024, the actual outturn deviated significantly from this plan. This significant discrepancy was mainly due to an underestimation of the revenue side of the budget (budgeted tax revenues were overestimated by 19.3%, non-tax revenues by 59%, mainly due to the repayment of Sberbank CZ creditors, and transfers received by 31.6%) and an overestimation of expenditure (especially capital expenditure). However, this negative trend of underestimation of tax revenue and overestimation of capital expenditure is repeated every year.
Total consolidated revenues of territorial budgets increased year-on-year in 2024 (by 1.1%, i.e. by CZK 9.2 billion) and reached CZK 850.8 billion. After adjusting the total 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 amounted to CZK 649.9 billion. Own revenues of territorial budgets in 2024 increased again (by 3.9% year-on-year, i.e. by CZK 20.2 billion) and reached CZK 544.7 billion. The self-sufficiency of territorial budgets was further strengthened in 2024, reaching 84% at the end of the year. This indicator confirms that local governments are able to finance most of their expenditure from their own revenues, thus reducing their dependence on transfers received. Own revenue increased significantly due to the growth of non-tax revenue (by 13.6% year-on-year, i.e. by CZK 9.5 billion), which amounted to CZK 79.3 billion, mainly due to the payment of creditors of Sberbank CZ. A significant role was also played by the increase in tax revenues (by 2% year-on-year, i.e. by CZK 8.7 billion) to CZK 456.1 billion.
Territorial budgets received transfers in the amount of CZK 305.8 billion in 2024, which represented a year-on-year decrease by 3.5% (i.e. by CZK 11.2 billion). A more significant drop occurred on the side of investment transfers (by 16.2% year-on-year, i.e. by CZK 6.7 billion), which, however, account for a minority share of total received transfers. There was a slight decrease in non-investment transfers (by 1.6% year-on-year, i.e. by CZK 4.4 billion) to CZK 270.8 billion.
The total consolidated expenditure of territorial budgets in 2024 also recorded growth (by 3.8% year-on-year, i.e. by CZK 29.3 billion) and reached CZK 798.7 billion. This was mainly due to the growth of current expenditure (annual growth of 3.6%, i.e. CZK 22 billion), which constitutes the largest part of territorial budgets' expenditure and will reach CZK 625.2 billion. The dominant part of these current expenditures consisted of transfers by regions and municipalities to Contributory Organizations and similar organizations, namely in the field of education. Capital expenditures also increased year-on-year (by 4.4%, i.e. by CZK 7.4 billion), which, although forming a smaller part of total expenditures, play a key role in the long-term development of territorial units.
Territorial budgets had to handle with extraordinary expenditures in 2024. This included expenditure of CZK 1.7 billion on aid to Ukraine and its population, mainly in the regions and the capital city Prague, but also expenditure directly related to the repair of the damage caused by the floods caused by the Boris flood in the amount of CZK 2.7 billion. It is important to note that most of these expenses were compensated from the state budget.
Management of regions
In 2024, the regional economy ended in a surplus of CZK 9.8 billion. Although the balance decreased year-on-year (by 38.5%, i.e. by CZK 6.2 billion), their financial condition remains stable. Historically, this is the third highest financial surplus. The Vysočina Region ended with the largest budget balance (CZK 4.1 billion) due to the payment of creditors to Sberbank CZ and the Karlovy Vary Region (CZK 1.1 billion). On the other hand, the Hradec Králové Region (CZK 0.7 billion) and the Central Bohemia Region (CZK 0.1 billion) were in deficit. As the originally approved budgets for 2024 assumed a deficit of CZK 16.2 billion, the actual economic result differed significantly from this forecast.
The total revenues of the regions recorded a year-on-year decline (by 1.1%, i.e. by CZK 3.8 billion) and reached CZK 353 billion by the end of 2024. After adjusting regional revenues for direct expenditure on education and subsidies to private schools1, revenues amount to CZK 177.1 billion. The regions' own revenues increased again this year (by 5.2% year-on-year, i.e. by CZK 6.2 billion) and reached CZK 126 billion. This is also linked to an increase in their self-sufficiency, which, although lower compared to municipalities, is still relatively high (71% in 2024). The tax revenues of the regions amounted to CZK 109.1 billion (year-on-year growth of 2.3%, i.e. CZK 2.5 billion) and in comparison with 2013, the collection more than doubled (growth of CZK 62.4 billion). The most significant growth occurred in the personal income tax (year-on-year growth of 11.8%, i.e. CZK 2.6 billion) to CZK 24.8 billion. This was due to wage growth in the economy and changes adopted in the adjustment package. VAT collections increased year-on-year (by 3.1%, i.e. by CZK 1.6 billion) to CZK 55.2 billion, reflecting the growth in household consumption spending, the reduction in the number of tax rates to the basic 21% and reduced 12% and the shift of selected goods and services from the reduced to the basic VAT rate. On the other hand, there was a decrease in the collection of corporate income tax (by 6% year-on-year, i.e. by CZK 1.8 billion) to CZK 28.5 billion, which was influenced by the settlement of the tax for the 2023 tax period due in 2024 and the advance payment. Other tax revenues also increased year-on-year, but they account for only a minority of tax revenues. Despite the forecast of the Ministry of Finance, the counties approved their budgets with an expected decrease in tax revenues, which led to the aforementioned distortion of their projected outturn.
The total expenditure of the regions reached CZK 343.2 billion at the end of December 2024 and recorded only a slight growth (by 0.7% year-on-year, i.e. by CZK 2.3 billion). After adjusting regional expenditure for direct education expenditure and subsidies to private schools1, expenditure amounts to CZK 167.3 billion. Current expenditures accounted for the majority of the growth in total expenditures, increasing year-on-year (by 3.4%, i.e. by CZK 9.9 billion) to CZK 299.8 billion. The largest part of current expenditure (almost 75%) was accounted for by non-investment transfers to contributory organizations, which amounted to CZK 223.7 billion in 2024, with the majority of these transfers intended for organizations operating in the field of education. The year-on-year increase in current expenditure was mainly due to an increase in expenditure on roads and transport services. In 2024, the regions did not continue to invest at the record level as last year, as evidenced by the year-on-year decline in capital expenditure (by 14.8%, i.e. by CZK 7.5 billion) to CZK 43.4 billion. The fall in capital expenditure was mainly due to a fall in investment in roads and rail vehicles. The investment potential of the regions is expressed by the adjusted operating balance, which represents the free cash resources that can be used for investment from the current revenues of the given budget year, while the unused part increases savings. The adjusted operating balance of regions in 2024 amounted to CZK 37.4 billion, while capital expenditure excluding investment transfers received amounted to CZK 31.2 billion. Thus, the regions have not used their investment potential of CZK 6.2 billion in 2024.
In 2024, the budgets of the counties had to deal with extraordinary expenditures related to the war conflict in Ukraine and floods caused by the pressure low Boris. Expenditure on aid to Ukraine and its population amounted to CZK 1.3 billion (mainly in the Central Bohemia and Moravia-Silesia regions) and expenditure directly related to preparing for and dealing with emergencies and dealing with the consequences of the damage caused by the Boris floods amounted to CZK 2.1 billion (mainly in the Moravia-Silesia and Olomouc regions). It is important to point out that almost all of this expenditure was compensated from the state budget.
Debt and balance on the regions' bank accounts
The debt of regions (including the contributory organizations) in 2024 decreased slightly year-on-year (by 2.5%, i.e. by CZK 0.6 billion) and amounted to CZK 25.4 billion. In terms of the number of inhabitants, the debt was the highest in the Karlovy Vary Region, followed by the Liberec Region and the Olomouc Region. In the context of declining investment activity, this may indicate a more cautious approach of regions to financing development projects, which may have an impact on the long-term growth and infrastructure development of the regions. Currently, interest rates are at a relatively low level, which may make it appropriate to consider investments or financing needs through credit.
The regions currently favor savings, as evidenced by the increased balances on their savings accounts, including the contributory organizations (annual growth of 13.4%, i.e. CZK 12.5 billion), which reached CZK 105.5 billion at the end of 2024. Thus, the regions have sufficient funds that can be used to finance investments. In per capita terms, the bank account balances were highest in the Pilsen Region, the South Bohemia Region and the Vysočina Region.
Management of municipalities
This year, municipalities managed a surplus of CZK 41.2 billion. Even though it decreased year-on-year (by 26.1%, i.e. by CZK 14.5 billion), it was still the second highest surplus ever, which indicates stable and prudent municipal management (see Chart No. 4). Given the fact that the originally approved budgets for 2024 had forecast a deficit of CZK 80.5 billion, the actual outturn differed significantly from this forecast. The economic performance of the capital city was lower than in the previous year. Prague ended up with a surplus of CZK 23 billion with total revenues of CZK 141 billion and expenditures of CZK 118.1 billion. Excluding the capital city of Prague, the budget for the year ended CZK 18.2 billion, the total consolidated revenues of municipalities amounted to CZK 366.6 billion, expenditures to CZK 348.3 billion. For 2024, a total of 2,082 municipalities (33.3% of the total number of municipalities) reported a deficit.
Total municipal revenues recorded a year-on-year growth (by 2.9%, i.e. by CZK 14.5 billion) and reached CZK 507.6 billion by the end of 2024. After adjusting municipal revenues (Prague) for direct education spending and subsidies to private schools1 , revenues amount to CZK 482.6 billion. The own revenues of municipalities have been continuously strengthening (by 3.5% year-on-year, i.e. by CZK 14.1 billion) and reached CZK 417.1 billion. This is related to the increase in their self-sufficiency, which is considerably higher compared to the regions (86% in 2024). At the end of the year, the volume of municipal tax revenues amounted to CZK 346.9 billion (year-on-year growth of 1.8%, i.e. CZK 6.2 billion) and the collection more than doubled in comparison with 2013 (growth of CZK 185.2 billion). The most significant growth occurred in revenues from real estate tax (year-on-year growth of 84.3%, i.e. CZK 10.5 billion) to CZK 23 billion. The year-on-year increase in personal income tax (by 8.5%, i.e. by CZK 5.4 billion) to CZK 69.4 billion. This was due to wage growth in the economy and changes adopted in the adjustment package. On the other hand, there was a year-on-year decrease in corporate income tax (by 8.2%, i.e. by CZK 7.5 billion) to CZK 84.1 billion, where the primary reason was the settlement of the tax for the 2023 tax year due in 2024 and the advance payment. VAT revenue also fell (by 0.1% year-on-year, i.e. by CZK 0.1 billion) to CZK 147.8 billion. Despite the forecast of the Ministry of Finance, municipalities approved their budgets with an expected decrease in tax revenues, which led to the aforementioned distortion of their projected economic result.
Total municipal expenditures reached CZK 466.4 billion at the end of December 2024 and recorded a more significant year-on-year growth than revenues (by 6.6%, i.e. by CZK 29 billion). After adjusting municipal (capital city) expenditure for direct education expenditure and subsidies to private schools1 , expenditure amounts to CZK 441.4 billion. The majority of municipal funds went to non-investment transfers to contributory organizations, which amounted to CZK 79.8 billion in 2024, with the majority of these transfers going to organizations active in the field of education. Current expenditure increased year-on-year (by 4.2%, i.e. by CZK 13.4 billion) to CZK 335 billion. The year-on-year increase in current expenditure was mainly due to an increase in expenditure on local government salaries and on road repairs and maintenance. Capital expenditure contributed significantly to the growth in total expenditure, which increased by 13.5% year-on-year, i.e. by CZK 15.7 billion, to CZK 131.4 billion. The increase in capital expenditure was mainly due to an increase in investment in the purchase of property shares in local government activities and in buildings in the municipal services and land development. Municipalities have significantly increased their investments this year, responding to the previous downturn that occurred last year. In 2024, the adjusted operating balance of municipalities amounted to CZK 130.1 billion, while capital expenditure excluding investment transfers received amounted to CZK 106.9 billion. Municipalities did not finance CZK 23.2 billion in this year and thus did not use their investment potential significantly. In the case of the City of Prague, the adjusted operating balance amounted to CZK 43.9 billion, while capital expenditure excluding investment transfers received amounted to CZK 20.4 billion. Of this, Prague did not finance CZK 21.7 billion this year.
In 2024, municipal budgets had to deal with extraordinary expenditures related to the war conflict in Ukraine and floods caused by the Boris pressure low. Expenditure on aid to Ukraine and its population amounted to CZK 0.4 billion (mainly the capital city of Prague) and expenditure related to the repair of damage caused by the floods caused by the Boris flood amounted to CZK 1.5 billion (mainly municipalities of the Moravian-Silesian Region and the Olomouc Region). It is important to note that most of these expenses were compensated from the state budget.
Debt and balance on the municipalities' bank accounts
The debt of municipalities (including contributory organizations) remained at almost the same value in 2024 (annual growth of 0.2%, i.e. CZK 0.1 billion) and amounted to CZK 64.2 billion. The highest debt per capita was recorded in municipalities in the Vysočina Region, the South Bohemia Region and the Central Bohemia Region. Similarly to the regions, municipalities choose a conservative approach to debt. Currently, interest rates are at a relatively low level, which may be suitable for considering investments and financing investment needs through credit.
Municipalities prefer to save, as evidenced by increased balances on bank accounts. At the end of 2024, they reached CZK 421.9 billion (of which 40% were balances of the capital city of Prague). Thus, municipalities have sufficient funds that could be used to finance investments from their own sources. As can be seen from Chart No. 5, the municipalities' general government balances have been growing dynamically since 2013 (up 280%), while the municipalities' debt has been declining over the same period (down 30.5%).
Management of voluntary associations of municipalities
In 2024, the voluntary associations of municipalities managed total revenues of CZK 7.2 billion (year-on-year growth of 24%, i.e. CZK 1.4 billion) and total expenditures of CZK 6.1 billion (year-on-year growth of 13.6%, i.e. CZK 0.7 billion). The budget balance ended in a surplus of CZK 1.1 billion.
1 Direct expenditure on education is represented by funds from the state budget, which the regions and the capital city Prague directly allocate to the respective schools and educational institutions. So they cannot do anything with these funds.