The main vectors of changes in local budgets in the context of budget decentralization and martial law

Abstract

Implementation of regional problems of socio-economic development of territories depends on the efficiency of local authorities. An important factor in the implementation of these programs is the sufficiency of their own financial resources at their disposal. This problem had to be overcome by the reform of budget decentralization, according to which each local authority should provide a decent level of primary and basic public services for the population. Russian military aggression added even more problems to local communities: causing mass migration and stopping business, the need to solve humanitarian, communal, migration problems, and rebuild destroyed housing. In 2015–2022, the structure of local budget revenues changed: the share of transfers in revenues and the share of subventions in the total amount of transfers decreased. This was influenced by the following factors: changes in the payment of a single tax, personal income tax deductions to local budgets, cancellation of medical and some social subsidies, cancellation of transfer of reverse subsidy. Factors that influenced the structure of the revenue base of local budgets also affected their spending part. The change in the composition of interbudgetary transfers is directly related to the reduction of spending powers of local authorities and the change in the mechanism of financing budget programs in the field of education, health care, social protection and social security. However, the decrease in the share of local budget expenditures on the social sphere occurred at a slower pace than the decrease in the amount of subventions to local budgets for these purposes. This indicates the growing role of local budgets in financing programs of local importance and is a positive result of the budget decentralization reform. The full-scale war of 2022 showed how financially stable local authorities are and whether they are able to withstand any changes in the financing of their powers with dignity. After all, the local government, in addition to continuing to provide public services at a high level, has taken on additional responsibilities: ensuring territorial defense activities, assisting the Armed Forces, supporting relocated businesses, assisting internally displaced persons, preparing shelters, etc. Of course, such opportunities were influenced by the reform of budget decentralization, which enabled local authorities to obtain their own sources of financial resources, which played a key role in facing challenges.