municipalities financially dependent on central government

17/12/2014 15:00

According to figures released this week by Statistics Netherlands, over two-thirds of the income of Dutch municipalities in 2013 came from central government. Eleven percent of their income came from local taxes. Revenues from local taxes are much lower in the Netherlands than in many other European countries, while Dutch local authorities are responsible for a large number of policy implementation tasks.

Income of local government in the Netherlands, 2013

Income of local government in the Netherlands, 2013

Policy implementation risks

Dutch municipalities spent 49 billion euros in 2013, partly on tasks they are required to carry out, such as payment of income support and other social benefits. In addition, municipalities carry out tasks in general policy areas, such as spatial planning and housing construction. All these tasks carry financial risks: municipalities may face unexpected setbacks, and thus be forced to overspend. They can compensate this by using reserve funds, increasing taxes, or economising. As municipalities receive only a small part of their revenues from taxes, and budget cuts only have an effect in the long term, municipalities usually have to withdraw from their reserves to deal with these financial setbacks.

Local taxes account for 10 percent of local government income

The share of taxes in the revenues of local government is smaller in the Netherlands than in the rest of Europe. The only exception is Malta, where local government does not collect any taxes at all. Local taxes, such as property tax, sewerage charges, motor vehicle surtax and taxes paid to the water boards, account for 10 percent of the income of local authorities in the Netherlands. This is well below the EU average of 36 percent.  On the other hand, local authorities in the Netherlands receive a lot of funding directly from central government. Only Romanian local authorities receive a larger share of their income from central government.

Local government revenues in Europe, 2013

Local government revenues in Europe, 2013

Dutch local government has a large number of tasks

In 2013, Dutch local government spent 90 billion euros of the overall government budget of 300 billion euros. Local government is therefore responsible for implementing a large part of government policy. A relatively large part of policy implementation is carried out locally in the Netherlands, more than in other European countries. Only in Poland and the Scandinavian countries Denmark, Sweden, and Finland does local government have more responsibilities. But in these countries local authorities receive more of their income from taxes: from 32 percent in Poland to 57 percent in Sweden.

In 2015, Dutch municipalities will be given a substantial package of extra tasks as a result of decentralisation of youth welfare, the work and income regulation, long-term health care, and care for the elderly. They will receive an extra 7 billion euros from central government to carry out these tasks. These policy changes will increase the financial risk for municipalities, as well as their dependency on central government.

Share of local government in total government spending in Europe, 2013

Share of local government in total government spending in Europe, 2013

Source:

- Eurostat