OECD backs fiscal autonomy for local governments

in San Nicolas, Iriga City

ASIA and the Pacific need to provide further support to help subnational governments achieve fiscal autonomy, the Organisation for Economic Co-operation and Development (OECD) said.

In a report, the OECD said the region has the most number of subnational governments in the world.

“In addition, 12 out of 26 countries in the region have sub-municipal governments, which are much more frequent than in other world regions,” it added.

It also noted that subnational governments in the region have become “key economic and social actors.”

“They account for 29.1% of total government expenditure, representing 8.8% of GDP on average, above world averages (21.5% and 8.3%), and they account for 35% of revenue, representing 8.5% of gross domestic product (GDP) on average, also above the world averages (25.9% and 8.0%),” the OECD said.

However, the report noted that subnational governments’ high levels of expenditure and revenue “do not necessarily indicate high subnational fiscal autonomy, meaning that potential benefits from fiscal autonomy are not always realized.”

“Fiscal autonomy can improve the quality and efficiency of spending, promote fiscal responsibility, increase accountability to citizens and help improve access to external financing,” it said.

“Yet, in several countries in the region, subnational governments have limited autonomy over public spending, with decision-making remaining quite centralized,” it added.

It said in at least four countries, subnational governments are still required to seek approval from the central government for their budgets.

“In many countries, a large part of subnational government expenditure is defined through earmarked grants and transfers, giving subnational governments limited spending autonomy. However, achieving benefits from fiscal autonomy also requires developing human and financial capacity at the subnational level.”

The OECD recommended strengthening subnational government finances and multi-level government frameworks, in order to “support economic development, improve wellbeing and achieve sustainable development goals.”

It said that responsibilities must be clarified across government levels and coordination mechanisms should be enhanced.

The OECD also said that support must be given to ensure “sufficient, stable and balanced basket of revenues, including by harnessing physical and financial assets.”

These assets could range from land, property and natural resources. It also called for further expanding other revenue measures, such as property taxes.

On the expenditure side, subnational governments also need more autonomy to better improve their budget management and delivery of services. — Luisa Maria Jacinta C. Jocson


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