Local government budget surplus to be significantly reduced in 2023, says CFP – Economy

The local administration recorded a budget surplus of 24 million euros in 2023, a “significant reduction” compared to the 353 million achieved in 2022, due to the increase in expenditure greater than revenue, according to a report released today.

According to the Public Finance Council’s (CFP) analysis of the local government (AL) accounts for last year, according to provisional data available, the surplus achieved was also far from the forecast of 256 million euros included in the report that accompanied the State Budget proposal for 2023 (OE2023).

The entity led by Nazaré da Costa Cabral (in the photo) highlighted that, in a year where there were “significant improvements” in the budgetary indicators of all public administrations, the AL “showed a deterioration in the budget surplus and a slight improvement in the debt considered for the purposes of the legal limit of the subsector, to which the various exceptions to the rules defined in the law contributed greatly”.

In 2023, municipalities recorded an increase in effective expenditure greater than that in effective revenue.

The organization highlighted that revenue grew by 8.7% (904 MEuro), above the 4.5% estimated in the 2023 State Budget, which was due more to the “increase in transfers, namely those received under decentralized competences, which represented almost two thirds of this growth”, than to the growth in own revenues.

Municipal tax revenue, another of the main sources of income for local authorities, grew by just 2.5%, when in 2022 it had grown by 12.5%, mainly due to the drop in collection of the Municipal Tax on Onerous Property Transfers (IMT).

On the other hand, expenditure grew by 12.3% (EUR 1.2 billion) in 2023, above revenue, and almost double that recorded in 2022, contributed to by the growth in primary current expenditure and capital and interest expenditure.

Municipalities had more personnel expenses (13.5%), due to the salary increases for all public administration workers in 2023 and the transfer of personnel as part of the decentralization process, although in the latter case with “much less impact than in 2022”.

The CFP highlighted that, “as the decentralisation process was not based on management accounting, it is not possible to determine to what extent this decentralisation resulted in an improvement in the efficiency and effectiveness of public expenditure after this transfer”.

Expenditure on the acquisition of goods and services is another highlight, with growth of 12.1%, which is justified by the effect of inflation and also the influence of expenditure related to the decentralization of powers.

In the document, the CFP warns that the results released today take into account the public budget accounting values ​​of 300 of the 308 municipalities, due to failures in the provision of information by some of these authorities, both in terms of budgeting and execution.

Despite these limitations to the analysis, “there is evidence that unpaid expenditure by municipalities will have increased in 2023, contrary to the decrease seen in 2022, both in terms of non-financial liabilities and accounts payable and late payments”, highlighting the report that this situation is due to “unfavorable developments in a small number of municipalities”.

The average payment period for municipalities increased by one day, to 23 days, although this number does not include data from 34 of the 308 municipalities, “which may bias this comparison”.

The total municipal debt of 302 of the 308 municipalities (financial and non-financial debt), which is what counts when calculating the legal debt limit, was reduced from 3,570 MEuro to 3,549 MEuro.

However, “based solely on this indicator”, at least 12 of the 302 municipalities for which information is available were still “above the total debt limit on December 31, 2023”, three fewer than at the end of 2022.

This evolution reflects the decrease in this debt observed in 191 municipalities (reduction of 266 MEuro), which more than offset the increase reported by the remaining 111 municipalities (245 MEuro).

In the report, the entity warned that “there is a risk that local administrations will become heavily dependent on the central State, not just momentarily (which is what the Decentralization Financing Fund – FFD will be used for), but in a more structural way, permanently increasing the weight of State transfers in financing AL expenditure”.

“What should be discussed at this time is how to increase the fiscal autonomy of these entities and increase their own sources of revenue so that they can face this new reality in a more predictable, stable and autonomous way. These issues, in addition to the assessment of municipal financial recovery and reorganization mechanisms, are just some of the issues to be taken into account in a possible future review of the local financial regime”, the organization argued.

Source: www.jornaldenegocios.pt