TALLINN, Sep 26, BNS – A government committee and the Association of Estonian Cities and Rural Municipalities reached an agreement on the financing of local governments' budgets, and according to the forecast, the revenues of local governments will grow by about 5.6 percent to 3.3 billion euros next year.

Revenue growth is supported by the nearly 6.5 percent increase in municipal tax revenues, which include income tax and land tax. According to the forecast, foreign aid grants for investments received by local governments will increase from 27 million euros this year to 66 million euros next year.

Minister of Regional Affairs and Agriculture Piret Hartman said it is positive that cuts in the revenue base of local governments could be prevented.

"This allows municipalities to contribute to the development of services locally. In a situation where the economic situation continues to be poor, municipalities must be able to invest in infrastructure -- also with the help of external funding. This ensures a higher quality living environment in our regions," Hartman said.

The 5.6 percent increase in municipal revenues exceeds the average salary and consumer price index growth planned in the summer forecast of the Ministry of Finance, that is 4.6 and 4.2 percent, respectively.

The reorganization of the revenue base of local governments will continue from next year, the aim of which is to make the financing of local governments fairer. In 2025-2027, the portion of income tax received from pension income will increase and the portion of income tax received from other income will decrease, leveling off at 10.23 percent by the end of the period. As a result of the equalization of the two receipts, the revenues of those local governments with a high proportion of elderly people increase, thus being in a more equal financial position with those municipalities with a higher proportion of working-age people and higher wage levels.

In the next two years, a large-scale restructuring of the land tax will also take place, which will increase the decision-making power of municipalities. Among other things, from the year after next, local governments will be able to determine the percentage of the annual increase of the land tax themselves.

The Association of Estonian Cities and Rural Municipalities and the relevant government committee gathered for negotiations on the financing of local governments on Sept. 16. The Association of Estonian Cities and Rural Municipalities is a national union of municipalities, the members of which include all 79 municipalities in Estonia -- 15 cities and 64 rural municipalities.

Tallinn newsroom, +372 51 32 554, sise@bns.ee

Baltic News Service