The level of local budgets financial decentralization in Ukraine

Abstract

The article focuses on the assessment of the level of local budgets decentralization in Ukraine and the study of the tendency of its change, which occurs under the influence of many factors of different directions. It is established that in Ukraine there is no clear substantiation of the economic content of the criteria and indicators of the local budgets’ financial decentralization level. The level of local budgets fiscal decentralization in Ukraine for the period from 2015 to 2022 is assessed by indicators that meet the criteria of (1) decentralization of expenditures; (2) decentralization of revenues; (3) dependence of local budgets on intergovernmental transfers, namely: (1) the share of total local budget expenditures in public expenditures; (2) the ratio of total local budget expenditures to GDP; (3) the share of own revenues in the structure of local budget revenues; (4) the share of basic subsidies in the structure of local budget revenues; (5) the ratio of own revenues of local budgets to GDP; (6) the compliance of the decentralization level with the goals of the Strategy for Sustainable Development of Ukraine (proposed indicator). It is found that only during the first three years of the reform (from 2015 to 2017) Ukraine was moving towards increasing the financial decentralization of local budgets, and over the past five years the trend has reversed and today the level of financial decentralization in Ukraine is low. The decline in the level of financial decentralization is caused by (1) a steady increase in the scope of powers delegated by the central government without adequate financial support; (2) the central government redistributing the revenue powers of local budgets in favor of the state budget; (3) changes in the structure and volume of intergovernmental transfers due to other reforms (education reform, healthcare reform, changes in the social protection mechanism, etc.). Further reduction of the own revenue base of local self-government budgets in the form of withdrawal of PIT revenues to the state budget in the part of PIT on salaries, remuneration and other payments received by military personnel and persons holding the rank of private or commander will significantly reduce the revenue base of local self-government and pose a threat of recentralization, a process that is the opposite of decentralization.