OVERVIEW OF FISCAL DECENTRALISATION
Ireland has a three-tier governmental structure: the central government, a second level composed of 34 counties and city councils, and a third level composed of 80 town councils. The Local Government Reform Act of 2014 modifed this structure, reducing (by merger) the number of authorities. For the purpose of this analysis, the sub-national government level is composed of counties, city councils and town councils.
Legal acts governing fiscal decentralisation
The Local Government Act sets the legal framework for the organisation and the functioning of local governments. Specific fiscal rules for the local government sector were established in 2004 and laid down in administrative circulars. The Department of Environment, Community and Local Government oversees the application of these rules.
Qualifying fiscal decentralisation
In 2018, the level of expenditure of the Irish local authorities amounted to some 7 billion euros (roughly 9% of total government expenditures, or 2.3% of GDP), making of it one of the smallest in the EU. The major source of revenues for local governments is transfers from the central government . This is reflected in the moderately high transfer dependency ratio of 50% in 2018 which indicates that a high proportion of expenditures are financed by grants from the central government. Along with grants from the central government (specific and general), local spending is also financed through local taxes and charges for goods and services. Rates of local taxes – mainly property taxes levied on commercial properties – are set every year by local authorities and in 2018 accounted for 19% of local revenues.
Source: authors’ elaboration on EUROSTAT data. For further details, see
methodology.
Fiscal equalisation mechanisms
Central government transfers to local bodies are of two kinds: specific grants, earmarked for the financing of specific public programmes; and general grants, which are not tied to any specific objective. General grants are designed to perform a resource equalisation action across local authorities and are allocated taking into account the expenditures and revenues of each local authority. A computer-based model has been specifically developed to evaluate the resources needed by each local authority to perform its obligations.
LEVEL OF FISCAL DECENTRALISATION
Revenue autonomy (own revenues relative to total resources available) at the sub-national level was below the EU average in 2018 (50% versus 53%), which entailed a rate of dependency on central government transfers that is slightly higher than the EU average (50% versus 48%). Local own revenues represented 4% of total government revenues in 2018, which was lower than the EU average (13%). There has been an increase in revenue autonomy since 2004, with a fall in the transfer dependency ratio from 81% to 50% in 2018.
Source: authors’ elaboration on EUROSTAT data. For further details, see
methodology.
The composite ratio, which captures aspects of fiscal decentralisation of both revenue and expenditure, suggests that the sub-national governments in Ireland have hada degree of fiscal decentralisation (5% in 2018) lower than the EU average (16% in 2018).
Fiscal rules and borrowing capacity
Irish local authorities have limited borrowing power. More specifically, they are authorised to finance only capital expenditures (roughly one-third of total local bodies' expenditures) through debt emissions. A borrowing ceiling for local authorities is set by the fiscal rule, imposing a limit of 200 million euros on the total sector's fiscal deficit for any year. Default of local governments is theoretically possible, but in recent times the central government has intervened to bail out financially distressed local authorities.
Deficit and debt at sub-national levels
In 2013, the consolidated gross debt of the Irish local government sector amounted to 2.7% of GDP (more than 80% of the outstanding debt was to the Irish central government). It has since fallen to 1.4% in 2018.
Source: authors’ elaboration on EUROSTAT data. For further details, see methodology.
EXPENDITURE BY GOVERNMENT LEVEL AND BY POLICY AREA
Despite being constantly below the EU averages, expenditures at the local level represent a significant part of total general government expenditures in the fields of environmental protection (61% in 2017) and housing and community amenities (57% in 2017).
Source: authors’ elaboration on EUROSTAT data. For further details, see methodology.
In 2017, sub-national spending was concentrated, and more so than the EU averages, in the fields of social protection (34% of total local spending in 2017), economic affairs (19% in 2017), housing and communities amenities (13% in 2017), and education (10 % in 2017).
Source: authors’ elaboration on EUROSTAT data. For further details, see methodology.
