OVERVIEW OF FISCAL DECENTRALISATION

The organisation of sub-national government in Romania is based on a two-tier structure: 41 counties at an intermediate level plus Bucharest and, at the local level, 2,861 communes, 217 towns and 103 cities.

Legal acts governing fiscal decentralisation

The process of Romanian fiscal decentralisation can be divided into three separate periods. The first cycle, from 1991 to 1994, involved steps to develop the organisation of the administrative structure and the financing of public local authorities. The second period, from 1998 to 2000, saw a further increase in the revenues transferred to local budgets. The last period, from 2001 onwards, involved the adoption of the 215/2001 Local Public Administration Act, which regulates the general features of self-government and autonomy, and by the 273/2006 Local Public Finances Act that specifies the rules for revenues and spending at local level.    

Qualifying fiscal decentralisation

In 2018, sub-national government's expenditures in Romania accounted for 23% of total government expenditures.

Despite the evolution over the years towards a more decentralised local financing system, Romanian local and regional authorities are still highly dependent on transfers from the central government, as own revenues are able to cover only a small fraction of their financial needs. There are four major categories of revenues available to sub-national governments: current fiscal revenues (e.g. taxes on properties, land and transportation vehicles); current non-fiscal revenues (e.g. transfers and grants from the state budget); capital revenues (e.g. local assets revenues); and revenues from special sources (e.g. taxes and unused expenses from previous years).

Source: authors’ elaboration on EUROSTAT data. For further details, see methodology

LEVEL of FISCAL DECENTRALISATION

Revenue autonomy (own revenues relative to total resources available) at the sub-national level is lower than the EU average (19% versus 53% in 2018), this entails a dependency on central government transfers that is much higher than the EU average (81% versus 48% in 2018). Local own revenues represent 4% of total government revenues, one of the lowest values of the EU countries. 

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 Romania have a degree of fiscal decentralisation (6% in 2018) that is considerably lower than the EU average (16%).

Fiscal rules and borrowing capacity

Beyond the obligation to approve a balance budget, sub-national governments are limited in their borrowing activity by debt ceilings. The so-called “debt rule" imposes that local government cannot contract or guarantee loans if their annual public debt service, including the new loan, is higher than 30% of their own revenues (refinanced loans and loans for financing EU projects are excluded from the calculation of this ratio). Nevertheless, the Ministry of Finance oversees all the borrowing activities of sub-national governments through an interministerial commission that must authorise every operation.

Deficit and debt at sub-national levels

EXPENDITURE BY GOVERNMENT LEVEL AND BY POLICY AREA

Expenditures of local governments represent a significant part of total general government expenditures in the fields of housing and community amenities (78% in 2017), environmental protection (76% in 2017), education (68% in 2017) and recreation, culture and religion (61% in 2017).
 

Source: authors’ elaboration on EUROSTAT data. For further details, see methodology.

In 2017, local governments' spending was most concentrated, and more so than the EU averages, in the fields of education (21% of total local spending), health (17%), economic affairs (16%), and housing and community amenities (8%). Other relevant areas of spending were social protection (14%), and general public services (11%).

Source: authors’ elaboration on EUROSTAT data. For further details, see methodology.