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Mayors decry unequal tax system

Ministry proposal could level playing field for small towns

By Victor Velek
Staff Writer, The Prague Post
September 19th, 2007 issue

For a long time, small towns in the Czech Republic have been the victims of an unjust tax system that redistributes their residents’ payments to large cities, depriving the towns of their fair share.
That’s the argument of Suchá Loz and Vysoké Pole, two small towns in east Moravia that recently lodged a complaint — backed by more than 1,300 mayors — against the country with the European Court of Human Rights (ECHR) in Strasbourg, France.
“Our four biggest cities [Prague, Brno, Ostrava and Plzeň], home to only 20 percent of the country’s population, get half of the money allocated to municipalities,” said Petr Gazdík, mayor of Suchá Loz, population 1,100. “The disproportion is discriminatory. Finally, it seems even a majority of politicians have realized that.”
While the towns’ complaint is still pending in Strasbourg, it seems the move — made after a failed bid in the Constitutional Court — is already paying dividends. The Cabinet now expects to choose between two proposals by the end of the month that could help level the playing field for small towns.
The Finance Ministry prepared the second proposal in consultation with the towns, according to spokesman Jakub Haas.
“Along with the Finance Ministry’s own amendment of the tax allocation law, an alternative proposal, which satisfies small towns even more than the original draft, has been submitted to the Cabinet,” Haas said.
The tax allocation law determines what share towns get from value-added tax, personal income and corporate income taxes, which are the main sources of municipalities’ revenues.
The ministerial proposal introduces new, balanced redistribution criteria to replace the system of 14 population-size categories, currently the only factor for allocating funding. Haas said the alternative version would further boost small town budgets.
Either version is likely to come into force as of Jan. 1, 2008, he said.
To towns the size of Suchá Loz or Vysoké Pole (301 to 1,500 residents), the new law would bring 20 percent higher revenues. “For Suchá Loz, this would mean an extra 1.2 million Kč [$60,439],” Gazdík said. The smallest towns — hamlets of up to 100 people — would double their budgets, according to Stanislav Polčák, town council member at Vysoké Pole.
The towns hope that the proposal will be only an interim measure, as the government promised complaining mayors that a brand-new system would be adopted in two years’ time, in close cooperation with municipalities.
The Cabinet’s positive stance has prompted the rebel towns to consider withdrawing their complaint at the ECHR, which they lodged in late August.
“The promise to negotiate with us on a new, just tax distribution system is a good reason to think seriously about withdrawal,” Gazdík said. Vysoké Pole is about to drop the complaint, Polčák added.
City vs. countryside
As the alternative proposal prepared by the Finance Ministry would take away about 4 billion Kč from large cities, it is raising strong protests, with cities arguing that they must pay for services small towns don’t need, funding sports, culture and public transport.
Prague is against both proposals, said City Hall spokesman Jiří Wolf.
“Prague ... is defending the current system,” he said. The current allocation system “by no means discriminates against smaller municipalities, but rather helps cover the extra expenses of large urban agglomerations.”
The towns’ argument that they receive about six and a half times less money per capita than Prague is only half true, Wolf said. All municipalities get additional money from regional governments. Although Prague has the status of a self-governing region, it is provided with less money than its counterparts.
“In the Vysočina region, for example, it is necessary to add 6,024 Kč to the per-capita income of even the smallest municipality,” Wolf said. “In Prague, the amount is only 1,130 Kč.”
Also lodging protests against the proposals are the Union of Towns and Municipalities (SMO), an association of more than 2,600 Czech towns, including Suchá Loz.
“No doubt, the country needs a new tax redistribution system,” said Jaromír Jech, the SMO’s executive vice chairman. “But the initiative [of Suchá Loz and Vysoké Pole] brings conflict between small and large municipalities, as it strips large cities of a great deal of money. We don’t want a big clash between the city and the countryside.”
Should the government give priority to the original proposal, the small town mayors are ready to further their case.
“We’re ready to demonstrate in front of Parliament if our proposal is rejected,” Gazdík said, while Polčák reflected on the voting power of small towns: “We will call on deputies to change the government draft,” he said. “After all, deputies from large cities are in the minority.”

Victor Velek can be reached at vvelek@praguepost.com


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