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PRESS RELEASE
24/10/2023
Finance and public accounts
LOCAL AND REGIONAL AUTHORITIES: FINANCIAL
FORECASTS FOR 2023 - FINANCIAL AUTONOMY,
EQUALISATION AND CONTRACTING
In the first part of its annual report on local government finances, published on 4 July this
year, the Court of Accounts showed that local authorities as a whole were in a very
favourable financial position in 2022, as they had been the previous year.
In this second report, the Court points out that the financial position of local authorities,
especially the departments and regions, could be less positive in 2023, as a result of lower
tax revenues and the effects of inflation on expenditure.
The Court also examines three complementary aspects of the constitutional principle of the
free administration of local and regional authorities: financial autonomy; the equalisation
of resources, a condition for the autonomy of disadvantaged local authorities; and the
contractual arrangements under which the State and local authorities implement joint
actions.
The Court puts forward proposals to reinforce the financial autonomy of local authorities, to
strengthen the equalisation of resources in favour of the local and regional authorities that
need it, and to make contractual tools that are too numerous and insufficiently demanding
more effective.
The prospect of a less favourable financial position for local and regional authorities in 2023
In 2023, local authority revenues, particularly VAT, will grow at a slower rate than in 2022. The
income from certain taxes (such as property transfer taxes in the departments, due to the
downturn in the property market) will fall in absolute terms. At the same time, spending on
goods and services, employee remuneration, social benefits and financial expenses will be
pushed up by inflation.
The amount of savings used by local and authorities to invest will continue to increase for
municipalities and inter-municipal bodies, but will fall for the regions and, even more so, for
the departments. According to the forecasts in the 2024 Finance Bill, after having generated a
financing surplus of €4.8 billion in 2022, local and regional authorities will have a financing
requirement of €2.6 billion in 2023, and €2.9 billion in 2024.
The public finance programming bill for 2023-2027 provides for a significant contribution by
local authorities to the overall recovery of public finances. However, it is subject to significant
uncertainties: it is based on optimistic assumptions and the tools needed to achieve the
objective of unprecedented financing surpluses have yet to be defined.
Financial autonomy: a debated issue, a dialogue with the State requiring a better structure
While preserving local authorities’ revenues, recent tax reforms have weakened the link
between these am and local households and businesses. Following the abolition of the council
tax on primary residences and the business value-added contribution, taxes levied locally now
account for only a small proportion of the revenue of the departments and, to an even greater
extent, the regions. On the other hand, local authorities and inter-municipal bodies retain a
large proportion of local taxes, on which they have varying degrees of control (49
% of operating
revenue in 2022, excluding the CVAE).
To bolster the financial autonomy of local and regional authorities, their capacity to deal with
economic contingencies should be strengthened, without State aid, by developing mechanisms
for reserving revenues, particularly VAT (these are currently limited to property transfer taxes
in the departments). The recent creation of a High Council on Local Government Finances could
also help to better reconcile national and local government finances.
Financial equalisation: a drive that requires further expansion and better targeting
Local and regional authorities are subject to major inequalities in terms of resources and
burdens. While a number of equalisation schemes (totalling €13 billion by 2022)
are improving
the situation of disadvantaged local authorities, there is also considerable room for
improvement.
For example, the indicators used to equalise local authority resources should be better defined.
Instead of being spread thinly (97 % of local authorities benefit), equalisation should go to those
that need it most. The financial resources for equalisation should be increased: by continuing
to reduce the flat-rate allocation inherited from former taxes in order to finance the increase
in equalisation allocations within the overall operating allocation paid by the State; by
increasing the local revenues deducted to be redistributed to disadvantaged local authorities;
by making internal solidarity arrangements within inter-municipal bodies more widespread.
Finally, the funding arrangements that give rise to inequalities should be reviewed: the VAT
fractions that replace former local taxes and the global operating grant (DGF) for the regions
should be distributed between local authorities on the basis of the number and socio-economic
characteristics of their inhabitants, instead of their share of former revenues.
Contracting: an essential form of action that must become more efficient
Both the State and local and regional authorities prefer contractual arrangements to unilateral
decisions when it comes to coordinating their action in many areas, both within and outside
their remit.
Even if contracting can only partially remedy the inefficiencies associated with the
fragmentation of the municipal framework and the overlapping of powers between the State
and local and regional authorities, and between local and regional authorities themselves, the
State’s numerous contractual arrangements with local and regional authorities should continue
to be refocused around the State-region planning contracts and the recovery and ecological
transition contracts with inter-municipal bodies. In addition, the scope of the contractual
arrangements should be strengthened by allowing the necessary time for negotiation,
specifying in a financial appendix the commitments made by each of the signatories and
regularly evaluating their
implemen
tation.
Read the report
PRESS CONTACT:
Julie Poissier
Head of Press Relations
T
+33 (0)6 87 36 52 21
julie.poissier@ccomptes.fr
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