No. 4




Investment Subsidies to the Local Government System

19 December 2001


RiTo No. 4, 2001

  • Marko Pomerants

    Member of the Riigikogu Marko Pomerants (Pro Patria and Res Publica Union)

Examining the practices of investments of the local governments so far, it may be said that the seven-year-old system of investment subsidies to local governments has been characterised by permanent changes; fragmentary distribution of financial means; arbitrary decision-making; lack of clear criteria; during some years also a great influence of lobby work; and during the last two years, centralisation.

Investment subsidies to local governments are necessary for two reasons: deficiency of revenues and the need to consider positive side effects.

Local government subsidies may be looked upon more systematically than they have been so far. Here is a dichotomy defining the overall size of the subsidy fund and ways of its distribution.

“Good policy” may be pursued depending on the stated purposes: for example, control mechanisms, stimulation of local government expenses, or effective financial planning. An overview of the possibilities and needs related to the changing of the local government investment subsidies system has been presented from the points of view of the Government and the local governments. The common and main reason why both parties should be interested in changes is related to the need for fiscal decentralisation and creation of conditions for medium- and long-term financial planning. In case of projects of greater volumes, a correspondence subsidy with a fixed amount limit should be taken in use as the type of subsidy. The attempt to create new investment programmes with narrow objectives should be looked upon as one potential threat, as this would make the financial means even more fragmented. In order to change the system, it will not be necessary to await for the administrative-territorial reform.

Full article in Estonian