CZECH REPUBLIC

According to the 1993 Constitution, the Czech Republic is a parliamentary republic. The Parliament is bicameral and comprises an upper house, the Senate, and a lower house, the Chamber of Deputies. Deputies are elected every four years by direct universal suffrage. Senators are also elected by direct universal suffrage but for a mandate of six years and one-third of senators are renewed every two years. The Head of State is the President of the Republic, elected by direct universal suffrage for a five-year mandate, and the Government is led by the Prime Minister, nominated by the President.

The country is a unitary state, with a two-tier system of subnational government. The 1993 Constitution recognised local self-government in Chapter Seven (articles 99-105) dedicated to “Territorial Self-Government”. Article 99 states that the Czech Republic is subdivided into municipalities, which are the basic territorial self-governing units, and into regions at upper subnational government level. According to article 100 and 101, territorial self-governing units are territorial communities of citizens with the right to self-government and they shall be independently administered by their representative body.

Municipalities are governed by local councils, whose members elect the municipal committee, which is the executive body of the municipality for a four-year term, as well as the mayor at its head (starosta in smaller municipalities, and primátor in larger cities). Each region has a regional assembly with members elected by direct universal suffrage for a four-year term. The regional committee is the executive body and is composed of the president (hejtman), vice-presidents and other members elected by and from within the regional assembly for four years. It is assisted by a regional authority, which is headed by a director.

Since 1989, several acts have been adopted to regulate the subnational government system such as the Municipal Act No. 367/1990 conferring legal status to municipalities, re-establishing local autonomy, defining municipal responsibilities, assets and funding. In 1997, the 14 self-governing regions were established through Act 347/1997, but they were recognised as autonomous entities only in 2000 with the Regional Act No. 129/2000, which transferred a series of responsibilities to the new entities. In parallel, a new Municipal Act was revised and adopted in 2000 (Act No. 128/2000) to define the legal framework, organisation and responsibilities of municipalities and the Local Finance Act 243/2000, which defined the regional and municipal financing system based on tax sharing.

Decentralisation reforms continued over the following years, in particular in 2005 and 2013 (fiscal reform increasing municipal tax revenues). In 2015, a process of recentralisation took place. Some municipal responsibilities were transferred from small municipalities to larger municipalities (to overcome municipal fragmentation) as well as to the central government in the framework of the social reform. Maintaining the polycentric character of the country was one of the objectives set in the national Strategic Framework for 2030, as well as improving coordination and planning between the different levels of governments.

The new strategy of the central government for public administration, set in the “Client-Oriented Public Administration 2030”, aims to improve citizens’ quality of life and prosperity through five objectives. The first objectives will be implemented under the national Action Plan for 2021-2023. One objective is to improve the coordination and management of public administration, which will be achieved through a strengthened horizontal cooperation between municipalities with extended jurisdiction. The quality of strategic planning will also be promoted through the development of methods, tools and innovations for strategic work. The government also aims to improve the functioning of small municipalities, as stipulated in its 2022 policy statement.

TERRITORIAL ORGANISATION
MUNICIPAL LEVEL	INTERMEDIATE LEVEL	REGIONAL LEVEL	TOTAL NUMBER OF SNGs (2021)
6 258 municipalities (obce)		14 regions (krai)
Average municipal size: 1 710 inhabitants
6 258		14	6 272

OVERALL DESCRIPTION: The Czech Republic has a two-tier subnational government system, comprised of 14 regions (13 regions and the city of Prague) and 6 258 municipalities in 2021, with no hierarchical link between them. Prague, the capital city, has a dual status as both a region and a municipality, and has only one assembly and one board.

REGIONAL LEVEL: The 14 regions are quite diverse in terms of area, demography and socio-economic development. The area of every region was created based on the geographical analysis with respect to the special interactions between the core and the periphery. The demographic size ranged from 293 000 inhabitants in Karlovy Vary region to 1.335 million in the City of Prague and 1.398 million in Central Bohemia in 2020. The regional GDP per capita in the region of Prague was 3.5 times higher than in Karlovy Vary region in 2020, and twice higher than the average regional GDP per capita, which reflects the high regional disparities of the country. Prague Metropolitan Area, surrounded by the region of Central Bohemia, represents the largest functional urban area of the country. Together, they gathered 25.5% of the national population and accounted for 38.6% of the national GDP in 2020. Overall, more than half of the regions (53.7%) comprised between 200 and 999 municipalities within their territory in 2019 and 23.7% included more than 1 000 municipalities (of which 0.1% included more than 100 000 municipalities), which highlights the high territorial fragmentation of the country.

Before the decentralisation reform in 2000-2002, there was a state territorial administration made up of districts (okres). A reform, effective since January 2003, replaced district offices by municipalities with extended competences (see below), which took over most of their functions. However, the old districts still exist as territorial units and remain as seats of some of the offices, especially courts, police and archives. The Act on Territorial Division of the State, passed in 2020 and effective since 2021, aims to simplify the system of state territorial administration, by completing the transition from the system of districts to the delegation of functions at the municipal level.

MUNICIPAL LEVEL: The municipal level (obce) includes several categories, comprised of 5 418 municipalities, 581 cities (mĕsto), 31 statutory cities (statutarni mĕsto) and 228 market towns (mĕstys) in 2021. The status of town is given to municipalities with more than 3 000 inhabitants. Statutory cities have a special status granted by an Act of Parliament, allowing them to define their own charter and internal organisation. In particular, they are free to establish districts at the sub-municipal level with their own mayor, council and assembly.

The City of Prague has a special status defined by Act No. 131/2000 as amended. In addition to city-wide directly elected representatives following the system of regions, the city is divided into 22 districts and 57 self-governing boroughs (some of which are also districts), each composed of its own elected local council. Council members then elect the mayor and the municipal committee.

The Czech territory is highly fragmented, due to a law passed in the early 1990s that enabled municipalities to split. Contrary to many OECD countries where mergers have been increasing, municipal fragmentation sharply increased until 2000 (from 4 100 municipalities in 1990 to 6 230 in 1994). In 2021, the average municipal size was the smallest among OECD countries (1 710 inhabitants per municipality on average), well below the OECD average (10 250 inhabitants) and EU average (5 960 inhabitants). While the median size is 442 inhabitants, 95.7% of municipalities had fewer than 5 000 inhabitants and 88.6% of municipalities fewer than 2 000 inhabitants in 2021. The rising fragmentation trend stopped with the 2000 Act on Municipalities, which introduced a requirement of at least 1 000 inhabitants to create a new municipality and includes an option for voluntary municipal mergers; although little impetus for such a process exists. Many municipalities are against mergers. To minimise the effects of municipal fragmentation, the 2000 Act on Municipalities also promotes inter-municipal cooperation in the form of contracts for performing certain functions, voluntary municipal associations and the creation of “mutual-interest associations of legal persons”.

HORIZONTAL COOPERATION: Inter-municipal cooperation on a voluntary basis is common to deal with the high level of fragmentation of the country rather than mergers. This has been recalled in the 2022 policy statement of the government. There were more than 790 inter-municipal cooperation structures active in the fields of education, social care, health, culture, environment, tourism in 2019. Around 90% of municipalities participate in some form of co-operation. However, inter-municipal cooperation lacks stability. It often relies on external temporary sources of financing and focuses on one-off investment projects rather than the delivery of continuous public services, which reduces the efficiency of such cooperation.

Inter-municipal cooperation can take the form of voluntary association of municipalities. The associations’ revenue mainly relies on membership fees, user charges and subsidies. There is an increasing number of multi-interest voluntary association of municipalities, which is another form of cooperation. These multi-purpose associations aim to ease coordination among municipalities across a wide range of competences to benefit from economies of scale, including strategic planning, public services provision (e.g. education, social welfare, waste management), environmental protection, social and cultural activities, and administrative support for member municipalities.

At the regional level, cooperation is also strengthened. Regions group together with the aim to be eligible for EU structural funds given their larger size. The Association of Regions, established in 2001 (i.e. one year after the creation of regions), also facilitates the cooperation and dialogue between regions and the central government.

The Municipal and Region Acts, both amended in 2002, make a distinction between autonomous and delegated responsibilities of subnational governments.

While municipalities have equal status, delegated competences are not the same for all municipalities. The government established an asymmetric and complex system of delegation according to the size and capacity of municipalities. There are three categories: at the upper level, there is a network of 205 municipalities with “extended powers” (ORP) that fulfil several administrative functions delegated by the central government on behalf of smaller surrounding municipalities (e.g. civil registers, issuance of ID cards, driving and licences; coordination of the provision of social services). At the intermediate level, there are 338 municipalities with an “authorised municipal authority” that perform delegated functions but on a smaller scale (e.g. building authority, registry office, social assistance, administration of war graves, specific agenda on environment and agriculture). At the lower level, municipalities have basic delegated powers (e.g. elections, population records, water management, road, offenses). Smaller municipalities can also delegate additional functions to the ORP if they do not want to provide, or cannot provide because of their lack of capacity specific services. Some municipal competences are currently being re-allocated from small municipalities to larger ones and to the central government within the framework of the Social Reform.

Municipalities have many competences in almost all areas of activity: economic affairs and transport, environmental protection, education, social welfare, urban development, utilities, etc. Regional responsibilities include upper secondary education, regional roads and public transport, economic development and planning and health.

Main responsibility sectors and sub-sectors
SECTORS AND SUB-SECTORS	Regional level	Municipal level
1. General public services (administration)	Regional administration	Municipal administration; Administrative delegated tasks (civil register)
2. Public order and safety	Fire safety; Prevention of criminality	Fire-fighting and prevention; Municipal police
3. Economic affairs / transports	Road network; Regional public transport; Tourism; Regional economic development; Cohesion (regional boards on cohesion)	Public transport; Secondary and local roads; Local economic development
4. Environment protection	Protection of fauna and flora	Water management and treatment (ORP only); Urban heating; Waste management (ORP only); Environmental protection
5. Housing and community amenities	Planning (approval of planning and zoning documents at the regional level)	Local development and planning; Cemeteries; Public areas; Housing
6. Health	Establishment and management of regional hospitals; Nursing homes; Monitoring the quality of care of private health care providers; Emergency services; Long-term care institutions; Facilities for disabled adults and children	Provision of primary healthcare services (medical centres and doctors)
7. Culture & Recreation	Sport (funding)	Culture; Sport
8. Education	Upper secondary education	Pre-elementary, primary and lower secondary education (excluding teachers’ salaries)
9. Social Welfare	Youth (funding); Social services	Administration of social benefits on behalf of central government; Social assistance; Youth policy; Retirement homes; Homes for the disabled

Scope of fiscal data: regional offices, municipalities and town councils, associations of municipalities, regional councils of cohesion, regions, local semi-budgetary organisations, non-profit institutions, public non-financial and financial corporations.

SNA 2008

Availability of fiscal data: High

Quality/reliability of fiscal data: High

GENERAL INTRODUCTION: While fiscal autonomy has increased in recent decades to compliment political decentralisation, central government funds are often allocated in a way that constrains local independence and policymaking. Subnational governments have low tax and spending autonomy. Municipal fragmentation also limits their spending capacity as stipulated under Law No. 138/2006.

Subnational government expenditure by economic classification
	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total expenditure	5 495	13.1%	27.7%	100.0%
Inc. current expenditure	4 414	10.5%	25.5%	80.3%
Compensation of employees	2 418	5.8%	51.7%	44.0%
Intermediate consumption	1 229	2.9%	48.1%	22.4%
Social expenditure	123	0.3%	1.6%	2.2%
Subsidies and current transfers	617	1.5%	28.4%	11.2%
Financial charges	10	0.0%	2.9%	0.2%
Others	17	0.0%	31.1%	0.3%
Incl. capital expenditure	1081	2.6%	42.3%	19.7%
Capital transfers	120	0.3%	24.6%	2.2%
Direct investment (or GFCF)	961	2.3%	46.4%	17.5%

EXPENDITURE: Despite the decentralisation process, subnational government spending in Czech republic is below the OECD average (17.1% of GDP and 36.6% of public spending in 2020), as well as below the EU27 average (18.3% of GDP and 34.3% of public expenditure). The share of staff expenditure in subnational government expenditure is significant (44.0% vs. 34.4% in the OECD in 2020 and 32.1% in the EU) and subnational government staff spending accounted for more than half of public staff spending, a level in line with the EU27 average (53.6%). Discretionary powers of subnational governments are limited as an important share of spending is made on behalf of the central government, which determines local government employees’ salaries. Regional expenditure has been growing continuously since the creation of regions in 2000, as they have been gaining more spending responsibilities and resources from the decentralisation process. In 2020, they accounted for 47.8% of subnational government expenditure (13.2% of public expenditure, i.e. 6.2% of GDP), while municipalities accounted for the remaining 52.2% (14.5% of public expenditure, i.e. 6.8% of GDP).

DIRECT INVESTMENT: Subnational governments have a key role in public investment. However, this role has decreased over the last few years, especially during the Covid-19 crisis where investment activity slowed down. Subnational government investment represented 2.6% of GDP and 42.3% of public investment in 2020, which is below the OECD and EU averages as a share of public investment (54.6% and 54.4% respectively in 2020), but above in terms of share of GDP (1.9% and 1.8% respectively). Subnational government investment accounted for 19.7% of subnational government expenditure in 2020, up from 12.8% in 2016. In 2020, most subnational government investments were dedicated to economic affairs and transports (30.7%), education (25.6%), environmental protection (12.2%) and recreation, culture and religion (11.5%). As set in the National Investment Plan for 2020-2050, presented in December 2019 after consultation with representatives of cities, regions and ministries, transportation infrastructure investment (e.g. road connections) is at the core of priorities (more than 75% of the investment projects).

The Czech building law has allowed, since 2012, municipalities to enter into development contracts with developers to co-finance transport and technical infrastructure; however, this remains an uncommon practice. Regions accounted for 35.7% of subnational government investment in 2020, 0.9% of GDP and 15.1% of total public investment. Despite the increasing role of regions in investment, the municipal level remained the primary subnational government investor at 64.3% of subnational government investment in 2020 (i.e. 01.7% of GDP and 27.2% of public investment). Investment per capita in small municipalities (below 500 inhabitants) represents however less than half of investment per capita in medium sized municipalities (5 000-10 000 inhabitants) as well as large municipalities (above 100 000 inhabitants). Small municipalities suffer from a lack of skills and administrative capacity to deal with complex investment projects.

Cooperation between the different levels of government is promoted with regard to strategic investments. The government’s Regional Policy Committee facilitates the coordination between the ministries, regions and municipalities to ensure that investment projects help to reduce the large regional disparities that exist in the country. Cooperation is also enhanced between metropolitan areas and conurbations through Integrated Territorial Investments. This new place-based instrument will aim to devolve more decision-making to local governments in investment, in addition to the community-led local development (CLLD) tools.

Subnational government expenditure by functional classification
	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total expenditure by economic function	5 084	11.7%	-	100.0%
1. General public services	565	1.3%	28.4%	11.1%
2. Defence	2	0.0%	0.6%	0.0%
3. Security and public order	88	0.2%	10.7%	1.7%
4. Economic affairs/transports	876	2.0%	32.3%	17.2%
5. Environmental protection	296	0.7%	79.9%	5.8%
6. Housing and community amenities	218	0.5%	71.1%	4.3%
7. Health	661	1.5%	15.0%	13.0%
8. Recreation, culture and religion	360	0.8%	57.6%	7.1%
9. Education	1 556	3.6%	49.3%	30.6%
10. Social protection	463	1.1%	8.3%	9.1%

The largest category of subnational government spending in 2019 is by far education (30.6%), which accounted for almost half of total public spending in this sector. The second most important area of spending is economic affairs (17.2%), particularly transport, followed by health (13%) and general public services (11.1%). The share of health in subnational government spending has increased significantly since 2013 as decentralisation of healthcare has ramped up. In addition, healthcare expenditure is expected to increase further in the coming years due to the pandemic and ageing population. Subnational governments are responsible for 79.9% of total public expenditure in environmental protection policies, as well as for 71.1% in the sector of housing and community amenities. More than half of expenditure in recreation, culture and religion is carried out at the subnational level (57.6%). As stated in the 2022 Policy Statement of the government, culture will be enhanced at the regional and municipal levels, especially in towns applying for the title of ‘EU capital of culture’.

Subnational government revenue by category
	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total revenue	5 688	13.5%	32.5%	100.0%
Tax revenue	2 355	5.6%	28.0%	41.4%
Grants and subsidies	2 657	6.3%	-	46.7%
Tariffs and fees	599	1.4%	-	10.5%
Income from assets	63	0.2%	-	1.1%
Other revenues	15	0.0%	-	0.3%

OVERALL DESCRIPTION: According to the Local Finance Act 243/2000, subnational governments are financed through a mix of taxes and intergovernmental transfers from the central government. Although tax revenue represents a significant source of subnational government revenue, and particularly municipal revenue, they have little autonomy over their revenue as most taxes are shared. Overall, 62.6% of municipalities’ revenue is from taxes, while for regions 59.5% of revenue is from grants and transfers.

TAX REVENUE: Subnational government tax revenue accounted for a significant share of subnational government revenue in 2020 (41.4%), close to the OECD average (42.4%) and the EU27 average (40.1%). As a share of GDP and public tax revenue, subnational government tax revenue was however slightly lower than the OECD average (7.2% of GDP and 32.3% of public tax revenue). Regions accounted for 42.0% of subnational government tax revenue, while municipalities accounted for the remaining 58.0%. Despite this relatively high level of tax, tax autonomy is limited as taxes are mostly shared.

Subnational governments are financed through a mix of shared taxes, including the value-added tax (VAT), the personal income tax (PIT), the corporate income tax (CIT) and the tax on self-employed income. Revenue from the VAT, the PIT and the CIT represented respectively 43.1%, 31.8% and 19.5% of subnational government tax revenue and 17.8%, 13.2% and 8.1% of subnational government revenue in 2020. Tax revenue is allocated as a percentage of revenue raised and then redistributed within subnational governments (state, regions, municipalities and the state fund for traffic infrastructure) according to a complex formula. The overall shares for regions and municipalities are set annually. Each individual region’s share is set in the legislation, with a coefficient roughly in line with the estimated costs for delivering delegated services. Due to changing demographic trends, there is a growing pressure for horizontal redistribution of revenue across regions. The calculation for municipalities is more complicated and tends to favour small municipalities. The population size is the main criteria (88%), the remaining being the number of children in nursery and primary schools and the size of the cadastral area. The Act No. 609/2020, which amended some tax acts, increased the shares for regions to 9.78% (from 8.92%) and for municipalities to 25.84% (from 23.58%) in 2021. This change aimed to compensate for the decrease of the PIT’s tax rate and higher tax base credits in 2020.

Municipalities also collect their own taxes, in contrast with regions. Apart from income tax from companies, which represents a tiny share of municipal revenue, the property tax on land and buildings is the only tax levied by municipalities. It is based on the size of the property rather than its value. This tax, however, remains a minor tax, accounting for 3.6% of subnational government tax revenue, 1.5% of subnational government revenue and 0.2% of GDP in 2020, which is one of the lowest in the OECD (1.0% of GDP on OECD average in 2019). In 2009, a marginal rate was introduced in order to give municipalities some autonomy over tax rates, so that they can increase the rate up to five times the minimum threshold amount. However, most municipalities tend to set their local property tax rate at the lower level set by the central government, and only 7% of municipalities have made use of the possibility to increase tax rates. Municipalities have also set a wide range of exemptions for this tax. In its 2022 Policy Statement, the government announced it will expand the municipalities’ leeway to set the coefficient of the real estate tax. It also announced the creation of a new tax on mining, that will benefit all levels - municipalities, regions and the central government.

GRANTS AND SUBSIDIES: The main general grant for municipalities and regions is the contribution for performance of state administration. It has increased and been reshaped in the last years. Transfers from the central government are an important source of subnational government funding, in particular for the regions. The Czech Republic has no equalisation grant at the regional or municipal level, but the tax-sharing scheme induces some equalisation between municipalities based on the above-mentioned formula. In addition, transfers allocated to special programs for structurally affected areas (e.g. RE:START in coal mining regions) aims at reducing imbalances between regions or municipalities.

There is a complex system of funding from the central government to subnational governments in Czech Republic. Transfers include hundreds of subsidy schemes, which are mostly earmarked. Grants typically come from the national budget or the budget of several state funds. Grants for current expenditure are based on a formula set by the Ministry of Interior and are typically earmarked, in particular to fund delegated responsibilities (91% of total grants were earmarked grants in 2020). The formula for municipalities is based on their population and the extent of delegated competencies. Municipalities with extended powers receive an additional transfer from the state. However, the link between the cost for providing delegated services and the amount transferred for these services is small, which reduces efficiency. This is particularly true for education grants, a major component of central government earmarked transfers, which are allocated on a per student basis and do not reflect the actual cost of the service. Some transfers are fixed and relatively stable over time, such as social transfers for regions to cover healthcare funding. In addition, municipalities can apply for subsidies from the regions, which can stem from the individual responsibility of the region (e.g. for a specific regional program) or from the redistribution of state subsidies (e.g. for teacher salaries).

Other transfers for capital expenditure (11.2% of total subnational government grants) are typically granted on a case-by-case basis.

OTHER REVENUE: Other revenue include user tariffs and fees from municipal services, which are regulated from the top by the central government. Local fees include in particular water and sewerage charges, municipal waste collection fees or library fees. They accounted for a large share of revenue (10.5% of subnational government revenue in 2020), in line with the OECD average (13.3%) and the EU27 average (10.3%). Property income includes rents, interest income and sales of property (1.1% of subnational government revenue in 2020).

Subnational government fiscal rules and debt
	Dollars PPP / inh.	% GDP	% general government debt	% SNG debt	% SNG financial debt
Total outstanding debt	1 468	3.5%	7.5%	100.0%	-
Financial debt	642	1.5%	3.8%	43.7%	100.0%
Currency and deposits	0	-	-	0.0%	0.0%
Bonds / debt securities	92	-	-	6.3%	14.4%
Loans	550	-	-	37.5%	85.6%
Insurance pensions	0	-	-	0.0%	-
Other accounts payable	826.30	-	-	56.3%	-

FISCAL RULES: Subnational governments are subject to a balanced budget rule. The 2012 Constitutional Act on Fiscal Responsibility and the Act No. 23/2017 on Rules of Fiscal Responsibility have strengthened the rules of budgetary responsibility, notably by translating EU fiscal rules into domestic legislation. The 2017 reform established two independent institutions: (i) the National Budgetary Council, which monitors the respect of fiscal rules and their impact on the sustainability of public finances, including subnational government finances, and (ii) the Committee for Budgetary Forecasts, which checks the credibility of economic forecasts set in the budgetary process.

DEBT: Act No. 23/2017 introduced a debt rule for regional and municipal governments. According to the rule, subnational government gross debt must remain below 60% of a four-year average of revenue. If the debt target is not respected, central authorities may cut revenue to a municipality or region by 5% of the difference between its amount of debt and the 60% target. This suspended revenue can only be released to gradually repay subnational government debt obligations, which have been made before the year in which the suspension occurred. Municipalities and regions complied with the rules in 2017-2019 before the Covid-19 crisis, which was reflected in a very low level of indebtedness. In 2019, approximately 550 municipalities (9% of the total number) had a debt higher than 60% of their revenue and the regions had no debt exceeding this threshold. The structural fiscal balance rule was amended in 2020 to allow the central government to deal with the Covid-19 crisis and to implement fiscal support.

Municipalities can borrow from commercial banks, from the State Environment Fund, from the Ministry of Agriculture and they can also issue bonds with the approval of the Ministry of Finance (around 9% of municipalities issue bonds). So far, no green bond has been issued at the subnational level. Regions have also taken out loans from international donors such as the European Investment Bank.

In 2020, subnational government debt is well below the OECD average (3.5% of GDP and 7.5% of public debt vs. 27.9% and 20.2% respectively). Financial debt accounts for 43.7% of subnational government outstanding debt. The remaining is composed of other accounts payable (commercial debt, arrears, etc.). Financial debt (1.5% of GDP and 3.8% of public debt) is primarily made up of loans (85.6% of financial debt in 2020). Bonds account for 14.4% of subnational government financial debt. In 2015, 3 255 municipalities out of 6 258 were indebted, including the four largest cities of the Czech Republic, which – taken together – totalled 50.4% of the total debt of municipalities.

TERRITORIAL MANAGEMENT OF THE CRISIS: Subnational governments’ role has been crucial in the management of the COVID-19 crisis given their large responsibilities in health, education and social welfare. Regions and municipalities are in charge of the functioning of health and long-term care services, while the central government and social security funds are mainly responsible for the financing. The central government, through the Ministry of Health, also administers some healthcare institutions and owns university hospitals. Regions are responsible for healthcare infrastructure within their territory (e.g. hospitals), for controlling the quality of private healthcare providers and for implementing subsidy programmes (e.g. capital investments or operational costs). Regions also perform various delegated functions in health, such as registration of health services, quality control and the provision of emergency services. They own emergency bodies, long-term healthcare units, some primary care and medical spa facilities. Municipalities are in charge of providing healthcare services in smaller hospitals and private doctors clinics. In its Strategic Framework for Health 2030, the government plans to reform primary care and to build a countrywide network of emergency services. It also plans to convert small municipal and regional hospitals into long-term care centres to tackle the insufficient number of beds in residential long-term care facilities.

During the pandemic, the governors of regions and the mayor of Prague ensured appropriate bed capacity in the healthcare infrastructure of their territory. They also played a significant role in protocols to test, trace, and isolate, and in the development of vaccination strategies and the purchase of protective equipment. On social welfare, they provided essential care for children whose parents worked as public civil servants. Regarding education, regions, through regional public health authorities, issued restrictive measures on school attendance based on the sanitary situation of the region and the epidemiological traffic light system. In the field of security, municipal police’s powers were extended to be able to penalise persons in breach of the crisis measures, without going through the usual administrative procedures.

EMERGENCY MEASURES TO COPE WITH THE CRISIS AT THE DIFFERENT LEVELS OF GOVERNMENT: Several fiscal emergency measures were put in place by the central government to support the economy during the pandemic. It notably modified the tax sharing formula in 2020 to alleviate subnational governments’ revenue at the expense of its own revenue. Compensatory bonuses were established for self-employed persons through the PIT, as well as deferrals on PIT advances and on the CIT paid by companies to support their liquidity, which heavily pressured subnational revenues. To compensate municipalities for their revenue loss linked to PIT adjustments, the state provided EUR 1.1 billion in emergency non-earmarked grants. The government also reviewed the status of municipal investment projects, together with the Union of Towns and Municipalities of the Czech Republic, to support public investment at the local level. It provided additional funding to repair infrastructure owned by municipalities (e.g. local schools, kindergartens) and committed to support investment projects for which financing would otherwise be insufficient. Nevertheless, the good fiscal position endorsed by Czech subnational governments before the crisis enabled them to have substantial cash reserves to deal with the pandemic.

Regions also received additional funds to provide schools with the technical equipment and software necessary for distance education. In addition, a CZK 1 billion (around EUR 40 million) package was adopted by the government to support culture. Almost one-third of the fund will be allocated to regions to support their cultural infrastructure, the remaining is to be transferred to independent art segments and subsidised organisations. A national Crisis Action Plan of Tourism for 2020-2021 was also established to sustain entrepreneurs in the tourism sector through postponements of their obligations to reimburse clients for cancelled trips and revision of the national Tourism Support Program in regions.

IMPACTS OF THE CRISIS ON SUBNATIONAL GOVERNMENT FINANCE: The pandemic led to a drop in domestic GDP in 2020 (estimated at 5.7%), which largely varied among Czech regions, from an estimated -1.4% of GDP in the Central Bohemian region to -3.9% in the Moravian-Silesian region and -4.5% in the Karlovy Vary region. Regions were unevenly affected socio-economically due to different specialisations. The Covid-19 crisis triggered a risk of increasing disparities between subnational governments, in particular with regards to health infrastructure, while they were already high, notably regarding the mining regions (Moravian-Silesian, Karlovy Vary and Usti regions).

Subnational revenue increased by 2.8% between 2019 and 2020, which reflects higher transfers from the government (+15.7% of grants and subsidies in 2020) to compensate for the drop in tax revenue (-5.5%). This figure varied among subnational governments. Municipalities were more affected as their revenue highly depends on taxes, which are mostly linked to the economic cycle. The Ministry of Finance estimates a drop of municipal tax revenue by 9.1% in 2020, largely underpinned by the drop of PIT (estimated at 8.6%) and CIT (21.5%). VAT proceeds also felt by an estimated 2.8% according to the Ministry. On the expenditure side, subnational government spending increased by 4.8% in 2020, mainly driven by higher capital expenditure for regions and current expenditure for municipalities (e.g. purchase of protective sanitary equipment for staff, disinfection measures). Overall, subnational balance showed resilience in 2020, thanks to extraordinary central transfers and robust fiscal position of local governments before the crisis. Municipal balance more than doubled between 2013 and 2019, which provided municipalities with sound fiscal reserves to address the pandemic. As a result, subnational debt only increased by 0.9% in 2020, in contrast to the increase of the general government debt (+17.8%). In 2022, subnational governments’ fiscal situation will depend on state support and will be supported by tax assignment adjustment in their favour enacted under Act No. 609/2020 Coll.

ECONOMIC AND SOCIAL STIMULUS PLANS: In response to the COVID-19, the Czech Republic will receive EUR 7 billion in grants and EUR 16 billion in loans from the EU Recovery and Resilience Facility between 2020 and 2026 to fund structural reforms and investment recovery packages of the country. As stated in its 2022 Policy Statement, the government will use it to boost strategic investment at the regional level.

In addition, the country will receive approximately EUR 1 billion in 2021 and 2022 as part of the REACT-EU instrument, which aims to support Member States to deal with the pandemic. The transfers will be used to purchase medical equipment for the healthcare system, the integrated rescue system and social infrastructure (including retirement homes). Czech Republic will also benefit from EUR 1.6 billion of the EU Transition Fund, to support the most disadvantaged regions in their energy transition to a low-carbon economy and to sustain green investments. Three regions will be eligible for this fund: the Moravian-Silesian, Usti and Karlovy Vary regions. Regions affected by the decline in coal mining will be also prioritised through the newly established EUR 5 billion Modernisation Fund, created to improve energy efficiency in the territory and managed by the State Environmental Fund.

The government developed a regional action plan for the Regional Development Strategy 2021-2022. This action plan aims to reduce local inequalities at the levels of both regions and municipalities with extended powers and to facilitate the implementation of the Just Transition Fund through regional planning. In accordance with the national Strategic Framework of the Czech Republic 2030 and Act No. 248/2000 Coll. on regional development support, the RDS 2021+ set objectives to strengthen territorial competitiveness, reduce regional disparities and promote sustainable territorial development. It focuses on issues with territorial implications that require national interventions. Its main objectives are to ensure tailor-made support for regions, emphasize the local dimension in sectoral policies, develop regional strategic planning and management, reinforce cooperation among levels of governance, improve coordination of strategic and spatial planning and develop regional databases.