SLOVAK REPUBLIC

The Slovak Republic is a parliamentary republic, headed by a President directly elected every five years. It has a unicameral Parliament (National Council of the Slovak Republic) composed of 150 members, directly elected for a four-year period. The country became an independent state on 1 January 1993 after the dissolution of Czechoslovakia.

The Slovak Republic is a unitary country with two subnational tiers of governments, regions and municipalities, which are self-governing bodies. The 1991 Slovak Constitution sets the basis for the “territorial self-administration” (Art. 64 to 71). Municipalities were introduced as autonomous authorities in 1991, while regional governments (also referred to as Higher Territorial Units) were established in 2001 via the Act on Self-governing Regions. Title 4 of the constitution sets the legal structure and powers of local and regional governments.

Article 64 of the Constitution states that municipalities, namely an “independent territorial and administrative unit”, are the basic unit of local democracy. In that sense, they are considered to be a full, legal person that “under conditions set out in a law, independently manages its own property and financial resources” (Art. 65). Elections are held every four years to elect the mayor and members of the municipal council, and, in some cities, the mayor of borough (city district) and members of borough councils (Act 346/1990, on elections to municipal bodies). The mayor is called starosta in municipalities and city districts and primátor in cities.

At the regional level, the region's legislative and decision-making body is the regional council. It is composed of members elected by direct universal suffrage for a four-year term. The President (predseda) is also elected by direct universal suffrage for a four-year mandate and is the self-governing region's representative and statutory body, and chairs regional council meetings.

In 2001, municipalities were given substantial competences (social assistance, urban planning, housing, environment, primary schools, recreation, etc.) as part of a major decentralisation process, which also, in 2002, created regions that are now in charge of education, social welfare, regional roads and transport and regional economic development and territorial planning. The Project of Further Decentralisation of Public Government for the years 2003-06 confirmed the decentralisation process. In 2005, the Act on Local Financing deeply modified the subnational financial system by increasing both shared taxes and own-source taxes, and reducing central government transfers to subnational governments. In 2014, the ESO Programme (for an efficient, reliable and open state administration) restructured the territorial administration of the central government in order to simplify it and make it more cost efficient. This included better multi-level governance at the local level and improved public service delivery to citizens. The newly elected government is discussing a public administration reform on decentralisation and subsidiarity, as specified in the 2020 “Modern and Successful Slovakia” Reform Plan, which frames the future “Plan of Reconstruction and Resilience of the Slovak Republic”. The reform is planned for November 2022 to align with regional elections. The reform aims to streamline public administration and to modify the organisation of municipalities and regions to provide them with more fiscal autonomy. The reform would entail a change in competences and financing of subnational governments.

TERRITORIAL ORGANISATION
MUNICIPAL LEVEL	INTERMEDIATE LEVEL	REGIONAL LEVEL	TOTAL NUMBER OF SNGs (2020)
2 927 municipalities (Obci)		8 regions (Samosprávne Kraje)
Average municipal size: 1 865 inhabitants
2 927		8	2 935

OVERALL DESCRIPTION: The Slovak Republic has a two-tier system of subnational government, made up of eight self-governing regions and 2 927 municipalities.

REGIONAL LEVEL: Population ranges between 564 900 inhabitants in the Trnava region to 826 200 inhabitants in the region of Presov, while the average regional size is around 682 230 inhabitants in 2020. Density varies from 68 inhabitants per km2 in the Banská Bystrica region to 328 in the region of Bratislava. The regional level is marked by strong disparities, with the eastern part of the country lagging behind the west, and in particular compared with Bratislava. The regional gap in GDP per capita increased in the Slovak Republic over the last 20 years. GDP per capita in the Bratislava regionis now almost 3.8 times higher than in the region of Prešov.

MUNICIPAL LEVEL: The municipal level includes 140 cities (mesto), 39 city districts (boroughs or mestská časť) in Bratislava (17) and Košice (22), rural municipalities, as well as three military districts. The special status of “city” is granted by the Parliament to municipalities that are considered administrative, economic and cultural centres. They are in charge of providing public services to neighbouring municipalities. City districts in the cities of Bratislava and Košice also have “municipality” status (even though they are contained within a municipality) and are responsible for issues of local significance such as urban planning, local road maintenance, budget, local ordinances, park maintenance and public safety.

Municipal fragmentation in Slovak Republic is one of the highest in the OECD. The average size of municipalities is around 1 900 inhabitants (vs 10 250 in the OECD and 5 960 in the EU27) and the median size is 672 inhabitants. 84% of municipalities have fewer than 2 000 inhabitants and 95% fewer than 5 000.

HORIZONTAL COOPERATION: To tackle the problem of municipal fragmentation, the government promoted inter-municipal co-operation in the framework of voluntary “joint municipal offices” (around 490 in 2019), which are multi-purpose and implementing co-ordination arrangements covering 21 different domains. The ESO Programme, enacted in 2014, reinforced the role of joint municipal offices for the purposes of managing functions delegated from the state. At the end of 2015, a project was launched by the Ministry of Finance to develop a single information system via cloud services for all local municipalities (Datacenter of cities and villages project-DCOM).

Local and regional governments are also gathered in associations (the “Association of towns and Communities of Slovakia” for municipalities and SK8 for regions), which aim to defend subnational governments’ interests in national, EU and international legislation and to promote the activity of subnational governments.

STATE TERRITORIAL ADMINISTRATION: Slovakia’s territorial state administration was restructured in 2013-2014 as part of the ESO Programme. In 2013, 72 new district offices were created to replace numerous state territorial entities. The number of districts has remained stable since (72). One-stop shops are being established in the district offices to provide a wide variety of public services.

Decentralisation reforms introduced in 2001 through 2005 increased the competences and resources of subnational governments. In the framework of a multi-annual programme of decentralisation, more than 400 tasks and responsibilities were transferred to the municipal and regional levels.

Despite their small size, municipalities have significant responsibilities and competences in the fields of urban planning and local public services, such as social assistance, housing, environment, primary schools, recreation, etc. Their responsibilities are divided between own competences and transferred competences devolved by the central government. Following Slovak legislation, every competence that is not recognised as a transferred municipal competence is considered as an own competence.

Regions have wide-ranging responsibilities on education, health, regional roads and transport, social welfare and regional economic development and territorial planning. They may perform certain duties in the name of the state, mainly regarding education, healthcare and transport.

Main responsibility sectors and sub-sectors
SECTORS AND SUB-SECTORS	Regional level	Municipal level
1. General public services (administration)	Internal administration; International and trans-regional co-operation	Internal administration; Management of movable property and real estate owned by the municipality, or transferred temporarily by the State; Building permits; Registry offices
2. Public order and safety	Civil defence (in co-operation with State bodies)	Municipal police; Public order; Fire-fighting
3. Economic affairs / transports	Transport (roads, railways); Regional economic development	Supervision of economic activities; Consumer protection; Local roads; Local public transport; Tourism
4. Environment protection		Protection of the environment; Sewage; Heating; Refuse collection and disposal
5. Housing and community amenities		Housing and town planning; Cemeteries; Public lightning; Water supply; Parks and open spaces; Urban regeneration; Social housing
6. Health	Secondary hospitals; Management of non-State healthcare as psychiatric hospitals and dental services	First aid stations and primary medical centres
7. Culture & Recreation	Regional theatres; Libraries; Museums; Galleries; Cultural centres	Sports facilities; Cultural facilities
8. Education	Secondary, professional, art and vocational schools; Construction and maintenance of buildings; Payment of teacher on behalf of the State	Pre-school and primary schools; Kindergarten and nurseries
9. Social Welfare	Homes for children	Social aid for elderly and children

Scope of fiscal data: regions, municipalities and other units.

SNA 2008

Availability of fiscal data: High

Quality/reliability of fiscal data: High

GENERAL INTRODUCTION: The legislative framework of fiscal decentralisation comprises a series of legal acts established in 2004 regarding the budgets of regions and municipalities. Despite major fiscal decentralisation reforms that took place in 2005, the Slovak Republic remains one of the most centralised OECD countries in terms of subnational expenditure and tax revenue. Municipalities’ revenue-raising power and spending efficiency are limited by the small size of many municipalities and the lack of action taken to develop joint public-service delivery. Due to regions’ lack of fiscal autonomy, subnational governments rely primarily on intergovernmental transfers. As stipulated under the “Modern and Successful Slovakia” 2020 Plan, a large reform is currently being discussed to provide subnational governments with more fiscal autonomy (see above).

Subnational government expenditure by economic classification
	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total expenditure	2 507	7.8%	17.2%	100.0%
Inc. current expenditure	2 160	6.8%	16.3%	86.2%
Compensation of employees	1 369	4.3%	37.5%	54.6%
Intermediate consumption	564	1.8%	29.3%	22.5%
Social expenditure	29	0.1%	0.5%	1.1%
Subsidies and current transfers	184	0.6%	13.2%	7.3%
Financial charges	5	0.0%	1.4%	0.2%
Others	10	0.0%	18.3%	0.4%
Incl. capital expenditure	347	1.1%	25.5%	13.8%
Capital transfers	2	0.0%	1.0%	0.1%
Direct investment (or GFCF)	345	1.1%	29.8%	13.8%

EXPENDITURE: Despite the strong decentralisation process initiated in 2002, Slovakia remains a centralised country from the local government spending perspective. The level of subnational government spending in GDP and public spending is much lower than the OECD average of unitary countries (12.7% of GDP and 27.5% of public expenditure) as well as the EU27 average in 2020 (18.3% of GDP and 34.3% of public expenditure). However, subnational governments play a key role as public employers, as they are responsible for paying teachers’ salaries. In 2019 and 2020, teachers’ salaries increased by 10%. As a result, staff spending accounted for more than half of subnational government spending in 2020 and 37.5% of public staff spending. On average, due to the high fragmentation at the municipal level, municipalities with less than 250 inhabitants spend more than half of their budget on administrative costs.

DIRECT INVESTMENT: Public investment in the Slovak Republic is largely top-down and subnational governments play a weak role in investment planning and financing, well below the OECD average for unitary countries (48.9% of public investment and 1.9% of GDP in 2020). The country is heavily dependent on EU Structural and Investment Funds (ESI) for the financing of public investment. Economic affairs and transport is the primary subnational government item in terms of direct investment in 2020 (30.8%), followed by education (18.6%), housing and community amenities (16.3%), and recreation and culture (11.5%). Municipalities are by far the biggest subnational public investors compared to regions.

In 2016, a public expenditure review was launched on a four-year cycle with the support of several international organisations in order to develop a methodological toolbox and internal analytical capacity to improve the quality of Slovak public investment. Closer connections between regions are needed to promote balanced growth and attract investment at the country-level, in particular in the sector of transport, where the deficit in infrastructure is especially large. The supervision role of the Ministry of Finance’s Value for Money in the selection and implementation of public investment project was strengthened in 2020. Additionally, Slovakia reinforced the professionalisation of staff in regard to public procurement and the Public Procurement Office opened regional offices in 2020, with the aim to support subnational governments with legal interpretation of procurement legislation. This should facilitate and accelerate the drawing of EU funds for investment projects, as the complexity of procedures delayed the drawing.

The use of public-private partnerships (PPPs) to finance public investment projects is common in Slovakia, especially in road sector, but remains under the responsibility of the Ministry of Finance, notably for regulation, methodology, supervision and communication. There is no PPP unit. Subnational governments can contract PPP or concession agreements, subject to a prior consent from the Ministry of Finance if the value of the project exceeds a certain threshold.

Subnational government expenditure by functional classification
	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total expenditure by economic function	2 440	7.5%	-	100.0%
1. General public services	372	1.1%	14.9%	15.2%
2. Defence	0	0.0%	0.0%	0.0%
3. Security and public order	38	0.1%	4.9%	1.5%
4. Economic affairs/transports	366	1.1%	18.3%	15.0%
5. Environmental protection	130	0.4%	48.5%	5.3%
6. Housing and community amenities	145	0.4%	85.2%	6.0%
7. Health	69	0.2%	2.8%	2.8%
8. Recreation, culture and religion	162	0.5%	39.2%	6.6%
9. Education	980	3.0%	55.3%	40.2%
10. Social protection	179	0.6%	3.5%	7.3%

The primary area of subnational government spending is by far education (40.2%), resulting from the fact that regions and municipalities are responsible not only for the construction and maintenance of educational infrastructures, but also for school-related services and the payment of teachers and staff. Other significant areas of subnational government spending are general public services (15.2%) and economic affairs/transports (15.0%). On the other hand, they play a minor role in social protection (7.3%) compared to the average of OECD unitary countries (22.3%).

Subnational governments are responsible for more than half of public expenditure in the area of housing, community and amenities (85.2%) and education (55.3%), and close to half for environmental protection (48.5%), especially since their tasks include infrastructure related to water supply, sewage, heating, parks and open spaces. They play also a significant role in total public spending in the area of recreation, culture and religion (39.2%).

Subnational government revenue by category
	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total revenue	2 570	8.0%	20.0%	100.0%
Tax revenue	181	0.6%	2.9%	7.0%
Grants and subsidies	2 088	6.5%	-	81.2%
Tariffs and fees	268	0.8%	-	10.4%
Income from assets	15	0.1%	-	0.6%
Other revenues	18	0.1%	-	0.7%

OVERALL DESCRIPTION: Subnational government revenue accounts for a relatively small share of GDP, well below the OECD average (57.5% in 2020). Transfers from the central government represent the bulk of subnational revenue, well above the OECD average for unitary countries where grants accounted for 53.3% of subnational government revenue in 2020. The share of grants and subsidies in subnational government revenue is one of the highest amongst OECD countries. By contrast, the share of tax revenue is particularly low compared to the OECD average for unitary countries (35.4%), as well as that of the EU27 (40.1%).

Fiscal decentralisation deepened with the Act on Local Financing in 2005 and the Act on the support on regional development of 2008. The aim of these system is for municipalities’ exclusive competencies to be financed through own-source revenue (tax and non-tax revenue) while the tasks delegated by the state are to be financed through transfers from the central government. Since 2014, and the implementation of the SNA 2008 accountability system, Personal Income Tax (PIT) proceeds redistributed by the central government to subnational governments are no longer considered tax revenue in the form of a shared tax but considered as transfers, hence the drop in ratios related to tax revenue since 2013.

TAX REVENUE: Tax revenue only represents a small share of the financial resources of subnational governments in Slovak Republic, below the OECD and EU averages (see above). They accounted for a mere 0.6% of GDP and 2.9% of public tax revenue in 2020, which is well below the OECD average for unitary countries (4.5% of GDP and 18.7% of public tax revenue) and the EU27 average (7.2% of GDP and 27.1% of public tax revenue). Since 2016, municipalities are the only subnational level to receive own-source taxes. They are free to decide whether or not to levy tax on immovable property, tax on municipal waste, and other smaller taxes, and to set the rates of all local taxes. They also have a large autonomy on tax bases (exemptions, rate reduction). Until 2015, regions were able to levy one tax, the motor vehicle tax, imposed on vehicles used for commercial purposes, but the competence to collect the motor vehicle tax has been recentralised under state control in January 2016 (Act No. 361/2014 Coll. on Motor Vehicle Tax).

The main municipal tax is the recurrent tax on immovable property, levied on land, buildings and flats. The general rate of the land tax is 0.25% of the value while that of the building tax and the apartment tax is EUR 0.033 per m2. The municipalities may increase or decrease these rates in accordance with the local conditions. The property tax amounted to 84.3% of municipal tax revenue in 2020 and 5.9% of total subnational government revenue. Yet it only represents 0.5% of GDP, well below the OECD average (1.0% of GDP in 2020), partly because the tax base does not reflect property values on the current market. A large tax reform is being prepared to increase the value of the property tax and to lower tax burden on labour, but it may take several years for it to be implemented. Municipalities must also collect a tax on municipal waste and minor construction waste, according to the special Act No. 582/2004. Among the other local taxes are a tax on motor vehicles that enter and stay in historical parts of towns, the accommodation tax, and the tax on vending machines.

GRANTS AND SUBSIDIES: Grants are divided between earmarked and non-earmarked transfers. The main non-earmarked transfer to subnational governments is the share of PIT, redistributed from the central government to regional governments and municipalities. Since 2016, regions receive 30% of total PIT receipts and municipalities receive 70% according to the allocation formula. This transfer follows an equalisation principle, as the allocation for each subnational government is calculated on the basis of need, as well as population criteria.

Earmarked transfers from the central government aim at financing certain services. They represent around one-third of municipal budgets. The main grant is for education, covering in particular payment of teachers’ salaries, allocated according to the number of pupils. Other transfers include grants for delivering general public services (e.g. for keeping population registries, etc.), for the building and transport sectors and grants for regional development and tourism. In 2020, current grants accounted for 91.6% of total grants and subsidies.

OTHER REVENUE: User charges and fees represent a significant source of revenue (10.4% of subnational government revenue in 2020), slightly above the OECD average for unitary countries (9.1%). Other revenues include operating surpluses of public enterprises controlled by subnational governments, revenue from business/commercial activities, ownership of property (sale of movable and immovable property), donations received, interest on deposits or other financial products, collection of traffic fines and other administrative offences. Taken together, they accounted for less than 1% of the subnational government revenue in 2020. A development fee has been established in 2015 on land in the territory of the municipality, for which a valid building permit has been issued. The payer is a natural person or a legal entity (e.g. property developer) for whom a building permit has been issued.

Subnational government fiscal rules and debt
	Dollars PPP / inh.	% GDP	% general government debt	% SNG debt	% SNG financial debt
Total outstanding debt	988	3.1%	3.9%	100.0%	-
Financial debt	759	2.4%	3.4%	76.9%	100.0%
Currency and deposits	0	-	-	0.0%	0.0%
Bonds / debt securities	3	-	-	0.3%	0.5%
Loans	756	-	-	76.5%	99.6%
Insurance pensions	0	-	-	0.0%	-
Other accounts payable	228	-	-	23.1%	-

FISCAL RULES: Since 2005, subnational governments must follow a balanced budget rule. The Fiscal Responsibility Constitutional Act of 2011 and the Law on Budgetary Responsibility of 1 March 2013, which came into effect in 2015, strengthened the fiscal rules applying to subnational governments. This development also reinforced the role of the National Accounting Office (NAO, which controls local and regional accounting, budgeting and public expenditures. Since 2009, under the impact of the economic crisis, the central government stepped in with occasional bailouts to regional and city authorities to prevent the closure of public centres, in particular care centres. Some of the fiscal rules have been alleviated during the pandemic to enable subnational governments to deal with their loss of revenue and extraordinary expenditure (see below).

DEBT: Subnational governments are free to borrow in the form of loans or bonds to finance capital expenditure (“Golden Rule”), within limits set by the central government (debt service and cap on outstanding debt). Total subnational government debt must not exceed 60% of total subnational government current revenue. The payment of interest and principal on loans should not exceed 25% of current revenue for the previous year. Subnational governments exceeding the debt limits must pay a fine imposed by the Ministry of Finance amounting to 5% of the difference between the total debt and the 60% ratio. Since 2016, the central government can impose fines on regions and municipalities which exceeds the debt limit. Additionally, as of 2018, budget balance rules have been reinforced: if general government debt amounts to between 57% and 60% of GDP, the central government and subnational governments may only adopt a balanced or surplus budget for the next fiscal year; if it exceeds 60% of GDP, the central government must also ask the Parliament a vote of confidence.

Subnational government outstanding debt is well below the OECD average for unitary countries of 14.5% of GDP and 10.5% of public debt, as well as below the EU27 average (13.9% of GDP and 15.4% of public debt) in 2020. It is made up of financial debt (76.9%) and other accounts payable (23.1%). Within the financial debt, loans account for almost all debt stock (99.6%).

TERRITORIAL MANAGEMENT OF THE CRISIS: The country reacted rapidly to the pandemic with its declaration of the state of emergency in March 2020, providing the central government with extraordinary powers to fight the pandemic. The crisis was managed and coordinated at the central level with the involvement of the relevant ministries, particularly the Ministry of Health, and the establishment of crisis bodies, such as the Central Crisis Management Group led by the Minister of Interior and the Internal Crisis Management Group under the Ministry of Health. Groups of scientific advisors were also set up to advise the central government during the crisis. Subnational governments had an implementation role rather than a decision-making role during the pandemic.

Additionally, there are 36 regional public health authorities in Slovakia, which are managed, controlled and coordinated by the Public Health Authorities. The regional public health authorities showed, however, limited resource capacity to deal with the sanitary situation. As a result, the central government launched a plan to improve the network of hospitals in 2021, by establishing new local, regional and national hospitals with higher specialisation and by improving the quality and efficiency of healthcare services.

EMERGENCY MEASURES TO COPE WITH THE CRISIS AT THE DIFFERENT LEVELS OF GOVERNMENT: The government adopted several measures to support subnational governments during the pandemic under its Lex Korona, enacted in 2020. It notably increased the flexibility of subnational fiscal rules in 2020. Subnational governments had the possibility to use their reserve funds, capital income or repayable sources of financing until end-2021 in order to cover their current expenditure, notably those related to the pandemic, and to partially compensate their loss of revenue. They were also able to suspend all administrative procedures related to breaches of fiscal discipline during the pandemic and no longer had to comply with financial deadlines (e.g. budget, final accounts, financial statements). In addition, the central government provided subnational governments with EUR 151.9 million in December 2020 to compensate their loss of tax revenue. It remains unclear how and when subnational governments would have to repay it.

At the subnational level, subnational governments expanded their subsidy for humanitarian purposes to support vulnerable population. The subsidy aimed to cover the purchase of material and equipment required during the pandemic. This subsidy existed before the crisis but was not commonly used for social protection. Another subsidy was introduced in January 2021 to support voluntary service in social service providers.

IMPACTS OF THE CRISIS ON SUBNATIONAL GOVERNMENT FINANCE: Subnational revenue was quite resilient during the pandemic, notably due to the possibility for subnational governments to use their reserve funds, etc. to compensate the adverse effects of the crisis. Revenue at the subnational level was almost stable between 2019 and 2020 (-0.4%), due to an increase in tax revenue (+8.4%) and in grants and subsidies (+2.2%), the latter stemming from the central government, which could alleviate the drop in tariffs and fees (-13.3%) and in revenue from assets (-62.8%) in 2020. In particular, regions suffered from a loss in revenue from suburban bus transport, while municipalities were mainly affected by lower revenue from municipal companies and contributory organisations, decreased rental income and reduced waste fees.

On the expenditure side, the increase of spending related to the COVID-19 crisis were compensated by lower expenditure due to the closing of facilities and cancellation of events, which resulted in overall stable subnational expenditure between 2019 and 2020 (-0.8%). This figure underpins an increase of 6.0% from staff expenditure and a drop of 11.0% of spending in goods and services. Investment also decreased by 7.7% during the period. Subnational debt increased by 7.0% in 2020 compared to 2019, with a rise of 8.9% of financial outstanding debt, mainly financed by loans and, to a lesser extent, bonds.

ECONOMIC AND SOCIAL STIMULUS PLANS: Slovakia established a national recovery and resilience plan in line with the EU Recovery and Resilience Facility (RRF). As part of the RRF, the country will benefit from EUR 6.3 billion in grants from 2021 to 2026, of which 43% will be allocated to finance climate projects and 21% digital transformation. Projects comprise investment and structural reforms that involve all levels of governance. The central government consulted national and regional stakeholders to elaborate its national recovery plan. Additionally, the country established a “Platform for Redesign 2020 and 2021”, which includes policies, measures and actions on climate change in the context of the COVID-19 recovery (e.g. climate mitigation and adaptation measures, cross-cutting measures).