Riga, Feb 27 (LETA) - The new model of financial equalization of local governments, submitted by the Finance Ministry for approval, shows certain benefits, Harijs Rokpelnis, the head of the Saeima faction of the Union of Greens and Farmers, told LETA.

Rokpelnis pointed out that the offer was interesting and all local governments could see benefits. He stressed that the solution was a good one as regards the elimination of mutual settlements for pupils. He also welcomed the decoupling of the real estate tax from the equalization model, as it would give municipalities more incentive to use the tax as a policy tool - both to motivate business and create a clean environment, and to penalize those who do not take care of their property.

At the same time, he acknowledged that the biggest beneficiaries of this solution would be the municipalities in the Riga area, where the amount of the tax is significantly higher. He also pointed out that the model was positive in that it would provide a more adequate funding stream for regional municipalities.

Rokpelnis also highlighted the drawbacks, including the fact that the proposal does not currently provide for greater state involvement with additional funding for municipal functions. He also objected to the ministry's intention to include a special subsidy for extra curricular education in the equalization model, as this would essentially mean the abolition of a clear state order to maintain the traditions of the Song and Dance Festival for the younger generation.

Rokpelnis pointed out that there has been no political discussion on the proposal among the coalition partners, so it is difficult to tell the further development of the idea.

As reported, the Finance Ministry has submitted a draft bill on improvement of the local government financial equalization system to the government for consideration.

During the drafting process, negotiations have been held with the Ministry of Smart Administration and Regional Development, the Latvian Association of Local Governments, the Latvian Association of Large Cities, the Association of Regional Development Centers, the Latgale Planning Region, and the Riga and Pieriga association of local governments Riga Metropolis, assessing the proposals and current financial data provided by the local governments.

The new model provides for a number of systemic solutions, the ministry informed. Real estate tax revenues are excluded from the financial equalization calculation, leaving them entirely at the disposal of local governments, thus strengthening fiscal autonomy and the link between the tax payment and the development of a given territory. In the current model, the share of real estate tax revenues is around 8 percent of the estimated revenues of local governments.

A new financial equalization algorithm has also been developed which reduces the revenue disparities between municipalities and allows to move away from the current division into "donors" and "recipients", replacing it with a single, systemically understandable approach to the distribution of funding.

The proposed model also provides for a balanced distribution of personal income tax, with part of the revenue distributed on the basis of actual performance, and the other part included in the financial equalization core funding.

According to the ministry, this strengthens the overall objective of the equalization system - to ensure equal access to basic services for all citizens regardless of their place of residence.

The new model provides for a reduction of administrative burden.