All local budgets are independent, i.e. they have necessary revenue sources and the local governments are entitled to decide about budget expenses in accordance to the law of Ukraine. Respective local councils can discuss and adopt local budgets by themselves and independently from each other.
Presently, active work is being pursued to build up capable municipalities, which is in line with the Concept for the reform of local self-government and territorial government structure of Ukraine. The budgets of united municipalities to be created in accordance with the current legislation and the plan for the territorial structure of municipalities shall be linked directly with the state budget. This is how one of the goals of the budgetary reform will be achieved – transition from the three- to two-level budgetary system.
The reform of the budgetary system shall achieve the following goals:
- local governments can elaborate and adopt their local budgets by themselves without having to wait for the adoption of the state budget;
- the Ministry of Finance does not impose revenue targets on the local budgets;
- local budgets have more revenue sources which are needed to finance the functions of the local self-government;
- the previous system of balance between the revenues and expenses of the local budgets is replaced by a totally different system securing horizontal compensation of tax-collection capacities of different territories depending on the income per capita;
- new types of budgetary transfers are introduced (education and health subventions, subventions for the education of high-skilled workers, basic and reverse subsidies);
- the calculation of the new types of budgetary transfers is set up in the legislation;
- municipalities are entitled to set tax rates by themselves within fixed limits set by law as well as to grant preferences regarding tax payment.
Thus, the state shall adopt legislation granting full-scale budgetary and financial independence to the local budgets.
The Ministry of Finance only informs the local governments about the mechanism of draft budget calculation for the respective year and about calculation of expected budgetary transfers as well as methodic for their identification.