IMPROVEMENT OF THE MECHANISM OF IMPLEMENTATION OF THE LOCAL BUDGET

Abstract

The radical market changes taking place in Ukraine require the development of a new fiscal policy. One of the main principles of building the budget system of Ukraine is budget independence. This principle of building a budget system is becoming more widespread in the financial system of unitary states, to which Ukraine also applies.The urgency of the problem of generating local budget revenues and the use of their funds has increased in the financial and economic crisis. Providing local governments with stable and sufficient financial resources is the key to becoming a capable and efficient local authority. Moreover, without the financial autonomy of local budgets with its numerous components and taking into account the tax potential of each territory, it is impossible to build and develop an effective national economy.The purpose of the study is to deepen the theoretical foundations and to develop practical recommendations on the formation of local budget revenues with the identification of directions to strengthen their role in stimulating the socio-economic development of territories in the context of decentralization.The analysis of local budget revenues allowed us to establish that the main method of financial equalization of local budget revenues is intergovernmental transfers. In recent years, there have been significant changes in the types and manner of calculating intergovernmental transfers. Since 2015, the following types of intergovernmental transfers have been used to equalize local budget revenues: basic subsidy; subvention; reverse grant; additional grants.In order to improve intergovernmental relations, a new mechanism of intergovernmental transfers has been introduced - the system of total balancing of local budgets at all levels has been replaced by a horizontal equalization system based on the level of taxability of the territories. At the same time, the equalization is carried out only on one tax – the personal income tax, the rest of the tax revenues remain at the disposal of local authorities. The new equalization system is stimulating, since only 50 % of donor budget funds are earmarked only for balancing the capacity of other territories, and not for the benefit of the state budget.