The presentation of the 2025 Finance Bill confirms the major role of local authorities in the effort to restore public accounts. The government plans to collect 5 billion euros from local authorities, mainly through a “precautionary” mechanism targeting 450 local authorities and a freeze on the VAT revenue allocated to the local level. Despite differences in management quality or territorial specificity, all local authorities will have to manage with significantly reduced resources without the ability to adapt to the changes. As local authorities are currently in the process of budgeting, how can they cope with these new challenges?
It is important to note that local government financial management differs significantly from that of the State due to the strict application of a budgetary “golden rule” that prohibits any local authority from adopting a deficit budget. Although local authorities can incur debt, this cannot be used to cover operational expenses such as employee salaries. It is essential to recognize the value of local public action in providing and embodying a proximity public service that is rightfully demanded by users and voters across the territory. The current financial constraints threaten to compromise the effectiveness of local public services.
Despite the financial strain, local authorities must not distance themselves from the financial effort and the objective of improving the efficiency of public action. It is crucial to separate the defense of public action from the defense of public employment and to break away from institutional logic that prioritizes the survival of local public structures. The loss of financial autonomy, resulting from successive transfers of local taxation, including the recent elimination of the housing tax, has made it challenging for local authorities to balance their revenues and expenditures. By heavily relying on state grants, local authorities are increasingly embroiled in the financial issues of the State.
The weakening of decentralization raises questions about the sustainability of local autonomy. While local officials resist the government’s demand for 5 billion euros in savings, it is evident that local authorities are now entangled in the State’s financial concerns. The erosion of financial independence challenges the principles of decentralization, especially considering the constitutional guarantee of local financial autonomy. Despite criticisms of this trend, it is clear that local authorities are becoming more dependent on the State for financial stability. The evolving financial landscape necessitates a reevaluation of the relationship between local and central governments.
As local authorities navigate the complex financial landscape, they must find innovative solutions to maintain the quality of public services while managing tighter budgets. The current challenges require a shift in mindset towards greater efficiency and accountability in public spending. By rethinking traditional approaches to financial management and exploring new avenues for revenue generation, local authorities can adapt to the changing financial environment while upholding their commitment to serving the needs of their communities. Ultimately, a collaborative approach between all levels of government is essential to ensure the sustainability of public services and the effective management of public funds.
