Speeches & Transcripts

Mamta Murthi Welcoming Remarks on Fiscal Equalization Transfers in Poland

December 11, 2014

Mamta Murthi Workshop: Fiscal Equalization Transfers at the Local Level – International Perspectives. Lessons for Poland Warsaw, Poland

As Prepared for Delivery

Ladies and Gentlemen,

Thank you all very much for coming here today. I want to thank the Ministry for allowing us to partner with them on this very important issue that will be discussed here today. In addition to the members from the Ministry of Finance, I’d like to thank representatives of subnational governments, individual local government units, international experts, and others who are assembled here. I hope we will have very good, detailed and fruitful discussions on this very important topic.

As the World Bank we have worked in a number of countries on issues connected with fiscal equalization and we find it a very important area because it speaks to our core mandate. Our core mandate is about ensuring that there is access to good quality public services that provide equality of opportunity for all citizens, and making sure that there is an intergovernmental fiscal framework that ensures access to good quality public services is very central to that. Hence this topic that we are discussing today is at the core of our mandate.

It’s an important and challenging topic, I suppose I don’t need to say that. It’s an important and challenging topic for a number of reasons. Perhaps the most important reason is that any system of intergovernmental transfers not only has to meet technical requirements - it has to be efficient, it has to be sustainable - but at the same time it also needs to be politically acceptable, and so this tension between political acceptance and efficiency and sustainability is what makes the topic so interesting and challenging. We really see three aspects, or three questions, that any discussion on these issues needs to address. I’m not an expert so I will speak about these three questions in very simple terms, you will have experts who will discuss it in much greater depth than I can. But there are really three basic questions. Who should be involved, which level of government should be involved in equalization? What is it that needs to be equalized? And how should equalization be achieved?

The first question: the WHO? Are we talking about horizontal redistribution – one subnational government passing on to another subnational government, or is there an intermediation role that can usefully be played by the central government or the federal government, so the WHO should play the role in equalization is a very important question. Then, the second one on WHAT should be equalized? Is it equalization of revenues, is it equalization on the basis of costs of producing services, is it equalization based on differences in needs? Understanding exactly what needs to be equalized is a very important question in order to arrive at the solution. Finally, there is the question of HOW to equalize. This is a very technical question, exactly how is the equalization achieved. So these three questions are questions that I hope we can deliberate based on the existing context in Poland.

Just to give you a flavor of how these questions play out, at the moment one of the more hotly debated issues is on the so-called Robin Hood tax. I wish I could say it in Polish but I can’t but I believe by the end of the day I will be able to say it. But clearly there is a challenge because it affects the incentives of subnational governments who actually collect the tax if the marginal rate of taxation is very high. There’s also the question of the timeframe, and this relates to the HOW question. There’s a timeframe over which the revenues are measured. And if you have a downturn and you are measuring revenue capacity with a lag then you could be in a situation when a subnational government has to pay out a lot at the time when it has to meet the needs of its own constituents. So these are the very detailed, technical questions that very quickly come up in discussing any reform, and we are hopeful that a discussion of the experiences from other countries will help throw light on the reforms that need to be undertaken here in Poland.

Finally, let me emphasize that we see things as a two-way street. At the World Bank we like to believe we are a learning institution and we learn as much from individual countries and the way they approach problems as we learn from talking amongst ourselves. And so we very much see this as an opportunity in which by understanding how Poland reaches conclusion on the course forward we will learn more about this topic and this is knowledge that we can share with other countries where we are working. With that let me conclude and wish everybody a very good discussion.