Study: Tax sovereignty at state and municipal level

In an international comparison, federalism in Austria has a particularly low level of autonomy on the revenue side at both provincial and municipal level. Expenditure is predominantly financed via the share of joint federal taxes. This restricts both the responsibility of provincial and municipal policy for public funds and the scope for financing expenditure. From a theoretical point of view, strengthening tax autonomy also leads to a more efficient use of funds. Not all taxes are suitable for decentralization. Care must be taken to ensure that the tax base is comparatively immobile and relatively evenly distributed across local authorities. In addition, revenues should be relatively stable over the economic cycle. This is a consequence of the limited ability of decentralized local authorities to take on debt. International experience with decentralization shows that the potential for taxes that meet these conditions is limited. Therefore, taxes that violate one or more of these conditions are also used. As a rule, at least one of the high-yield taxes is used at decentralized level in the form of surcharge levies. In some countries, there are surcharges on a national income tax at regional and municipal level. With regard to regulations for determining the tax base, it can be seen that these are often determined centrally. Of the federal states, Switzerland, the USA and Canada have very extensive scope in principle, even if this is usually only used to a very limited extent. The concept for strengthening tax autonomy, which was developed in this study, is based on the current tax system and legal restrictions. A central definition is proposed for the tax bases. The housing subsidy contribution and the motor-related insurance tax are suitable for shifting taxes to the level of the federal states. A state tax within the framework of wage and income tax can also be considered. Property-related taxes and the municipal tax are suitable for the municipal level. The revenue potential of property tax could therefore be increased. In the case of municipal tax, flexibility could be increased through the choice of tax rate.