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The Development Monitoring Centre says that more money is needed to improve local government services. The centre’s expert Märt Masso says that if revenue increases by 10%, services improve by 4%. But ordinary revenue growth is not sufficient.

According to 2023 data, the level of local government services in 18 areas ranges from 1.8 to 5.87 on a scale. The average level is 4.02. In wealthier municipalities, services are better because they have more money.

The Development Monitoring Centre's forecast says that local government revenues will grow by 10% over the next 2-3 years. But loans are making the situation more difficult.

The service level could be increased by 4% if income tax revenue grew 1.2 times. For example, if the share of income tax increased from 71% to 83%. Or if local taxes increased fivefold.

Masso says that municipalities need more money. It is possible to increase the share of income tax or give municipalities the right to impose new taxes. Innovation, which improves the level of services, would also help.

The Development Monitoring Centre says that local government funding and service levels are closely linked. Improving services requires state assistance. The state must decide whether to increase local government revenue or reduce their tasks.

The results of the analysis are in the Development Monitoring Centre's report "Prospects for Strengthening the Local Government Revenue Base and Developing Services". This is part of a larger study on the future of public services. The Development Monitoring Centre examines societal and economic developments.