**18**

resident of Grodno should not be expected to pay for maintenance of housing which has been privatized in Minsk, for instance.

72. Objections to user cost recovery for housing and utilities often rest on assumptions that users in transition economics will not be able to afford the price levels entailed, given their current reduced incomes. Such arguments ignore the fact that shortfalls in cost recovery are now being paid for somehow-by taxpayers, including those who do not use these utilities, or by "inflation taxes" arising from printing money to finance government deficits. Cost recovery from users leads to savings which can be applied to reduce these taxes or government deficits.

73. It is, in fact, counterproductive to subsidize aggregate utility use for distributional reasons-betteroff people benefit more from such subsidies since consumption normally rises with income.<sup>43</sup> Belarus appears to be no exception to this rule. The 1995 Household Budget Survey shows that average monthly spending on rent and utilities rose from 57,000 rubels per family member in the lowest quintile of the income distribution to 67,000 rubels in the highest income quintile.44 The Government of Belarus is attempting to deal with income distributional problems arising in payment for housing and utilities in a more appropriate manner than by subsidizing all users. As described in the World Bank's recent Poverty Assessment for Belarus, low-income households receive housing allowances if payments exceed 15 percent of household income.<sup>45</sup> This approach targets assistance to families in greater need and would also seem to be appropriate for dealing with distributional considerations which arise in provision of services other than housing and utilities, such as daycare.

# **_Property and_** _Real_ **_Estate_** _Taxes_

74. Property and real estate taxes are appropriate means for financing municipal services to property, such as street lighting and road maintenance. Indeed. Appendix B indicates that property taxes are the principal form of autonomous finance of local governments in OECD countries. Keen (p. 4) notes that property taxes accounted for 5.5 percent of all OECD governmental revenues in 1992 and only 2.7 percent of total revenues in Belarus in 1995, or less than half of their comparative importance in OECD countries. Belarus needs a more useful form of property or real estate tax than the present land use tax, however, which in 1995 cost more to collect than it raised in revenue!46 Fortunately, reform of this tax is being considered by the Task Forces examining tax reform in Belarus in 1996.

# **_Appropriate Forms_** _of Central_ **_Transfers to Local Governments in_** _Belarus_

75. It is clear that local governments will not be able to finance municipal services from their own revenues until appropriate tax instruments such as a reformed property tax are put in place. Indeed, there will always be a case for transfers to enable poorer local governments to provide critical services in a maimer similar to that in better-off localities. To achieve this objective, some systematic form of "equalization" of local revenues is needed in Belarus. (The argument for such transfers is separate from that for personal transfers such as low-income supplements or unemployment insurance). While the central government of Belarus recognizes this need, it deals with it currently in ad hoc ways-by subsidies which differ by locality and by changing the local share in revenues assigned to oblasts. For instance, the share of lower-income oblasts in VAT revenue is higher than that permitted to the city of Minsk (which has the

> **43** For an explanation and graphical illustrations of this point, see the _World Development Report, 1994_ (Washington, DC, The World Bank, 1994), p 81.

> **_44_** _Expenditures and Income of the Population in Belarus: 1995,_ Table _t_ .2E. Ministry of Statistics and Analysis, Republic of Belarus, Minsk 1996.

> **45** Paolo Roberti et al.. _Belarus: An Assessment of Poverty and Prospects for Improved Living Standards._ World Bank (EC4CI), June 1996.

> **46** The conventional definition of a "nuisance tax" is that it costs more to levy than it raises in revenue.