Fiscal Equalisation in the Irish Local Government System

Fiscal equalisation is a key element of a country’s intergovernmental fiscal arrangements where functions and funding are decentralised to subnational government. Equalisation transfers are used to reduce horizontal fiscal imbalances between local authorities, so that fiscal equity can be achieved whereby citizens are not disadvantaged in their access to public services by their place or region of residency. A well-designed system of equalisation transfers depends on the size and the allocation of the distributional pool. Currently, the equalisation fund is financed from a pre-determined share of the local property tax (LPT) and a contribution from the central Exchequer. The distribution of the fund is determined by the shortfall between the LPT retained locally and the general purpose grant baseline. In 2020, the equalisation fund was €135m, with 20 local authorities in receipt of an equalisation payment, and with just four local councils accounting for over 40% of the total. In the case of small rural councils with limited economic activity and revenue bases, the equalisation grant accounts for 10-15% of council income.

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