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Cyprus - Monitoring report

Date of the monitoring visit: from 29 to 30 March 2021 (remote)
Report adopted on: 17 December 2021
Files : CPL(2021)41-04 | Recommendation 467(2021)
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This report follows the fourth monitoring visit carried out remotely in Cyprus since this country ratified the European Charter of Local Self-Government in 1988.

The report underlines that the Charter is further taken into account in the development of relevant legislation on local self-government. Moreover, it notes with satisfaction that the planned local self-government reform aims at modernising it and in particular increasing the competences and responsibilities of Cypriot local authorities as well as their financial capacities.

However, the report identifies several shortcomings, notably that the principle of self-government is not recognised neither in the Constitution nor in applicable laws. Furthermore, it points out that the sphere of responsibility of local authorities is limited in comparison with common European standards. The report also underlines that local authorities largely depend financially on State transfers and grants and that the principles of adequacy and commensurability of local finances are largely ignored in the legal scheme. Similarly, the current system lacks appropriate financial equalisation mechanisms.

Therefore, the recommendation invites national authorities to introduce and recognise the principle of local self-government in the applicable laws governing the municipalities and the communities. It calls on authorities to entrench the municipal tasks in the law and clarify the distribution of municipal competences. It also urges national authorities to enshrine in the law the principle of adequacy of local finances. In addition, national authorities are encouraged to review the legislation in order to define in the law the conditions of office for local elected representatives.

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Article ratified Ratified with reservation Non ratified
Compliance Partial compliance Non compliance To be determined
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Article 2
Constitutional and legal foundation for local self government - Article ratified

The principle of local self government shall be recognised in domestic legislation, and where practicable in the constitution.

The Cypriot Constitution does not proclaim or explicitly recognise in any of its provisions the principle of local self-government, or any equivalent terminology such as “local autonomy”. The constitution only makes references to the co-existence of the two major communities at a local level and provides for separate institutional and governance mechanisms. Apart from this lack of explicit recognition, it cannot be said that the constitution recognises such principles in an implicit manner either. This construct is missing from the constitution.

Article 3.1
Concept of local self government - Article ratified

Local self-government denotes the right and the ability of local authorities, within the limits of the law, to regulate and manage a substantial share of public affairs under their own responsibility and in the interests of the local population.

Local authorities lack competences in several fields of governmental action that are usually entrusted to local government in most countries, such as social services, sanitary services and urban development planning. The existence of many forms of administrative controls and approvals that the municipalities, in discharging their duties, must obtain from the central ministries (or from the district officer, in the case of communities), must not be forgotten. In practice, this reduces their discretion to take initiatives even within the framework of their reduced responsibilities. The number and extent of those controls mean that local authorities cannot manage local affairs “under their own responsibility”, as the Charter requires.

All the relevant public policies (transportation, social, land development, environmental, etc.) are decided at the central, national level, since they are framed and approved by the central government or by the house of representatives (in the Republic of Cyprus, the parliament has extensive administrative functions).

All major infrastructure or public works projects are also decided at the central level, even if they must be carried out within the boundaries of a local authority. At the local level, the power of public procurement is limited to small projects. Large projects are directly tendered and adjudicated by the central government.

Local government expenditure in Cyprus in 2017 accounted for
€0.3 billion, which represented only 1.4% of the national gross domestic product and 3.6% of the total public expenditure - among the lowest in Europe and there has not been a significant increase in recent years.

Article 3.2
Concept of local self government - Article ratified

This right shall be exercised by councils or assemblies composed of members freely elected by secret ballot on the basis of direct, equal, universal suffrage, and which may possess executive organs responsible to them. This provision shall in no way affect recourse to assemblies of citizens, referendums or any other form of direct citizen participation where it is permitted by statute.

The members of the local councils are, in the words of the Charter, “freely elected by secret ballot on the basis of direct, equal, universal suffrage”. Indeed, they are directly elected by all registered voters. Every citizen who is over 18 has the right to vote (irrespective of being Greek Cypriot or Turkish Cypriot), provided they are listed in the corresponding voter register. Every citizen who is above 25 may run for mayor or for member of the local council. Citizens of EU member States may vote, and they may also be elected as members of the municipal and community councils (but not as mayor or community chairperson in the communities). Once elected, the local councillors elect the council chairperson.

On the one hand, it must be remembered that since 1975, members of the Turkish Cypriot community have rejected voting and taking part in most electoral processes developed in the Republic of Cyprus, especially local elections. From the perspective of local democracy, this is a serious anomaly of the democratic process because a significant part of the local population (those belonging to the Turkish Cypriot community) does not participate in the local elections. However, the reasons for this situation and its possible resolution are far more complex and fall well beyond the scope of the Charter. The truth is that the Charter requires free, direct and universal suffrage, and free, direct and universal elections are launched every five years in the Republic of Cyprus. Consequently, no violation of Article 3.2 may be concluded on the basis of this de facto situation of electoral inhibition from one part of the electorate.

Article 4.1
Scope of local self government - Article ratified

The basic powers and responsibilities of local authorities shall be prescribed by the constitution or by statute. However, this provision shall not prevent the attribution to local authorities of powers and responsibilities for specific purposes in accordance with the law.

 From the outset, it must be underlined that the Cypriot Constitution does not regulate or enumerate in a comprehensive way the powers or competences of local authorities. Certainly, some constitutional provisions refer to matters or issues that can be understood as local powers or competences, but only in an indirect way and in order to secure the system of checks and balances of the two largest communities on the island. 

In the case of municipalities, under Article 84 of the Municipalities Act, the local councils are responsible for different activities and for the delivery of public services.

Sectoral legislation may provide additional competences to local governments or their organs. Examples of this include the Streets and Buildings Regulation Law, the Town Planning Law, the Civil Marriages Law and the Sewerage Systems Law.

The recognition of these new competences has followed an unclear course. According to the UCM, the ministry of the interior, from the beginning of the discussions, suggested that all municipalities should become urban planning and building authorities, a suggestion included in all the Council of Europe recommendations. However, this provision was later removed from the bill, something that produced great disappointment among local leaders.

The UCM succeeded in obtaining the competence over school administration, as was recommended in Article 16d of Recommendation 96 (2001), despite the initial resistance of certain political forces. Nevertheless, in the bill submitted to the parliament, a transitional provision was added, according to which this competence would be attributed to municipalities, but only after a period of 10 years since the enactment of the new law. This harsh condition has been decried by the local association.

All in all, the UCM managed to take over several substantial competences, such as the creation of municipal police and the maintenance of the road network except the highways.

Article 4.2
Scope of local self government - Article ratified

Local authorities shall, within the limits of the law, have full discretion to exercise their initiative with regard to any matter which is not excluded from their competence nor assigned to any other authority.

Local government is not very strong nor developed in Cyprus and the realm of matters where local governments can discharge competences is strictly defined in law. Moreover, Cypriot local authorities have limited financial resources (see below). These resources are supposed to cover only their regulatory or “obligatory” competences, and in practice they do not leave local governments much room for manoeuvre to undertake additional activities to those that are strictly prescribed by the law.

What is more, some of the competences that the law attributes to local authorities are, in practice, not yet discharged by them. The lack of real financial and administrative autonomy as well as lengthy bureaucratic procedures and a long list of approvals constitute major obstacles in exercising their competences with full discretion. Moreover, several key local decisions (for instance, borrowing money, approval of the budget, selling municipal property, etc.) must be approved by State authorities. The situation of the communities is even worse, because they are highly dependent on de-centralised structures such as the district administrations. As a result, their discretion is even more limited.

The limited financial and managerial resources and the prior administrative approvals do indeed limit the capacity of local governments to exercise “full discretion to exercise their initiative with regard to any matter which is not excluded from their competences”, as the Charter requires, and the rapporteurs believe that there is a violation of Article 4.2 of the Charter.

Article 4.3
Scope of local self government - Article ratified

Public responsibilities shall generally be exercised, in preference, by those authorities which are closest to the citizen. Allocation of responsibility to another authority should weigh up the extent and nature of the task and requirements of efficiency and economy.

It is commonly understood that this provision enshrines the so-called “principle of subsidiarity”. In the light of the responses given by our interlocutors, this principle seems to be alien to the Cypriot public law tradition. Furthermore, this principle is laid down in neither in the constitution nor the most relevant laws on local authorities, and there is no case law from the supreme court on this principle either (see below).

It seems that this principle is respected de facto by policy makers. For instance, the ministry of the interior declared that the principle was considered at the time of framing the local reform bills. According to top ministerial officials, this would have resulted in transferring competences and powers from the central to the local government, together with the necessary financial means to provide the new services.

Article 4.4
Scope of local self government - Article ratified

Powers given to local authorities shall normally be full and exclusive. They may not be undermined or limited by another, central or regional, authority except as provided for by the law.

The competences allocated to local authorities are far from “full” and “exclusive”. To begin with, and as top ministerial officials admitted, there are many cases of shared competences between the central and the local levels (see above). For instance, there are currently competences shared in the fields of issuance of town or building permits, sanitary inspections, social welfare, etc. Moreover, in the discharge of those powers by the local councils there is a prevailing competence of the central ministries. Another clue to determine whether this provision is respected, again, is the high volume of prior consent and approvals that local authorities must obtain from the central government in many domains.

Article 4.5
Scope of local self government - Article ratified

Where powers are delegated to them by a central or regional authority, local authorities shall, insofar as possible, be allowed discretion in adapting their exercise to local conditions.

 

In the governmental system of the Republic of Cyprus, the only possibility for intergovernmental delegation of powers (in the true meaning of the word) is the one that takes place between the central government and the local authorities. However, the local government system of the Republic of Cyprus does not regulate in a detailed manner the “delegation” of powers from the central government to the local authorities.

The different key pieces of legislation on local government do not regulate the method for the delegation of powers from the State to local authorities. The Municipalities Law does not say a word on this issue, and the same is true of the Communities Law. A plausible explanation for this fact may be that this mechanism is not a common practice and that the State does not usually delegate tasks or competences to local authorities, or perhaps this process is known under other names such as “de‑centralisation”, which is not the same.

Neither the delegation of new competencies to local authorities nor the provision of concomitant financing is a common practice in Cyprus. This has happened in a very limited and focused manner, that is de-centralising certain town planning functions in the mid-1980s to only four municipalities (including Nicosia, see above). Moreover, there is no data as to whether concomitant financing was provided for this particular case. Consequently, the local authorities usually discharge their own powers (as enshrined in the applicable legislation) as “original” powers and not as “delegated” ones.

There are no grounds to conclude whether the Republic of Cyprus complies or not with this provision of the Charter, in the light of the very limited use of this technique.

Article 4.6
Scope of local self government - Article ratified

Local authorities shall be consulted, insofar as possible, in due time and in an appropriate way in the planning and decision-making processes for all matters which concern them directly.

 

In the Cypriot system of government, and contrary to what happens in other countries, there is no permanent body, mechanism, administrative organ or bilateral commission established specifically for the consultation of local authorities and for channeling their participation in the decision making of the State bodies on matters that concern local governments. Moreover, the two main statutes regulating the different types of local authorities (municipalities and communities) do not deal with the issue of intergovernmental consultation or negotiation, neither in the functional nor in the organic sense of this term.

There is a certain de facto pattern of consultation, that the local authorities are heard by the central ministries, and that the local bodies find their way to perform lobbying before the central authorities. However, the obligation to consult with local authorities is not embodied in the law and consequently is not obligatory for the State. No legal consequences follow if the government does not consult with local authorities. There is no legal provision establishing the obligation to consult the local governments, and there is no permanent body or institutional mechanism for intergovernmental dialogue. The pattern of consultation may largely depend on political discretion.

Article 5
Protection of local authority boundaries - Article ratified

Changes in local authority boundaries shall not be made without prior consultation of the local communities concerned, possibly by means of a referendum where this is permitted by statute.

 

Article 5 of the Charter has become an important aspect of the currently progressing local government reform in Cyprus (especially the bill providing for the massive mergers and amalgamations of local authorities). The different stakeholders involved in the reform disagree as to the extent to which this Charter provision has been respected. The government holds that this provision has been fully observed, and the association of municipalities also believes this. However, some local authorities concerned by the reform (especially the communities) disagree sharply with this version.

The analysis of the compliance with Article 5 of the Charter in the context of the local government reform currently discussed in Cyprus requires scrutiny of two different aspects, in accordance with the wording of that provision. First, attention should be paid to the question as to whether the changes in local authority boundaries will be made with or without a prior, true and genuine consultation of the local communities concerned. Second, the prospect of conducting a referendum on the reform should be analysed separately.

It seems that the consultation of local authorities was not as wide as it could have been, that it did not involve all the affected mayors, presidents, local councils or citizens’ associations and that the communications campaign could have been improved. The consultation process was not as full, genuine and comprehensive as would be desirable.

The government apparently wants to avoid local referendums. This seems to be a red line. According to high-ranking ministerial officials, there are several structural and unwritten features of the Cypriot system of local government that advise against having local referendums. If individual referendums were to be held in all the local authorities targeted by the reform, two problems might arise: first, since there is a high level of political clientelism and a parochial understanding of government at the local level, chances are that the proposed mergers/amalgamations would be rejected only for the sake of keeping the current status quo and the present political force of some local leaders, a power that would be lost in the new, larger territorial units created by the reform. Second, important technical problems might arise if, for instance, a prospective amalgamation is accepted by some local authorities, but rejected by others. The whole reform would get out of balance and could be blocked. In a nutshell, the government’s point is that the referendum should be held nationwide, for the sake of securing the improvement and empowerment of local government itself, paradoxical as it may seem.

The conclusion should be tempered. This assessment is nuanced in the sense that, according to the preceding arguments, no violation of that provision may be drawn from the fact that a national referendum (or local ones) is planned to be held on the local government reform. However, the rapporteurs believe that the government did not conduct a comprehensive and universal programme of information and did not inform or consult individually all the local authorities involved in the reform, their councils and their residents, especially as regards the communities, thereby falling short of complying with the requirements of Article 5.

Article 6.1
Appropriate administrative structures and resources for the tasks of local authorities - Article ratified

Without prejudice to more general statutory provisions, local authorities shall be able to determine their own internal administrative structures in order to adapt them to local needs and ensure effective management.

Under the Municipalities and Communities Laws, Cypriot local authorities have the capacity to determine their own internal administrative structures, but in practice this ability is extremely limited for legal and practical reasons, mainly the lack of financial resources and the intervention of the central government. Organisational decisions must indeed be embodied in local regulations, certainly to be approved by the council, but also requiring the central government approval. For this reason, some local representatives met by the delegation asserted that they do not have real freedom to decide about their “complementary” internal structure, since they must also obtain the prior approval of the minister of the interior (or council of ministers).

The picture described could change dramatically in the future, with the benefit of more local autonomy: top governmental officials assured the delegation that, if the local government reform is finally approved, the ministry of the interior will only implement a legality check on the local authority proposal and that it will be easier for the local authorities to fill their own staff vacancies.

Article 6.2
Appropriate administrative structures and resources for the tasks of local authorities - Article ratified

The conditions of service of local government employees shall be such as to permit the recruitment of high-quality staff on the basis of merit and competence; to this end adequate training opportunities, remuneration and career prospects shall be provided.

Local authorities are in principle autonomous in managing their own human resources, but they must obtain prior approval from the government for many of their important or strategic decisions, especially when these decisions are embodied in local regulations. Thus, the management of human resources is another field where it is possible to note the existence of a strong supervision from the central ministries over local authorities’ activities, a feature that must be coupled with the structural aspect of the lack of financial resources. In this sense, it was reported that several small communities do not have the financial resources to employ personnel to undertake their functions. Consequently, local authorities have a limited capacity to formulate their own personnel policies.

Given the reduced capacity of local governments to manage their own staff, the need to obtain prior approval of their regulations, and their limited financial capacities to provide training, the rapporteurs conclude that there is only partial compliance with Article 6.2 in the Republic of Cyprus.

Article 7.1
Conditions under which responsibilities at local level are exercised - Article ratified

The conditions of office of local elected representatives shall provide for free exercise of their functions.

 In connection with this provision, the most important feature is that, as happened in the last monitoring mission, the rapporteurs note that in the current Cypriot legal system there is no law, or set of laws and regulations, properly defining the conditions of office for local elected representatives, setting their obligations, duties and rights nor the adequate safeguards ensuring the free exercise of their functions. That is, in the law there is no comprehensive regulation guaranteeing local elected representatives’ freedom to exercise their functions, as exists in certain other countries. The Municipalities Act and the Communities Act devote several articles to the composition of the council and to the matter of incompatibilities, but do not regulate that “status”. This remark is supported by scholarly publications by Cypriot experts on the matter.

As a matter of fact, since the legal scheme has not changed substantially, the rapporteurs could not arrive at a different conclusion. This being said, it is also true that there is nothing in the present domestic legal system nor in political practice that leads the rapporteurs to believe that local elected representatives do not exercise in their functions freely. This fact has never been questioned in recent years, at least to the knowledge of the rapporteurs.

Article 7.2
Conditions under which responsibilities at local level are exercised - Non ratified

They shall allow for appropriate financial compensation for expenses incurred in the exercise of the office in question as well as, where appropriate, compensation for loss of earnings or remuneration for work done and corresponding social welfare protection.

Consequently, and although Article 7.2 is not binding on the Republic of Cyprus, the rapporteurs believe that, in this respect, the situation does not fully comply with the requirements of that provision, since there is no statutory regulation of those remunerations, and consequently they are neither stable nor guaranteed under the law. This partial compliance is especially obvious in the case of the communities.

Article 7.3
Conditions under which responsibilities at local level are exercised - Article ratified

Any functions and activities which are deemed incompatible with the holding of local elective office shall be determined by statute or fundamental legal principles.

In the Republic of Cyprus, the functions and the activities that are deemed incompatible with the holding of local elected office are determined by statute. In this vein, the Municipalities Act regulates the reasons of incompetency to be elected and the incompatibility of certain positions with the holding of an elected local office (see Article 16 and following)

Moreover, the constitution itself prohibits holding two different public offices in the republic. Consequently, dual elected mandates are not authorised in the country. Consequently, the incompatibilities are well and comprehensively regulated and the delegation did not hear any complaint on this question.

Article 8.1
Administrative supervision of local authorities' activities - Article ratified

Any administrative supervision of local authorities may only be exercised according to such procedures and in such cases as are provided for by the constitution or by statute.

The Cypriot system of local administration provides for many instances of supervision, control and prior authorisation by the central government. These controls involve the ministry of the interior, the ministry of finance and the council of ministers. This is true for municipalities, while for communities those controls are generally implemented by the district officer.

This is a structural pattern in the local government landscape: many local authority decisions  must be ratified by the ministries, or even approved ex ante. The possibility that central ministries supervise and control the activities of local authorities has been detected in all the previous monitoring missions carried out so far in the Republic of Cyprus. Moreover, interlocutors told the delegation that in this area, like in the rest of the local government system, there has been little change or improvement in recent years.

 

As a general remark, the external controls over local authorities that have been presented in the above lines are regulated in the law. For that formalistic reason, the rapporteurs consider that Article 8.1 of the Charter is respected in the Republic of Cyprus.

Article 8.2
Administrative supervision of local authorities' activities - Article ratified

Any administrative supervision of the activities of the local authorities shall normally aim only at ensuring compliance with the law and with constitutional principles. Administrative supervision may however be exercised with regard to expediency by higher-level authorities in respect of tasks the execution of which is delegated to local authorities.

In theory, the examples of control that have been presented in the preceding point aim only at checking the legality of local decisions. However, the local leaders met by the delegation made frequent complaints that this supervision sometimes involves a check of the expediency of such decisions.

The reason for that assessment is that many local authorities’ policy decisions are subject to approval by State authorities, and those bodies take their decisions in an almost discretionary manner, without a clear definition of the criteria that must be taken into consideration for that approval. In other cases, State authorities may implement their own policy choice priorities.

There is also some ambiguity regarding the general auditor’s power over the municipalities that could also be construed as checking expediency instead of legality. However, the delegation could not see a detailed or reasoned statement proving those assertions.

Article 8.3
Administrative supervision of local authorities' activities - Article ratified

Administrative supervision of local authorities shall be exercised in such a way as to ensure that the intervention of the controlling authority is kept in proportion to the importance of the interests which it is intended to protect.

See answer at article 8.1

Article 9.2
Financial resources of local authorities - Article ratified

Local authorities' financial resources shall be commensurate with the responsibilities provided for by the constitution and the law.

The principle of commensurability of local financial resources is enshrined in neither the constitution nor the applicable laws. Most of the local representatives met by the delegation understand that this principle is not followed in practice, nor informally, and that there are no legal rules or institutional mechanisms to ensure that there is a connection between the financial means of local authorities and their competences.

On the other hand, local financial resources do not allow local authorities room to carry out innovative or necessary projects, since most of their revenues must be spent on covering their operational costs. In this sense, payroll covers 40% (on average) of municipalities’ total expenditure, while the rest of their operational expenditure covers roughly 30%. Consequently, payroll and operational expenses constitute the main percentage of municipalities’ total expenditure. Operational expenditure includes expenses related to the provision of services to citizens.

Another unsatisfactory situation concerns the financing of delegated competences. According to local leaders, when the central government delegates competences to local authorities, it does not provide concomitant financing. This is not provided for in the existing legislation whatsoever. It may happen, but it is entirely at the government’s discretion, they claimed. This is indeed something that the UCM repeatedly demanded be explicitly mentioned in the reform bill, but this suggestion was rejected. The same happens with the financing of shared competences: it is not guaranteed in the existing legislation, and it largely depends on the central government’s discretion.

Article 9.8
Financial resources of local authorities - Non ratified

For the purpose of borrowing for capital investment, local authorities shall have access to the national capital market within the limits of the law.

112. Article 9 paragraph 1 of the Charter provides that local authorities must have adequate financial resources of their own, of which they may dispose freely within the framework of their powers. Financial autonomy is an essential component of the principle of local self-government and for the exercise of a wide range of responsibilities in the field of local public affairs. These elements are cumulative and not alternative, which means that all conditions laid down in this provision of the Charter are mandatory. 113. Another basic principle requires that local authorities must have sufficient financial resources in proportion to the responsibilities assigned to them by law. On the basis of the available data and information, it is particularly difficult to assess if and how this requirement is met in Cyprus. While some NGOs claim that the insufficient fund prevents a lot of small communities to provide appropriate public services, others may argue that the principle of adequate finance seems to be more or less met in Cyprus, but only because municipalities have only extremely limited functions. 114. As it was described, local authorities are obliged, according to the Municipalities, the Communities and the Fiscal Responsibility and Budget System (FRBSL) Laws, to submit their annual budget to the central government for approval. During the monitoring visit, the Congress delegation had some opportunities to discuss this issue with leaders and senior officials of two central ministries, other central agencies, and the representatives of the visited local authorities and local government unions. The dominant view of the central authorities is that the municipalities and the communities are parts of the state and they receive grants from the central government. They spend public money, and the state (central government) is the warrant of local government deficit and debt. All these circumstances justify the prior consent of the central government to the local budgets. However, Article 9 paragraph 1 of the Charter requires that local authorities must be entitled to dispose freely of their own resources. This requirement is hardly compatible with the compulsory central government consent to local budgets, where the central authorities may impose special conditions and expectations for local authorities to this approval. Since all council members of the municipalities and the communities are democratically elected in Cyprus, they have enough legitimacy to decide how they spend their revenues. Local authorities should be accountable to their own voters, rather than to the preferences of central government in local public affairs. As stated above, the Ministry of Interior has a different point of view on this issue, highlighting the fact that this control is confined to the sole lawfulness of the proposed budget and that the central government hence does not impose its own proposals upon local authorities. However, according to the rapporteurs, the practice of central approval of local government budget shows the picture of an overcentralized financial system, in which most important local decisions are influenced or tightly controlled by the central government. 115. According to the conclusions of the rapporteurs, in the absence of a predictable and transparent calculation method of central grants, local authorities cannot be sure for getting enough money for their compulsory tasks and functions. They are hardly able to plan their current expenditure if they can just hope that they will receive the usual amount of central subsidy. It is conspicuous in particular when the total amount of central grant has been significantly decreased in the past few years. 116. The presumed calculation method which is based on the previous year’s data of local budgets brings about certain risks for local authorities, because the decrease of local revenues as a consequence of the negative effects of world financial crisis and the drop of central grants as these took place in the last years, might become permanent, fixing local revenues steadily at a low level (see supra para 89. for more details). 117. As some representatives of local authorities said, the allocation of state subsidies is not preceded by an investigation or assessment of real financial needs of local authorities. In this system, it is doubtful whether local governments are able to produce public services at the same level in all towns and the rural areas. Moreover, if the central planning is not based on a careful assessment of local needs, the use of central grants is unlikely to be effective. This view has been opposed during the consultation procedure by the Ministry of Interior, which stated that the central government’s contribution to the local government projects of the poorest authorities reaches 100% of the local investment costs, in addition to the fact that the Ministry of Interior, as stated above, may distribute extra grants to those in need, at its own discretion and based on specific criteria. 118. There is a similar problem with the specific (or earmarked) grants, as most part of the local development projects is financed by central government. In the lack of sufficient local revenues for capital expenditure, local authorities are vulnerable to central encroachment upon local affairs. In fact, most development plans including the smallest local development, like road repairs or bicycle road construction are made at central government level. It seems to be an ineffective way of planning and implementing local development policies and projects. Once again though, the Ministry of Interior disapproved this statement during the consultation procedure, saying that all local authorities without any exception had the possibility to assume and implement on their own development projects, provided they have the necessary financial resources. 119. The Charter requires that at least a part of local revenues should come from local taxes. Article 9 paragraph 3 comprises a definition of local taxes claiming that local authorities, within the limits of the law, must have the power to determine the rate of these taxes. Moreover, local taxes are really “proper” revenues only if the imposition of local taxes is a free decision of local government. In Cyprus, the share of local taxes in local budgets is relatively high, even if some of these revenues are not genuine local taxes (but rather, they are fees and charges paid by users of certain local public services). The only problem which has arisen in this area was the weak capacity of communities to collect local taxes. In this respect, the tax authorities of the central government could make invaluable contribution to the respective local authorities to collect local taxes. 120. Neither the Municipalities Law nor the Communities Law contain the principle of concomitant (adequate) finance, and the practice shows that central grants are not adjusted to the local needs. So, there is no guarantee for adequate local government finance proportionate to mandatory functions of the municipalities and communities. 121. As to the overall assessment of the compliance with Article 9, the rapporteurs concluded that paragraphs 4 and 5 of this Article are not implemented, while the prevalence of paragraphs 2 and 6 are not guaranteed, since the principle of adequate finance, as it is entrenched in paragraph 2 and the prior consultation with local authorities in an appropriate manner in financial issues as required by paragraph 6, do not have any legal safeguard in the relevant statutes.
Article 9.7
Financial resources of local authorities - Non ratified

As far as possible, grants to local authorities shall not be earmarked for the financing of specific projects. The provision of grants shall not remove the basic freedom of local authorities to exercise policy discretion within their own jurisdiction.

Cypriot local authorities are allowed to have access to borrowing and loans from the private banking sector. According to the relevant legislation, before new loans are issued to municipalities, the approval of the Ministry of the interior and finance is required, and then the municipal loans must be further approved by the council of ministers.

Article 9.6
Financial resources of local authorities - Article ratified

Local authorities shall be consulted, in an appropriate manner, on the way in which redistributed resources are to be allocated to them.

As noted above (see comments on Article 4.6), in the Republic of Cyprus there are no permanent institutional mechanisms for ensuring the necessary consultation of local authorities whenever the central government decides on initiatives, regulations, plans or programmes affecting the local authorities. There is no exception to this even in the field of distribution or redistribution of financial resources that are allocated to local authorities. The last Congress monitoring visit found a violation of this provision and little progress, if any, has been made in this area.

Article 9.5
Financial resources of local authorities - Non ratified

The protection of financially weaker local authorities calls for the institution of financial equalisation procedures or equivalent measures which are designed to correct the effects of the unequal distribution of potential sources of finance and of the financial burden they must support. Such procedures or measures shall not diminish the discretion local authorities may exercise within their own sphere of responsibility.

It seems that the very notion of equalisation among local authorities is alien to the present system of local finances and there is no real equalisation mechanism as such in practice in the Republic of Cyprus.

Article 9.3
Financial resources of local authorities - Article ratified

Part at least of the financial resources of local authorities shall derive from local taxes and charges of which, within the limits of statute, they have the power to determine the rate.

Municipalities and communities in Cyprus can impose taxes, fees, charges and duties. These make up most of their own income. The wording of Article 9.3 requires a separate analysis of local taxes and charges or fees.

Local taxes have a limited dimension in the Republic of Cyprus, and the taxation power of local authorities is limited. This is especially true in the case of communities because the taxable basis is in general very low, and they do not generate many fees or charges either. Consequently, they are even more dependent on State grants. For instance, the proportion of the tax revenue of the local authorities within the general tax collection in the country was estimated to be just 1.2% in 2017, a figure that is extremely low in comparison with common European standards.

Thus, local authorities impose fees on persons and entities for the exercise of professional activities. As regards municipalities, Article 103 of the Municipalities Act provides that nobody has the right to maintain any building or place or premise in which any business, industry, trade, profession or undertaking is performed, except if they have previously obtained a relevant permit from the municipal council. For the purpose of securing the said permit, the municipality has the right to impose a fee in accordance with the Municipalities Law, whereas a separate annual duty is imposed on legal entities, that is to say companies and partnerships, for the exercise of any business, industry, trade or profession within the municipal boundaries.

Additionally, municipalities impose refuse collection fees pursuant to Article 84(z) of the Municipalities Law, as well as an “entertainment tax” pursuant to Articles 85 and 87 of the Municipalities Law, the latter constituting a lump sum amount imposed on persons engaging in business in the entertainment industry. Each municipality is left with the power to issue regulations governing the imposition and collection of the entertainment tax. Furthermore, municipalities and communities impose a lodging tax on hotels and other tourist establishments for the stay of every person over the age of 10, which may not exceed the sum mentioned in the respective laws. 

Local authorities in Cyprus enjoy a certain degree of financial autonomy, within their limited resources. They can impose taxes, fees, charges and duties which make up the majority of their expected income, and they receive State grants that they may use to cover their operational expenditure. Nevertheless, local taxation is still extremely low in comparison with the overall taxation in the country, and local authorities need approval for their tax regulations. Existing limitations indicate that there is no full compliance with Article 9.3 of the Charter.

Article 9.1
Financial resources of local authorities - Article ratified

Local authorities shall be entitled, within national economic policy, to adequate financial resources of their own, of which they may dispose freely within the framework of their powers.

 The respect of this provision of the Charter raises many unsatisfactory concerns in the Republic of Cyprus, in view of the conclusions drawn from past Congress monitoring visits and the information collected now. For most interlocutors, local financial resources are not considered adequate with the responsibilities provided for by the legislation.

The government grants transferred to the municipalities amount on average to approximately 40% of their total revenue (45,4% in 2017). The government further finances infrastructure projects, undertaken by the Municipalities, which amounts to approximately 80% of the total capital expenditure. It is obvious that, without the government grants, most Municipalities would not be able to fulfil their duties and obligations.

Top ministerial officials from the ministry of finance conceded that many of the Cypriot local authorities (especially the smaller communities) are unable to meet the needs of the population and they face considerable financial problems. In summary, they recognised that there is currently no financial autonomy for local authorities. This is generally true for municipalities (although there might be specific differences between regular ones and the “big five”), but the picture is worse for the communities.

The rapporteurs have noted several negative aspects with respect to local finances: insufficiency of local financial resources, excessive dependence on the central government in financial matters, too many ex ante controls and an operational scheme that is neither transparent, stable nor predictable. There is considerable expectation that the planned reform of local authorities will significantly improve the situation, but it is unclear whether the reform will be approved.

Article 9.4
Financial resources of local authorities - Article ratified

The financial systems on which resources available to local authorities are based shall be of a sufficiently diversified and buoyant nature to enable them to keep pace as far as practically possible with the real evolution of the cost of carrying out their tasks.

At this point, the same remarks as for the preceding indents should be reproduced here. Indeed, the principles of diversification and buoyancy of local finances are enshrined in neither the constitution nor the applicable laws.

Moreover, most of the local representatives met by the delegation stressed that these principles are neither respected or implemented in practice, nor informally. There are no legal rules or institutional mechanisms to ensure that the local finances are sufficiently diversified (there is too much dependence on central grants, see above), or that they are periodically adapted upwards in view of the cost of living or the assumption of new responsibilities.

Several local representatives stated that the responsibilities assigned to local authorities are not accompanied by simultaneous funding, and that there is no guarantee of financing common responsibilities for road construction projects.

Article 10.1
Local authorities' right to associate - Article ratified

Local authorities shall be entitled, in exercising their powers, to co-operate and, within the framework of the law, to form consortia with other local authorities in order to carry out tasks of common interest.

Local authorities are entitled to co-operate with each other in view of better discharging their duties, services and responsibilities. In principle, local authorities may institute formal agreements, by which two or more local authorities share resources or assets for the provision of public services. In other cases, they can form more stable schemes, such as “consortia” or complexes with other local authorities to carry out tasks of common interest.

Article 10.2
Local authorities' right to associate - Article ratified

The entitlement of local authorities to belong to an association for the protection and promotion of their common interests and to belong to an international association of local authorities shall be recognised in each State.

The right to form associations of local authorities for the defence and advancement of their interests is fully recognised in the law and in practice. As a matter of fact, there are different associations of local authorities. Two of them have a national scope, one for each type of local authority present in the country, but there are also local associations with a district scope.

Article 10.3
Local authorities' right to associate - Article ratified

Local authorities shall be entitled, under such conditions as may be provided for by the law, to co-operate with their counterparts in other States.

The Republic of Cyprus has ratified all the Council of Europe’s international treaties in the domain of transfrontier co‑operation at the local level, that is the European Outline Convention on Transfrontier Co-operation between Territorial Communities or Authorities (ETS No.106) and its three protocols of 1995 (ETS No.159), 1998 (ETS No. 169) and 2009 (ETS No. 206).

Article 11
Legal protection of local selfgovernment - Article ratified

Local authorities shall have the right of recourse to a judicial remedy in order to secure free exercise of their powers and respect for such principles of local self-government as are enshrined in the constitution or domestic legislation.

The compliance analysis of Article 11 must start with the consideration of whether the Charter may be directly invoked in courts by the local authorities in legal proceedings. As noted above (point 2.3), the Charter has been duly signed and ratified by the Republic of Cyprus (with a reservation on Article 7.2) and integrated into the legal system by means of an Act of Parliament. However, the supreme court has ruled that the Charter is not directly applicable.

The reason is that, in Cypriot law, for a treaty to be directly applicable (and invoked in courts) it must be self-executing. General declarations and provisions relating to political questions or international relations included in a convention are not considered to be self-executing provisions. The only provisions in international treaties that are considered to be self-executing are those that may be directly applied by the organs of the State, that can be enforced by the courts and that create rights for individuals, or those that directly govern the relations among individuals or between individuals and the State or public authorities. Conversely, provisions that do not by themselves create rights or obligations for persons, or that are not justiciable or that do not refer to acts or omissions of State organs are not self-executing.

Cypriot local authorities do have a recourse in courts to defend their interests, but they do not have a recourse to see the principle of self-government protected. This is due to the triple fact that (a) the principle of local self-government is not enshrined in the constitution or in regular legislation, (b) the Charter is not considered to be directly applicable, and (c) there is no specific remedy, conflict or legal proceeding for the protection of local self-government.

Article 12.1
Undertakings - Non ratified

Each Party undertakes to consider itself bound by at least twenty paragraphs of Part I of the Charter, at least ten of which shall be selected from among the following paragraphs:

 

– Article 2,

– Article 3, paragraphs 1 and 2,

– Article 4, paragraphs 1, 2 and 4,

– Article 5,

– Article 7, paragraph 1,

– Article 8, paragraph 2,

– Article 9, paragraphs 1, 2 and 3,

– Article 10, paragraph 1,

– Article 11.

Article 12.2
Undertakings - Non ratified

Each Contracting State, when depositing its instrument of ratification, acceptance or approval, shall notify to the Secretary General of the Council of Europe of the paragraphs selected in accordance with the provisions of paragraph 1 of this article.

Article 12.3
Undertakings - Non ratified

Any Party may, at any later time, notify the Secretary General that it considers itself bound by any paragraphs of this Charter which it has not already accepted under the terms of paragraph 1 of this article. Such undertakings subsequently given shall be deemed to be an integral part of the ratification, acceptance or approval of the Party so notifying, and shall have the same effect as from the first day of the month following the expiration of a period of three months after the date of the receipt of the notification by the Secretary General.

ACCESSION

to the Council of Europe 24 May 1961

RATIFICATION

of the European Charter of Local Self-Government 16 May 1988

CONSTITUTION | NATIONAL LEGISLATION

The Republic of Cyprus is a Party to the European Charter of Local Self-Government (ETS No. 122, hereinafter “the Charter”). Cyprus signed the Charter on 8 October 1986 and ratified it on 16 May 1988. The Charter entered into force in that nation on 1 September 1988.



26Ratified provision(s)
0Provision(s) with reservation(s)
7 Non ratified articles
7Compliant Provision(s)
9Partially Compliant Articles
12Non-compliant Provision(s)