The purpose of central government transfers to local government is to guarantee across the country the availability of those public services that are organised by the municipalities. The system of central government transfers consists of compensation for differences in costs and equalisation of the income base. The central government transfer percentage for basic municipal services describes the division of costs between the central government and municipalities at the national level.
The most significant part of the central government transfers system is central government transfers for basic municipal services, which represent combined funding for all municipal basic services. The central government transfers for basic services are an imputed amount based on the service needs of the municipality’s residents and circumstantial factors. Due to the imputed nature of the system, the amount of central government transfers granted to a municipality is not affected by how the municipality organises its service activities and how much money it spends on them.