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Serbia Justice Functional Review

Internal Performance Assessment > Financial Management

b. Budget Levels and Sources

i. Budget Levels

  1. Serbia spends around 27 EUR per capita on its courts, which is consistent with EU averages, adjusted for GDP.
    The judicial system in Serbia is not under-resourced, measured on either a per capita basis or as a share of GDP. In 2012, court expenditure was 0.66 percent of GDP, which is higher than any EU Member State monitored by the CEPEJ.683 Prosecution expenditure was 0.11 percent, which is within the range of other EU Member States monitored by the CEPEJ but is slightly lower than the average.684 Combined, the total judicial expenditure was approximately 0.77 percent of GDP in 2012.685
  2. Serbia spends around 27 EUR per capita on courts, which is more than EU comparator states. As Figure 121 shows, Serbia’s court budget sits above the trend line but is within an acceptable range, based on the definitions used by the CEPEJ.
  1. Measured as a share of GDP, court expenditures were 0.66 percent, exceeding the EU range. As the red trend curve in Figure 122 shows, EU Member States with a lower GDP per capita tend to allocate a higher share of GDP to their judicial bodies, however Serbia still spends more than comparator states.
  1. Expenditure on public prosecution services is around 4 EUR per capita, which is within but at the very bottom of the EU range. As Figure 123 shows, Serbia sits below the trend line but is within an acceptable range, based on the definitions used by the CEPEJ.
  1. Measured as a share of GDP, the 2012 prosecution expenditures were 0.11 percent, within the EU range. As Figure 124 shows, unlike the court budget’s share of GDP that is above the EU range, the public prosecution’s share of GDP is at its middle.
  1. Court system expenditure is characterized by year-to-year variability, mid-year budget adjustments which result in the reduction of the original appropriations combined with overspending. As Figure 125 shows, the original budget appropriation, represented by the blue bars and measured in constant 2013 RSD, has grown since 2010. It peaked in 2011 at 28.5 billion RSD before declining again in 2012 and 2013, but even in 2013 the original appropriation still exceeded the 2010 level by over 10 percent. Each year, the original appropriation was adjusted687 and reduced to the levels represented by the red bars. Meanwhile, the court system expenditure, represented by the green bars, regularly exceeded its adjusted budget appropriation due to arrears. Only in 2013 did the court system’s expenditures reach the level of the original appropriation, and this was achieved by accumulating large arrears.
  1. The public prosecution’s expenditures are also characterized by year-to-year variability, mid-year budget adjustments and only a limited overspending. As Figure 126 shows, measured in constant 2013 RSD, the original budget appropriation, represented by the blue bars, have fluctuated significantly, peaking in 2014. Given the significant reforms of the prosecution service underway in the lead-up to the implementation of the CPC in 2013,689 one would expect that the prosecution budget would have increased that year. Instead, its budget was cut in the supplementary budget process, and the delay in resourcing the PPOs likely impacted service delivery at a critical time. Fortunately, the 2014 appropriated budget is higher. Unlike the court system, the public prosecution has tended to stay within its adjusted budget appropriations, with the exception of 2010 when it incurred some arrears.
  1. Any increase in the judicial budget is highly unlikely over the medium to longer term. The Serbian economy had stalled during the crisis and, after a very slow recovery in the period 2010-2013, Serbia is back in recession in 2014.691 In addition, Serbia faces a very difficult fiscal situation characterized by very high fiscal deficits (around 7 percent of GDP) that have rolled over for several years and led to a significant increase of the public debt. The Government has acknowledged the need to find budgetary savings, including those related to the wage bill and rightsizing of the public sector. In this environment, it would be very difficult for the justice sector to argue for more resources, particularly given its current levels of performance, high wage bill and the low levels of efficiency and effectiveness in the use of existing resources.692
  2. Instead, the judicial system will likely be called upon to ‘do more with less.’ Budget cuts could well be expected. The judiciary will have to adjust to this situation and operate more effectively within a stricter budget environment. To fund innovations to drive performance improvements, it is likely that savings will need to be identified within the sector’s existing budget envelope.

ii. Court Fees

  1. The judicial system is partly funded by court fees and partly funded by general revenue. Court fees do not provide the judicial system with any funding additional to its appropriation.693 However, court fees are a source of the state budget revenue, a portion of which is earmarked for the judicial system.
  2. In 2013 the courts collected 10.22 billion RSD in fees, which is a reduction compared to the 11.57 billion collected in 2010. As shown in Figure 127, collection grew by 11 percent from 2010 to 2011 but has fallen since.
  1. Box 24: Registry of Uncollected Fines The Misdemeanor Courts are establishing a national registry for uncollected misdemeanor fines. Individuals with their names in the registry for non-payment of fines will be unable to receive certain common government services, such as renewing a vehicle registration. With the support of a USAID-funded Judicial Reform and Government Accountability Project, the final phase of the project will create a network through which each judge will be able to connect to the database. This modern registry could significantly improve fine collection rates in the Misdemeanor Courts.
    Although court fee revenues do not provide the courts with additional resources, they nonetheless represent an attractive and more flexible funding source. The part of the court budget funded out of court fees is not subject to the economic classification of the state budget. The portion of the budget that is funded by court fees can therefore be reallocated during budget execution across line items to meet emerging needs, at the discretion of the HJC and MOJ. This provides courts and the judiciary with a discretionary pool of resources in an otherwise very rigid system.695
  2. The Basic Courts and the Commercial courts collectively generated 98.36 percent of all court fees in 2013. As Figure 128 shows, the Basic Courts collect the highest amount of court fees in absolute terms. However, the Commercial Courts collect the highest amount of fees that amounted to 285 percent of their executed budget in 2013. Although the fees collected by the Misdemeanor Courts for their services are smaller, they collect large amounts of fines—monetary penalties for traffic violations and other minor breaches of the law —which all go to the state budget. See also Box 24 for a recent innovation which seeks to boost the collection of fines in Misdemeanor Courts further.
  1. According to unofficial estimates, the courts manage to collect in court fees only 30 percent of what is due.697 Based on these estimates, the full collection of court fees would theoretically generate revenues as large as the entire court system’s budget.
  2. However, with an imminent transfer of the verification services from the courts to private notaries, courts fees can be expected to decline by as much as 30 percent.698 As at 30 June 2014, the HJC had not yet commenced planning for the reduction in court fees and had not addressed the likely impacts with the MOF. Verification services are scheduled to be transferred by early 2015.
  3. The courts are not well equipped to play the role of a collection agency. Placing the responsibly for the court fee collection on the courts themselves is not conducive to maximizing the collection rate. Due to legal requirements, the courts are not able to refuse hearing a case even if the court fees are not paid.699 Many court users continue to proceed with litigation without paying fees. The courts are ill-equipped to pursue non-payers, as they lack the legal tools and resources comparable with those of a tax administration. Further, courts do not charge users late fees or interest rates on court fees. The absence of late fees and interests charges amounts to a subsidy to late debtors who take advantage of the time value of money to pay less than they owed when the fees were due.700 The courts receives less than what it is owed due to inflation and must also incur the administrative costs of collecting the outstanding fees. Meanwhile, the courts’ various creditors charge the courts such penalties for their services, causing a net loss of funds for the courts.
  4. Reliance on court fees in court financing has downsides. First, court fee revenues fluctuate in response to factors outside of the courts’ control, such as the recent decrease in incoming cases, and the imminent transfer of verification services to private notaries. Courts also report that fee collection is seasonal, being lower in summer months and higher in winter months. Second, dependence on the court fees for their financial wellbeing creates an inherent conflict of interest, since the courts themselves decide on granting fee waivers or joining cases.701 Third, the courts are required to report on their expenditures financed out of the court fees separately from those financed by the general budget, and this imposes on them a heavy administrative burden.
  5. There are opportunities to increase the rate of court fee collection, but they are not actively considered. It would be possible to assign the task of court fee collection to a single agency, which could operate a single dedicated account, assess interest and late fee charges and dedicate itself to pursuing fee collection. The Law on Court Fees could also be amended to empower the courts to deny provision of services in certain non-criminal cases unless the court fees are paid, subject to extenuating circumstances, such as the need for a fee waiver. Late fees and interest charges could also be added to incentivize early payment of fees and recoup the costs of pursuing delinquent debtors. Fee ‘discounts’ could also be considered for early payment. Lessons may be learned from the Misdemeanor Courts, which offer reduced fines to defendants in traffic cases in exchange for prompt payment.