Montenegro’s proposed Euro Model wage reform could significantly weaken municipal finances, with local governments forecasting lower tax receipts, higher payroll expenditure and potential reductions in infrastructure investment and public services.
The Association of Municipalities, representing all 25 municipalities, submitted an assessment of the reform’s fiscal impact to Prime Minister, requesting measures to safeguard local government budgets.
According to the assessment, Danilovgrad expects personal income tax revenues to decline by 36.7%, while receipts from the Equalisation Fund could decrease by 33.9%.
Municipalities also anticipate increases of approximately 26%–45% in local payroll costs, depending on the final wage structure. Podgorica faces an additional estimated €8 million in transfers related to municipally owned companies. These figures represent municipal projections rather than confirmed changes to enacted budgets.
The Association argues that reducing labour taxes at national level could leave municipalities with lower shares of personal income tax revenue while their wage-related expenditure increases. Without compensatory measures, the resulting pressure could affect their capacity to finance infrastructure and maintain public services. Municipal capital expenditure is particularly exposed, as local governments are responsible for financing roads, water systems, public transport, schools, sports facilities and other municipal infrastructure. Higher recurrent expenditure could leave less funding available for these projects.
The disagreement adds a local-government dimension to the Euro Model debate. The government maintains that lower payroll taxes could encourage higher salaries, consumption and formal employment, while municipalities argue that the reform must also account for its impact on revenue-sharing arrangements and local budgets.
The Association is requesting compensation mechanisms and a more comprehensive fiscal-impact assessment before implementation. The issue also has implications for private investment, as municipal financial capacity directly affects permitting procedures, utility provision and the development of local infrastructure supporting business projects.
