In Korea, Local governments have been in financial difficulties due to increasing expenditures and decreasing revenues since 2009.
In 2009, local expenditures increased 12.2 trillion in comparison with 2008 fis-cal year for getting over economic crisis, reinforcing socal security and increased central government’s subsidy. But local revenues decreased 7.0 trillion over 2008 fiscal year due to national tax reduction in 2008, declining local tax revenue.
Local government issued 6.3 trillion municipal bond during 2009.
This report investigated the cause and measurement of such local government’s financial difficulties.
In local expenditure part, we suggest that local governments should reduce the budget projects, which have increased for getting over economic crisis. Secondly, it is necessary to introduce the categorical bloc grants in national subsidies and reduce the conditional grants.
In local revenue part, we suggest that central government should add local con-sumption tax in sharing source of metropolitan cities revenue. Secondly, it is neces-sary to increase the internal revenue rate of local share tax and the transfer rate of local consumption tax from value added tax in the long-term.
In institutional measurements, we maintain that it is necessary to revise the lo-cal finance law for obligating of repayment of 30 percent of local government’s sur-plus revenue. And we propose that national assembly should introduce the impact assessment of local finance, which launch assessing financial obligations on local government which are mandated by enactments.
In 2009, local expenditures increased 12.2 trillion in comparison with 2008 fis-cal year for getting over economic crisis, reinforcing socal security and increased central government’s subsidy. But local revenues decreased 7.0 trillion over 2008 fiscal year due to national tax reduction in 2008, declining local tax revenue.
Local government issued 6.3 trillion municipal bond during 2009.
This report investigated the cause and measurement of such local government’s financial difficulties.
In local expenditure part, we suggest that local governments should reduce the budget projects, which have increased for getting over economic crisis. Secondly, it is necessary to introduce the categorical bloc grants in national subsidies and reduce the conditional grants.
In local revenue part, we suggest that central government should add local con-sumption tax in sharing source of metropolitan cities revenue. Secondly, it is neces-sary to increase the internal revenue rate of local share tax and the transfer rate of local consumption tax from value added tax in the long-term.
In institutional measurements, we maintain that it is necessary to revise the lo-cal finance law for obligating of repayment of 30 percent of local government’s sur-plus revenue. And we propose that national assembly should introduce the impact assessment of local finance, which launch assessing financial obligations on local government which are mandated by enactments.