▪ Over the last decade, Korea’s fiscal size has grown beyond its economic growth rate (GDP), with local consolidated fiscal expenditure increasing at an average rate of 7.0% annually.
▪ On the revenue side, both self-generated and transfer revenues have shown consistent growth in recent years, although the trend has moderated, decreasing by approximately KRW 9.5 trillion* year-on-year in 2023.
▪ Previously, the bulk of self-generated local tax revenue primarily came from property taxation, including property tax, acquisition/registration tax. However, since 2021, the proportion of consumption and income taxation has increased, reaching a level similar to that of property taxation.
▪ Alongside the rise in revenues, there has been a proportional increase in expenditures. Specifically, social welfare spending saw a substantial rise, growing by KRW 46.8 trillion from 2017 to 2023. As of 2023, this sector accounts for 31.5% of the original budget.
▪ In terms of fiscal autonomy of local governments, the significant rise in state-subsidized projects led to a reduced share of self-initiated projects in policy-related expenditures. This shift has constrained the authority over expenditure, posing a challenge to the push for fiscal decentralization.
▪ Korea is currently undergoing a rapid demographic transition, and economic growth is projected to remain low, with the Bank of Korea forecasting growth rates of 1.6% in 2023 and 2.4% in 2024.
▪ The aforementioned socio-economic changes are expected to exacerbate fiscal management challenges for local governments. Furthermore, issues such as the rapid decline of local communities are anticipated to compound.
▪ Enhanced collaboration with the central government is required, along with measures to boost the fiscal soundness and efficiency of local governments.