Recently, most local governments have experienced financial difficulties even if the financial integrity (soundness) index, such as fiscal self-reliance ratio, improved since the 2009~2010 global financial crisis.
In 2012, the country wide average fiscal self-reliance ratio was 52.3%, which was an increase of 0.4 percent compared with the previous year. However, the ratio of 69 autonomous districts was 36.6%, which was a decrease of 0.6 percent compared with the previous year. The sum of all local borrowing balances was 28.2 trillion won in 2011.
The budget revenues of local tax have not been improved by national tax reduction and recession of real estate business. However, local expenditures continuously increased due to the rapid increase of social welfare expenditure and the matching expenditure of central government subsidies. We estimated that the year 2008~2010 national tax reduction would reduce local revenues by 32.8 trillion won during 2008~2012.
Local government’s social welfare expenditures were increased by an annual average of 9.3% during 2008~2012. However, that rate of increase of local government’s unreliable revenues(local taxes+non-tax revenues) were 2.8% during 2007~2011. And matching expenditures of central government subsidies were increased by 13.8% during 2008~2012.
In spite of these financial difficulties, some of local governments are wasting their budget [financial resources] on inefficient expenditures and increased unnecessary social overhead capital (SOCs).
This report investigated the cause and degree of such local government’s financial difficulties and wasting resource waste. In terms of local expenditure, we recommended that it will be necessary to introduce cost estimates of legislative bills and central government‘s subsidies that induce local government‘s financial burden. It will be necessary to reflect on those estimates in the testing of legislative bills and budget.
In terms of local revenue, we recommended that the 3 social welfare enterprises of decentralization local grant tax, which were transferred to local governments from the central government in 2005, should be returned to the central government’s subsidy enterprise. Those 3 welfare enterprises have been a great burden to local government’s finance.
Secondly, it will be necessary to mitigate the burden of local government’s infant care support costs. It is estimated that the increased and induced cost of infant care support due to the expansion of support would be 664 billion won in local government expenditure and 650 billion won in central government expenditure.
Task Force for Analysis on Local Finance
In 2012, the country wide average fiscal self-reliance ratio was 52.3%, which was an increase of 0.4 percent compared with the previous year. However, the ratio of 69 autonomous districts was 36.6%, which was a decrease of 0.6 percent compared with the previous year. The sum of all local borrowing balances was 28.2 trillion won in 2011.
The budget revenues of local tax have not been improved by national tax reduction and recession of real estate business. However, local expenditures continuously increased due to the rapid increase of social welfare expenditure and the matching expenditure of central government subsidies. We estimated that the year 2008~2010 national tax reduction would reduce local revenues by 32.8 trillion won during 2008~2012.
Local government’s social welfare expenditures were increased by an annual average of 9.3% during 2008~2012. However, that rate of increase of local government’s unreliable revenues(local taxes+non-tax revenues) were 2.8% during 2007~2011. And matching expenditures of central government subsidies were increased by 13.8% during 2008~2012.
In spite of these financial difficulties, some of local governments are wasting their budget [financial resources] on inefficient expenditures and increased unnecessary social overhead capital (SOCs).
This report investigated the cause and degree of such local government’s financial difficulties and wasting resource waste. In terms of local expenditure, we recommended that it will be necessary to introduce cost estimates of legislative bills and central government‘s subsidies that induce local government‘s financial burden. It will be necessary to reflect on those estimates in the testing of legislative bills and budget.
In terms of local revenue, we recommended that the 3 social welfare enterprises of decentralization local grant tax, which were transferred to local governments from the central government in 2005, should be returned to the central government’s subsidy enterprise. Those 3 welfare enterprises have been a great burden to local government’s finance.
Secondly, it will be necessary to mitigate the burden of local government’s infant care support costs. It is estimated that the increased and induced cost of infant care support due to the expansion of support would be 664 billion won in local government expenditure and 650 billion won in central government expenditure.
Task Force for Analysis on Local Finance