While there are financial conflicts between the government and local autonomous entities due to the increasing scale of local autonomous entities' national subsidy programs that incur financial burdens on the local autonomous entities, the government is not comprehensively identifying and managing the status of matching local grants caused by the national subsidy programs. Against this backdrop, this report examined the status of national subsidies and matching local grants by detailed projects from 2011 to 2014 based on the data gathered from 30 government departments including the Ministry of Strategy and Finance, etc.
As for local autonomous entities' national subsidy programs, 40.0 trillion won was appropriated for 881 detailed projects by 27 departments including the Ministry of Health and Welfare, etc. and matching local grants reached 20.9 trillion won, indicating a national subsidy rate of 65.7%, as of 2014. Recently, the share of national subsidy programs in local finance has been increasing each year, and the expansion of national subsidy programs in the social welfare area has contributed to the rapid increase in the share of social welfare in local finance.
Local autonomous entities' national subsidy programs were evaluated with regard to the standard subsidy rate system, differentiated subsidy rate system and budget plan and enactment/amendment of laws involving local financial burdens as follows.
First, the government must clearly establish and present the calculation method of the standard subsidy rate. Although the standard subsidy rate is a direct factor deciding the size of matching local grants of local autonomous entities' national subsidy programs, the government is not disclosing its methods of calculating standard subsidy rates. Against this backdrop, this report conducted a relational analysis between the nature of local autonomous entities' national subsidy programs and their subsidy rates to develop a reasonable calculation method of the standard subsidy rate. The analysis result showed that “as to whether local autonomous entities have the right to choose" and "the level of responsibility of the government and local autonomous entities" have a significant impact on the decision over the actual subsidy rate.
Moreover, we categorized subsidy programs based on such standards, reviewed the characteristics of subsidy rate distribution by category, and analyzed major programs where subsidy rates were calculated differently within the same category. In this process, we reviewed the applicable laws and provisions for subsidy programs, the program objectives, and its contents and assessed the appropriateness of the subsidy rate of the program.
The government should clearly establish the calculation method of the standard subsidy rate by referring to this analysis result going forward and specify it in Clause 9 of the ｢Act on the Budgeting and Management of Subsidies｣. It would be desirable to disclose the principle of calculating standard subsidy rate in the law and show its current status by program based on the aforementioned method in lower statute.
Meanwhile, there were issues with the standard subsidy rate in that while it should be fixed by an enforcement ordinance based on the ｢Act on the Budgeting and Management of Subsidies｣, the standard subsidy rate of many programs, except for some, was re-delegated in block based on the government's discretion in the budget compilation process. Given that this regulation intends to enhance the predictability of matching local grants of local autonomous entities, it is necessary to mandatorily specify the standard subsidy rate with regard to certain larger-scale subsidy programs that can cause a substantial burden of matching local grants.
Second, as for the differentiated subsidy rate, the financial independence ratio, which was one of the calculation factors of the differentiated subsidy rate, was not effective in discerning the gap among local autonomous entities' financial status due to concentration in some classification sections. As a result, slight differences in other factors, including the aged population ratio and social welfare cost index, etc., were deciding whether the differentiated subsidy rate should be applied or not. For example, in the case of the basic pension program, while the average financial independence ratio of cities (68.2%) was far higher than that of autonomous district (55.5%), the subsidy rate for cities was higher than that of autonomous districts due to the slight gap (1.7%p) in aged population ratio. Moreover, in case of infant care cost support programs, a 10%p additional subsidy rate, on top of the standard subsidy rate, was applied for Gwangmyeong-si, which showed a financial independence ratio of 76% and a social welfare cost index of 27%, than on Dongducheon-si, which showed a financial independence ratio of 56% and a social welfare cost index of 24%. As such, slight differences in the social welfare cost index decided whether the differentiated subsidy rate was applied.
Moreover, blanket application without reflecting the different fiscal spending structure of “si․gun” and an “autonomous district” led to concentration of benefits of the differentiated subsidy rate in autonomous districts. As autonomous districts had a high share of mandatory welfare programs due to the limited autonomy in policies based on the ｢Local Autonomy Act｣, leading to a high social welfare cost index, the benefits of the additional subsidy rate were concentrated in autonomous districts. In the case of the infant care cost support program in 2014, while only 17.8% of si and 1.2% of gun enjoyed the additional subsidy rate, most of the autonomous districts (92.8%) received the benefits of the additional subsidy rate.
Third, with regard to budget compilation involving local finance, it is necessary to prevent cases where the standard subsidy rates specified in laws are changed after application to the subsidy program for the sake of enhancing the predictability of budget planning for matching local grants by local autonomous entities. Moreover, it is necessary to include the current statuses of matching local grants and details regarding local autonomous entities' national subsidy programs in an appendix of the budget plan by amending the ｢National Finance Act｣.
As for procedures on the enactment and amendment of laws involving local finance, as the ｢Local Finance Act｣ is limited to laws on the government side, the introduction of an evaluation of the impact on local finance should be considered to take into account the perspectives of local autonomous entities in the enactment and amendment of laws submitted by lawmakers.
As for local autonomous entities' national subsidy programs, 40.0 trillion won was appropriated for 881 detailed projects by 27 departments including the Ministry of Health and Welfare, etc. and matching local grants reached 20.9 trillion won, indicating a national subsidy rate of 65.7%, as of 2014. Recently, the share of national subsidy programs in local finance has been increasing each year, and the expansion of national subsidy programs in the social welfare area has contributed to the rapid increase in the share of social welfare in local finance.
Local autonomous entities' national subsidy programs were evaluated with regard to the standard subsidy rate system, differentiated subsidy rate system and budget plan and enactment/amendment of laws involving local financial burdens as follows.
First, the government must clearly establish and present the calculation method of the standard subsidy rate. Although the standard subsidy rate is a direct factor deciding the size of matching local grants of local autonomous entities' national subsidy programs, the government is not disclosing its methods of calculating standard subsidy rates. Against this backdrop, this report conducted a relational analysis between the nature of local autonomous entities' national subsidy programs and their subsidy rates to develop a reasonable calculation method of the standard subsidy rate. The analysis result showed that “as to whether local autonomous entities have the right to choose" and "the level of responsibility of the government and local autonomous entities" have a significant impact on the decision over the actual subsidy rate.
Moreover, we categorized subsidy programs based on such standards, reviewed the characteristics of subsidy rate distribution by category, and analyzed major programs where subsidy rates were calculated differently within the same category. In this process, we reviewed the applicable laws and provisions for subsidy programs, the program objectives, and its contents and assessed the appropriateness of the subsidy rate of the program.
The government should clearly establish the calculation method of the standard subsidy rate by referring to this analysis result going forward and specify it in Clause 9 of the ｢Act on the Budgeting and Management of Subsidies｣. It would be desirable to disclose the principle of calculating standard subsidy rate in the law and show its current status by program based on the aforementioned method in lower statute.
Meanwhile, there were issues with the standard subsidy rate in that while it should be fixed by an enforcement ordinance based on the ｢Act on the Budgeting and Management of Subsidies｣, the standard subsidy rate of many programs, except for some, was re-delegated in block based on the government's discretion in the budget compilation process. Given that this regulation intends to enhance the predictability of matching local grants of local autonomous entities, it is necessary to mandatorily specify the standard subsidy rate with regard to certain larger-scale subsidy programs that can cause a substantial burden of matching local grants.
Second, as for the differentiated subsidy rate, the financial independence ratio, which was one of the calculation factors of the differentiated subsidy rate, was not effective in discerning the gap among local autonomous entities' financial status due to concentration in some classification sections. As a result, slight differences in other factors, including the aged population ratio and social welfare cost index, etc., were deciding whether the differentiated subsidy rate should be applied or not. For example, in the case of the basic pension program, while the average financial independence ratio of cities (68.2%) was far higher than that of autonomous district (55.5%), the subsidy rate for cities was higher than that of autonomous districts due to the slight gap (1.7%p) in aged population ratio. Moreover, in case of infant care cost support programs, a 10%p additional subsidy rate, on top of the standard subsidy rate, was applied for Gwangmyeong-si, which showed a financial independence ratio of 76% and a social welfare cost index of 27%, than on Dongducheon-si, which showed a financial independence ratio of 56% and a social welfare cost index of 24%. As such, slight differences in the social welfare cost index decided whether the differentiated subsidy rate was applied.
Moreover, blanket application without reflecting the different fiscal spending structure of “si․gun” and an “autonomous district” led to concentration of benefits of the differentiated subsidy rate in autonomous districts. As autonomous districts had a high share of mandatory welfare programs due to the limited autonomy in policies based on the ｢Local Autonomy Act｣, leading to a high social welfare cost index, the benefits of the additional subsidy rate were concentrated in autonomous districts. In the case of the infant care cost support program in 2014, while only 17.8% of si and 1.2% of gun enjoyed the additional subsidy rate, most of the autonomous districts (92.8%) received the benefits of the additional subsidy rate.
Third, with regard to budget compilation involving local finance, it is necessary to prevent cases where the standard subsidy rates specified in laws are changed after application to the subsidy program for the sake of enhancing the predictability of budget planning for matching local grants by local autonomous entities. Moreover, it is necessary to include the current statuses of matching local grants and details regarding local autonomous entities' national subsidy programs in an appendix of the budget plan by amending the ｢National Finance Act｣.
As for procedures on the enactment and amendment of laws involving local finance, as the ｢Local Finance Act｣ is limited to laws on the government side, the introduction of an evaluation of the impact on local finance should be considered to take into account the perspectives of local autonomous entities in the enactment and amendment of laws submitted by lawmakers.