Local Finance of Korea, 2021

Published on Sept. 6, 2021
Published by Administrative Budget Analysis Division

   This year marks the 30th anniversary of local autonomy and an important year in which the "Local Autonomy Act", which was amended in December of last year, is slated to take effect in January 2022. Since the implementation of local autonomy in earnest, local governments have been playing a role as part of the state and as local governments distinct from the central government. In particular, the role of local governments is growing to put in place policies tailored to local conditions, such as implementing the recently expanded welfare budget and closely supporting residents negatively affected by the COVID-19 pandemic. Accordingly, the scale of integrated fiscal expenditures of local governments, which is comprised of 243 local governments, increased from 154.4 trillion won in 2013, when they were first announced, to 259.4 trillion won in 2021.
   Despite the growing role of local governments, the fiscal relationship between the central and local governments in Korea has been viewed as unbalanced, leaning toward the central government. Fiscal decentralization is essential in order for local governments to take initiative in solving local problems pursuant to local conditions. Furthermore, taking initiative is considered an important task in easing the fiscal gap between local governments to promote balanced national development and improve the quality of life of individual citizens.
   The National Assembly and the government, recognizing the historical and policy importance of fiscal decentralization, are working hard to prepare an institutional foundation suitable for the elevated status of local governments. The National Assembly laid out the institutional basis for fiscal decentralization by carrying out the full amendment of the "Local Autonomy Act" and the amendment of the "Local Transfer Act." In addition, the government implemented the first phase (2019-2020) of fiscal decentralization by preparing a fiscal decentralization promotion plan, and recently, it announced the direction of the second phase (2021~2022) in which the ratio of local taxes to national taxes will be raised to 27.4% by 2022.
   While this report maintains the existing framework of three parts ('Part 1 Status of Local Finance', 'Part 2 Establishment and Management of Local Finance', and 'Part 3 Understanding the Local Fiscal Adjustment System'), it updated statistical data based on the budget for FY2021 and settlement of accounts for FY2020, and proactively incorporated changes in major local finances such as the progress of fiscal decentralization. At the same time, supplementation was made to provide more in-depth information on the current state of local finance, such as changes in local financial management systems for more efficient local finance, and the status of local governments responding to COVID-19.