The first supplementary budget plan of the Lee Jae-myung government has passed the National Assembly, confirming a large-scale expenditure restructuring. In the process, the handling methods for the legally mandated expenditure items distributed in connection with national tax revenue, such as grant-in-aid (earmarked tax) and educational finance, have diverged.
While the educational finance was cut by about 2 trillion won, grant-in-aid (non-earmarked tax) was maintained at the existing level. This is in consideration of the situation where local governments have to bear a financial burden in the trillions of won to promote key supplementary budget projects such as the livelihoods recovery consumption coupon.
According to the government on the 4th, in response to revenue shortfalls this year, the government has carried out a revenue revision totaling 10.3 trillion won during the second supplementary budget process. Typically, national tax revenue decreases, leading to cuts in grant-in-aid (non-earmarked tax) (19.24% of national tax) and grant-in-aid (earmarked tax) (20.79% of national tax) that are allocated based on it.
However, the government cut only grant-in-aid (earmarked tax) by 1.9982 trillion won and postponed cuts to grant-in-aid (non-earmarked tax). The 'two-year deferment' clause specified in the relevant law has been applied only to grant-in-aid (non-earmarked tax). The amount of grant-in-aid (non-earmarked tax) whose cut was postponed is approximately 1.7 trillion won.
The background of the government's decision is aimed at easing the financial burden on local governments. The original supplementary budget plan prepared by the government required a total of 3.7 trillion won in local funding for the livelihoods recovery consumption coupon project, with 2.9 trillion won allocated to it and about 800 billion won for other projects such as local love gift certificates.
The problem is that local governments were already in a difficult financial situation due to a decrease in tax revenue. In 2023 and 2024, 8.1689 trillion won and 2.2363 trillion won of grant-in-aid (non-earmarked tax) have not been distributed, causing difficulties in financial management.
Additionally, adjustments were made during the review process of the supplementary budget to reduce local burdens. Led by the Democratic Party of Korea, the local burden ratio for the livelihoods recovery consumption coupon project was lowered from the previous 20-30% to 10-25%.
At the same time, support has been expanded for residents in non-capital areas (from 0 won to 30,000 won) and areas with population decline (from 20,000 won to 50,000 won). While the total budget needed for the livelihoods recovery consumption coupon project has increased, the total funding that local governments have to bear for the supplementary budget projects has decreased to 2.5 trillion won, a reduction of 1.2 trillion won. However, even considering the postponed cut to grant-in-aid (non-earmarked tax), local governments still need to bear around 800 billion won.
Voices are also being raised regarding fairness issues both inside and outside the government. Similar to grant-in-aid (non-earmarked tax), grant-in-aid (earmarked tax) has been cut by 10.3969 trillion won and 4.2524 trillion won respectively over the past two years, leading education offices in cities and provinces to face a lack of funding.
During the review process of the supplementary budget, members of the Education Committee, regardless of political affiliation, opposed the cuts to the grants. However, the supplementary budget plan eventually passed the National Assembly. Consequently, it is reported that five education offices, including those in Incheon, Ulsan, Chungcheongnam-do, Jeollanam-do, and Jeju, are considering issuing local government bonds.
A government official said, 'Considering the local burden rate of the existing livelihoods recovery consumption coupon, the decision was made to postpone the cut for grant-in-aid (non-earmarked tax), but as additional support for locals is provided, the education offices are in a more unjust situation.'