The government is pushing a plan to impose penalties on local governments that do not return unspent national subsidies for a long period. The approach is to reduce future grant-in-aid (non-earmarked tax) or subsidies by the amount not returned. The aim is to strengthen subsidy management by using penalty provisions that have fallen into disuse under the current Local Grant-in-Aid Act and the integrated guidelines for managing national subsidies.
According to government offices and the National Assembly on the 17th, the Ministry of Economy and Finance will hold a "joint task force meeting on subsidy execution inspection" on the 18th, chaired by budget management officer An Sang-yeol, and plans to convey this policy to fiscal officers from 17 local governments nationwide. The ministry holds a joint task force meeting on subsidy execution inspection every quarter, but this is the first time it has called in fiscal officers from metropolitan cities and provinces.
A Ministry of Economy and Finance official said, "We have previously encouraged local governments to return unused subsidies, but this time we plan to make it known that we can enforce specific penalty provisions."
The ministry's hard-line stance comes as the National Assembly has continued to criticize local governments for their poor record in returning unspent national subsidies. At the National Assembly's settlement of account subcommittee earlier this month, cases of unreturned subsidies under the Ministry of Environment's "zero-emission vehicle supply project" came under scrutiny.
According to the Ministry of Environment, the return rate for unspent national subsidies under the project was 96.1% in 2018, 99.8% in 2019, and 99.2% in 2020, but plunged to 79.4% in 2021, 78.0% in 2022, and 60.8% in 2023. The cumulative amount not returned from 2018 to 2023 totals 131.671 billion won. Some local governments have still not returned funds even six years after being notified to return unspent subsidies.
In the National Assembly, critics said, "The Energy Special Account, which uses the eco-friendly vehicle subsidies project budget, is expected to post a deficit of more than 2 trillion won this year, and interest repayment is also likely to increase from the previous year (67.4 billion won)," adding, "In this situation, failing to collect even the unreturned balances is a dereliction of duty by the central government."
Some also say the national subsidy management system itself is being run loosely. Under the current guidelines for operating and managing national subsidies, the head of a central government agency must ensure that returns are completed within the year following the year the subsidy project is completed. However, local governments are settling subsidies in the year after the project is completed.
On top of that, due to poor local fiscal conditions, if a supplementary budget is not arranged, returning unused subsidies is itself impossible. There are also said to be cases where returns are missed due to staff changes, failure to hand over duties, or system input errors. Some returns are made via dBrain or national treasury checks instead of the government's fiscal system and thus are not counted in the return rate. Broadening the scope to 23 ministries, some point out that more than 1 trillion won in subsidies has not been collected.
At the National Assembly's settlement of account subcommittee, opinions were raised that a comprehensive response is needed, including: ▲ a full survey by the Ministry of Economy and Finance and the Ministry of the Interior and Safety ▲ improvements to systems related to subsidies ▲ retraining of local government officials ▲ an audit by the Board of Audit and Inspection ▲ disciplinary action against local governments that have not returned funds.
The Ministry of Economy and Finance will first set a return deadline by the end of this year and then apply penalties if compliance still does not occur. A ministry official said, "We need to recheck whether this is a system error or an actual nonreturn," but added, "If returns are not made by the end of the year, we have no choice but to impose disadvantages under the rules."