The Democratic Party of Korea is pushing for a plan to distribute some of the taxes collected from income tax, special consumption tax, value-added taxes, and securities transaction tax to local governments that are facing financial difficulties. As the funding for the real estate grant-in-aid (comprehensive real estate tax) that was entirely financed by the comprehensive real estate tax became insufficient, they plan to allocate an additional 1% of the national tax collected to support the real estate grant-in-aid.
Considering the current tax revenue scale, an additional amount of over 3 trillion won could be utilized annually for the real estate grant-in-aid. However, there is also controversy regarding the distribution of national tax collected from all citizens to specific local governments.
According to the National Assembly on the 31st, on the 21st, Representative Min Hyung-bae of the Democratic Party of Korea and nine other lawmakers proposed the 'Partial Amendment to the Local Government Grant-in-Aid Act.' This amendment is scheduled to be discussed in the Administrative Safety Committee, which is the responsible subcommittee.
The content of the amendment suggests adding 1% to the national tax collected for the funding of the real estate grant-in-aid. The real estate grant-in-aid is one of the local grants that the government sends to local governments, funded entirely by the comprehensive real estate tax. The intention is to return that additional 1% from the national tax to local governments as part of the real estate grant-in-aid.
National tax refers to taxes imposed on taxable objects located within the country, excluding tariffs from the national taxes. Under the current national tax system, typical national taxes include income tax, corporate tax, value-added taxes, special consumption tax, inheritance tax, gift tax, securities transaction tax, and stamp duty.
The lawmakers noted the reason for the bill's proposal, stating, 'With the advent of the Yoon Suk-yeol government, the real estate grant-in-aid sharply decreased due to tax cut policies starting in 2023,' adding, 'Especially in autonomous districts, there is a high dependency on the real estate grant-in-aid as they are typically non-grant receiving entities.' They also emphasized, 'While the burden of local government taxes, including social welfare costs, is increasing every year, revenue is declining, resulting in serious financial pressure.' Therefore, they aim to add 1% of the total national tax to the existing real estate grant-in-aid resources, addressing the reduction in real estate grant-in-aid that local governments would receive due to the decrease in comprehensive real estate tax, ultimately supporting local government finance and revitalizing the local economy.
According to the Ministry of the Interior and Safety, the real estate grant-in-aid peaked at 7.57676 trillion won in 2022, coinciding with the transition between the Moon Jae-in administration and the Yoon Suk-yeol administration, before decreasing to 4.96085 trillion won in 2023 and 4.1098 trillion won in 2024. The Ministry of Strategy and Finance reported that the total national tax revenue for 2023 was 344.1 trillion won, of which national tax, excluding tariffs and earmarked taxes such as education tax, amounted to 306.1 trillion won. If 1% of the national tax is used for the real estate grant-in-aid as suggested in the amendment, an additional 3.0610 trillion won would be supported to local governments based on 2023 figures.
However, there are ongoing arguments that the comprehensive real estate tax should be reduced, with many expressing that it is inappropriate to allocate additional national tax to local governments when the comprehensive real estate tax has been reduced. Lee Jae-myung, leader of the Democratic Party, mentioned easing the comprehensive real estate tax around last year's party convention. During a candidate debate on July 30 of last year, he stated, 'The party should not cling to dogmatic tax policies that cause suffering to the public,' and asked, 'Is there really a need to collect the comprehensive real estate tax, even at the cost of resisting those who have worked their whole lives to buy one house, a single housing unit?'
Kim Woo-cheol, a professor at the University of Seoul, said, 'While it is true that the real estate grant-in-aid is a necessary resource for local government finance, the central government's deficit is more serious than that of local governments, and reallocating some of the national tax without additional revenue is likely to result in an increase in the central government's debt.'
Oh Mun-seong, a professor at Hanyang Women's University, also remarked, 'The comprehensive real estate tax has been operated abnormally, so reducing it is indeed the right direction,' adding, 'However, suggesting to send more of the national tax to local governments just because the comprehensive real estate tax has decreased is not a fundamental solution at all.'