This year marks the 30th anniversary of local self-government. Major candidates in the June 3 presidential election also include the expansion of local finances in their pledges.
Lee Jae-myung, the Democratic Party of Korea candidate, promised to expand the grant-in-aid (non-earmarked tax). Kim Moon-soo, the People Power Party candidate, stated he would adjust the current 7 to 3 ratio of national taxes to local government tax to 6 to 4. Lee Jun-seok, the Reform Party candidate, proposed allowing local governments to collect and manage part of the corporate tax.
However, tax and finance experts noted that a review of the soundness and efficiency of local finances must precede this. There are also concerns about the weakening of the central government's fiscal management capacity due to the reduction in national tax.
◇ Lee Jae-myung: "Expanding grant-in-aid (non-earmarked tax) to enable the discovery of tax sources that fit regional characteristics"
According to policy pledges released by various parties and the candidates' statements on the 31st, candidate Lee Jae-myung pledged to expand the grant-in-aid (non-earmarked tax), which currently allocates 19.24% of national tax. To support areas with declining populations, he plans to extend the temporary local extinction response fund established until 2031 and expand the scale that receives 1 trillion won annually.
He also promised to discover local tax sources. Under current law, local governments cannot establish and operate tax items that suit regional characteristics through local government ordinances, as everything is controlled by the central government by law. He argued that Korea should also enable this, like the "non-statutory taxes" currently operated in Japan. For example, introducing a "tourism tax" in areas facing population extinction or discovering new tax sources to compensate residents for damages caused by facilities that are disliked in their localities.
The candidate also stated he would expand national support for the issuance of the "local love gift certificates," which he regards as one of his key policies. Local love gift certificates are issued by local governments and can only be used at affiliated stores in the respective municipality. He envisions stipulating that state support for the issuance and operation of local currency is a national obligation and to determine the scale of issuance and subsidy rates considering the financial conditions of local governments.
◇ Kim Moon-soo: "Adjusting national tax to local government tax ratio from 6:4… Integrating comprehensive real estate tax with local government tax"
Candidate Kim Moon-soo asserted he would gradually adjust the current national tax to local government tax ratio, which is about 7 to 3, to 6 to 4. While 60% of the total budget is practically spent on locals, the tax rate falls short of that reality. About 30% of the expenses that local government tax cannot cover must be financed by national tax sources, which reduces fiscal operational autonomy; he aims to address this issue.
He also stated he would increase the size of the special account for balanced development from the current 14.7 trillion won to 30 trillion won. Currently, the proportion of the 'local autonomy account budget,' where local governments can autonomously draft budgets and select projects, is only 24% of the special account. He also proposed improvements to the grant-in-aid (non-earmarked tax) system and the differential increase of national subsidies for regions facing population decline. He added that while expanding local finance authority, 'strengthening the fiscal disclosure system' and other fiscal management responsibilities must also be enhanced.
In terms of taxation, he expressed plans to eventually integrate the comprehensive real estate tax, which is a national tax, with the local government tax, which is also a local tax. He also proposed to abolish the acquisition tax, currently levied as a local tax when purchasing dwellings in non-capital areas to revitalize the local housing market.
◇ Lee Jun-seok: "Granting autonomy over corporate tax and minimum wage to enhance local competitiveness"
Candidate Lee Jun-seok is focusing on expanding local autonomy through the 'corporate tax' and 'minimum wage.' He stated that he would change 30% of the corporate tax, currently collected as a national tax, to a local government tax. He also pledged to grant local governments the autonomy to attract corporations competitively.
Additionally, he plans to grant the authority for local governments to adjust the minimum wage level by 30%. For example, municipalities would be allowed to set their hourly wage lower than the standard (currently, the legal minimum wage is 10,030 won per hour) based on living costs, allowing each local government to attract corporations based on this competitiveness. Among the 26 OECD countries, 17 currently apply differentiated minimum wages based on region, industry, and age.