Local leaders urge full review of allocation tax overhaul tied to future fund
In short
An association of South Korean mayors, county heads and district heads has adopted a joint proposal demanding that the government and the National Assembly fully review a planned overhaul of the ordinary local allocation tax tied to the creation of a future response fund. The group says excluding part of domestic tax revenue from the allocation tax base would cut the total and weaken the finances of basic-level governments. It plans to send the proposal to the government and the National Assembly on Oct. 6.
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An association representing mayors, county heads and district heads across South Korea has demanded a full review of a planned reorganization of the ordinary local allocation tax, which is being pursued in connection with the creation of a future response fund. The National Association of Mayors, County Heads and District Heads said it adopted the joint proposal on Oct. 2, its first joint demand since ninth-term local governments took office. [ 1 ]
According to the association, the government is pushing a plan to set aside part of any national tax revenue that comes in above expectations in a future response fund, and to exclude that amount from the base used to calculate the local allocation tax. The association said that if part of domestic tax revenue is excluded from the calculation, the total ordinary allocation tax would shrink, weakening the stability and autonomy of local finances. The ordinary allocation tax is general-purpose funding meant to narrow fiscal gaps between regions and let basic-level governments decide how to spend it while providing basic administrative services. [ 1 ]
The association asked that the current funding structure for the ordinary allocation tax be maintained regardless of whether the future response fund is created. If a change to the calculation method is unavoidable, it said implementation should be postponed by one year, to 2028. It also called for measures to preserve local finances, including raising the ordinary allocation tax rate in stages each year, and for a government-wide fiscal decentralization task force to be restarted quickly so that the allocation tax overhaul and fiscal decentralization issues can be discussed together. [ 1 ]
Association chairman Kim Byeong-nae said that using excess tax revenue as a source for future investment is necessary, but that the weak fiscal base of basic-level governments should not be weakened. The association said it would send the proposal by official letter to the government and the National Assembly on Oct. 6. [ 1 ]
A second outlet, Newsis, headlined the same call for review and the concern that the future fund would reduce the allocation tax, but its article text dealt with a separate matter concerning the Supreme Court, and did not add details on the fiscal issue. [ 2 ]
Why it matters
The dispute concerns how South Korea finances its basic-level governments and how much discretion they have over spending. If the government's plan proceeds as described, the association says the pool of general-purpose money available to cities, counties and districts would shrink; the group is also pressing for a broader fiscal decentralization discussion. The documents give no indication of how the government or the National Assembly will respond.
Key facts
- The National Association of Mayors, County Heads and District Heads adopted a joint proposal on Oct. 2, its first since ninth-term local governments took office, calling for a full review of the ordinary local allocation tax overhaul. [ 1 ]
- The government is pursuing a plan to set aside part of any national tax revenue above expectations in a future response fund and to exclude that amount from the local allocation tax calculation base. [ 1 ]
- The association warned that excluding part of domestic tax revenue would reduce the total ordinary allocation tax and weaken local fiscal stability and autonomy. [ 1 ]
- The association asked that the current ordinary allocation tax funding structure be kept, or that any change to the calculation method be delayed by one year, until 2028. [ 1 ]
- It also called for measures to raise the ordinary allocation tax rate in stages each year and for a government-wide fiscal decentralization task force to be restarted quickly. [ 1 ]
- The proposal was to be sent by official letter to the government and the National Assembly on Oct. 6. [ 1 ]
- Association chairman Kim Byeong-nae said using excess tax revenue for future investment is necessary but that the weak fiscal base of basic-level governments should not be weakened. [ 1 ]
Confirmed by several sources
- The association of mayors, county heads and district heads urged a full review of the planned reorganization of the ordinary local allocation tax linked to the new future response fund. [ 1 , 2 ]
- The association said the government plan to exclude part of domestic tax revenue from the local allocation tax calculation would cut the total and weaken local fiscal stability and autonomy. [ 1 ]
- The association planned to send its proposal to the government and the National Assembly on Oct. 6. [ 1 ]
Still unclear
- Whether the government has responded to the association's proposal, and whether its plan to exclude future-fund contributions from the allocation tax base has been finalized. The documents describe the plan as being pursued but give no government response or decision.
- When the government-wide fiscal decentralization task force would be restarted. The association only called for it to be restarted “as soon as possible,” without a date.
- Details beyond the headline from the Newsis report. Newsis's article text covered an unrelated Supreme Court matter, so only its headline addresses this event.
What local media are saying
Timeline, local time
- Oct. 2: The association adopts its first joint proposal since the ninth-term local governments took office, calling for a full review of the ordinary allocation tax overhaul. [ 1 ]
- Oct. 5: Yonhap reports the association's demands. [ 1 ]
- Oct. 6: Newsis reports the association's call for a review. [ 2 ]
- Oct. 6: The association is due to send the proposal by official letter to the government and the National Assembly. [ 1 ]