[Exclusive] Seoul and Gyeonggi, Ranked 1st and 3rd in Financial Independence, Received More Real Estate Grant Tax

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[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] As comprehensive real estate tax revenues expand, the scale of the ‘Real Estate Grant Tax’ that the central government allocates to local governments has also increased significantly. However, since financially independent regions like Seoul and Gyeonggi take more than one-fifth of the total grant amount, voices are emerging questioning whether this contradicts the grant tax’s purpose of enhancing fiscal equity among local governments. There are growing concerns that if the comprehensive real estate tax revenue continues to grow, the gap between local governments may widen further.

◆ Gyeonggi Province Ranks First in Grant Tax Allocation = According to the ‘Local Government Real Estate Grant Tax Status’ submitted by the Ministry of the Interior and Safety to Han Byung-do, a member of the National Assembly’s Public Administration and Security Committee from the Democratic Party, the real estate grant tax amounted to 3.32097 trillion KRW last year. Of this, 20.7% (687.5162 billion KRW) was allocated to the Seoul and Gyeonggi metropolitan areas. This is the first time the grant tax amount by local government has been disclosed.

Gyeonggi Province ranked first with 10.9% (360.655 billion KRW) of the total grant amount, followed by Gyeongbuk and Jeonnam with 10.5% (347.57505 billion KRW) and 10.4% (345.99319 billion KRW), respectively. Seoul ranked fourth with 326.89612 billion KRW.

Rep. Han said, "The increase in real estate grant tax amounts likely contributed to improving the fiscal soundness of local governments," adding, "The secured funds should be focused on vulnerable groups or used for urban development to achieve regional balance."

The real estate grant tax is a preferred resource for local governments because its use is not specifically designated. A Gyeongbuk Province official stated, "Since it is a general fund, it can be used at the discretion of the local government rather than for specific projects."

The problem is that local governments with high fiscal independence, such as Gyeonggi Province and Seoul, also rank high in the allocation order of the real estate grant tax. According to the Ministry of the Interior and Safety, the real estate grant tax is funded by the comprehensive real estate tax and is collected from so-called ‘wealthy neighborhoods’ like the Gangnam 3 districts, then distributed to relatively financially disadvantaged non-metropolitan local governments. A ministry official explained, "The real estate grant tax plays a strong role in wealth equalization."

According to Statistics Korea, Seoul’s fiscal independence rate is 80.6%, and Gyeonggi’s is 63.7%, ranking first and third, respectively. Local governments with high fiscal independence also lead in the real estate grant tax allocation hierarchy. In contrast, Jeju Province, ranked 11th in fiscal independence, received only 1.8% (59.77737 billion KRW) of the real estate grant tax allocation.

The allocation of the real estate grant tax is conducted according to the Grant Tax Act. While the local government’s fiscal capacity accounts for the largest share at 50% in the allocation criteria, social welfare demand (35%), regional education demand (10%), and real estate holding tax scale (5%) are comprehensively considered. Since multiple factors are reflected in the final redistribution, it is difficult to expect a perfect fiscal redistribution effect.

◆ "Upper and Lower Limits Should Be Set" = However, as the comprehensive real estate tax revenue is expected to continue increasing due to rising housing prices, there are calls to change the real estate grant tax allocation method. According to the Ministry of Economy and Finance, next year’s comprehensive real estate tax revenue is estimated to reach a record high of 6.63 trillion KRW, which is 1.5162 trillion KRW (29.6%) more than this year. Under the current allocation rules, the rich-get-richer and poor-get-poorer phenomenon is bound to accelerate.

An official from a metropolitan local government, who requested anonymity, said, "It is necessary to improve the system so that allocations go to relatively financially struggling regions," adding, "Since the positions of each local government are intertwined, it is difficult to actively express opinions."

Experts say it is necessary to set upper and lower limits or supervise the actual use of funds. Professor Kim Sangbong of Hansung University’s Department of Economics said, "If allocations are made excessively proportionally, problems may arise, so it is desirable to set upper and lower limits to prevent too much or too little allocation," adding, "It is necessary to refine the calculation focusing on regional balanced development."

Professor Andonghyun of Seoul National University’s Department of Economics said, "It is true that those who pay more taxes should receive more benefits," but added, "There should be a condition that 60% of the received funds must be used for building regional infrastructure to effectively narrow regional disparities."

This content was produced with the assistance of AI translation services.