Record Drop in Local Allocation Tax... Ministry of the Interior and Safety Urges "Establish Sound Fiscal Management"

Meeting of Planning and Coordination Directors from 17 Cities and Provinces Held

Next year, the local allocation tax that the central government sends to local governments is expected to decrease by about 8.5 trillion won compared to this year, and the Ministry of the Interior and Safety has requested each local government to establish a sound fiscal policy. In addition, it urged responsible management of projects transferred to local governments, such as local river management.

The Ministry of the Interior and Safety announced on the 30th that it held a meeting with the planning and coordination directors of 17 cities and provinces to convey this message to each local government.

The reason the Ministry of the Interior and Safety made this request is that the local allocation tax is expected to decrease to a record low next year. According to the '2024 Budget Plan' approved by the government the day before, the Ministry of the Interior and Safety's budget is 72.0945 trillion won. This is a 10.4% (8.3933 trillion won) reduction compared to last year’s record high of 80.4878 trillion won. Since its integration with the Ministry of Public Safety and Security in 2017, the Ministry of the Interior and Safety has only experienced a budget cut once in 2020 (-134.6 billion won). In terms of the reduction amount, this is the largest ever.

Of the Ministry of the Interior and Safety's total budget, 66.7711 trillion won is allocated as local allocation tax paid to 243 metropolitan and basic local governments. This is an 11.3% (8.5172 trillion won) decrease compared to this year’s 75.2883 trillion won. Since its establishment, the Ministry of the Interior and Safety has cut the local allocation tax twice, in 2020 (-254.9 billion won) and 2021 (-452.2 billion won). However, those reductions were 0.5% and 0.9% respectively, so this is the first time the cut has exceeded single digits and reached double digits.

The local allocation tax plays an absolute role in the finances of local governments. According to the Ministry of the Interior and Safety, the financial independence ratio of 243 metropolitan and basic local governments nationwide was 50.1% this year. In other words, about half of their finances rely on the local allocation tax.

However, the Ministry of the Interior and Safety plans to continue this policy. Through the meeting, the Ministry requested local governments to "considering the worsening local financial conditions such as decreased tax revenue, operate finances soundly and efficiently through this year's supplementary budget" and "establish a strong sound fiscal policy when preparing the annual budget."

Additionally, when preparing this year’s supplementary budget, it urged active use of available resources such as net surplus and the integrated fiscal stabilization fund, timely enforcement of administrative sanctions against high-value and habitual tax delinquents, and strengthening of delinquent tax collection activities such as operating special collection periods by local governments.

Meanwhile, at the meeting, the Ministry of the Interior and Safety asked local governments to responsibly manage projects transferred to them, such as local river management, to ensure there are no gaps in essential functions like public safety.

Choi Byung-kwan, Director of the Local Finance and Economy Office, said, "Since revenue conditions are difficult, we ask local governments to establish a proactive and strong sound fiscal policy," and added, "The Ministry of the Interior and Safety will also strive for sound and responsible local fiscal management by continuously monitoring so that projects transferred to local governments can be responsibly carried out in local communities."

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