Yeom Tae-young, Chair of National Association of Mayors and Governors: "Local Transfer Tax Should Be Increased, Not Decreased"

[Suwon Ilbo=Reporter Seo Dong-young] The National Association of Mayors and Governors (Chair Yeom Tae-young, Mayor of Suwon) released an opposition statement on December 2 against a budget plan that cuts 4.1 trillion won through expenditure restructuring for local transfer tax revenue adjustments by the Ministry of Strategy and Finance.

The government recently announced the third supplementary budget of 35.3 trillion won in scale to overcome economic crisis and prepare for the post-COVID era. The revenue adjustment plan includes a reduction of 4.1 trillion won, comprising 1.9 trillion won in local transfer tax and 2.2 trillion won in local education finance grants.

While the association understands the adjustment in local transfer tax reduction linked to domestic tax revenue due to the revenue-cutting supplementary budget, it raised its voice that there was no consideration whatsoever for the difficult fiscal conditions of local governments. Furthermore, the association stated it is difficult to accept the pursuit of reducing local transfer tax by approximately 2 trillion won without any consultation with the local governments concerned.

Chair Yeom Tae-young said, "With the spread of COVID-19, local tax revenues are falling significantly short compared to when the 2020 original budget was formulated. More importantly, in a phase of economic downturn, regional economies are expected to experience below-average negative growth, so local transfer tax should be increased rather than decreased."

The revenue adjustment included in the third supplementary budget may cause greater damage to county-level basic local governments with poor finances, and consequently, there is concern that this will undermine the national policy direction of local autonomy and balanced development.

Additionally, discussions are emerging on the need to fundamentally expand deteriorating local finances due to COVID-19 and actively utilize increased local transfer tax rates as a buffer mechanism to correct inter-regional imbalances resulting from fiscal decentralization.

The local transfer tax has been set at 19.24% of domestic tax revenue since 2006 and has maintained the statutory rate to date. As shortfalls of 7.2 trillion won occurred in 2019 in covering insufficient local resources, the supplementary function of transfer tax is significantly weakening.

Through the release of a statement on local transfer tax reduction adjustment and increased local transfer tax rate, the association is urging that the local transfer tax reduction settlement not be applied this year and be adjusted later. It also proposed raising the local transfer tax rate from the current 19.24% to 22% to secure resources for struggling local governments.