Published : 2013-02-03 20:02
Updated : 2013-02-03 20:02
Budget officials are having a hard time drawing up a funding plan for President-elect Park Geun-hye’s numerous campaign pledges. They have been told to secure 135 trillion won for five years from 2013 ― 60 percent of it by reforming the budget and the remaining 40 percent by increasing tax revenue without directly raising tax rates.
Park has made the officials’ unenviable task all the more difficult by promising to provide provincial governments with fiscal support exceeding 10 trillion won a year.
In a meeting with the heads of the 16 local governments last week, Park said she would find ways to alleviate the funding burden on provincial governments stemming from the expanded early childhood education and care program.
The ECEC scheme is jointly financed by the central and local governments. But last year it was expanded without taking into account the increased burden on provincial governments. As a result, it severely strained their finances.
This year, the program is to be further expanded, requiring local governments to put in 1.4 trillion won in extra funding.
Park said the right way to promote nationwide projects such as the ECEC program would be for the central government to assume full financing responsibility.
With the remark, she put an end to the unseemly funding dispute between the central and local governments. But the question was where the money would come from.
Park also promised to compensate local governments for the expected losses in tax revenue resulting from the National Assembly’s planned passage of a bill to extend the reduction in the real estate acquisition tax.
The bill, intended to inject vitality into the slumping property market, is expected to cut the tax income of local governments by 2.9 trillion won this year alone.
The most controversial issue concerns the planned increase in local governments’ share of the value-added tax receipts. Currently, the central government transfers 5 percent, or 3 trillion won, of its sales tax revenue.
Under a 2009 plan, the central government decided to raise the share of local governments to 20 percent in stages. This year, it is planning to increase their portion to 10 percent.
However, the mayors and governors at the meeting with Park requested that the central government transfer 20 percent, which would amount to 11 trillion won, beginning this year.
Park stopped short of accepting the request, but she has not rejected it either. She said she would have her transition team study the matter.
The heads of local governments also submitted to Park a list of 117 development projects that they wanted to see promoted in their regions. Many projects on the list were pledged by Park herself during the campaign period.
Yet no one has any idea of how much these projects would cost. Even the ruling party has not come up with a rough estimate. Park has repeatedly vowed to deliver on her pledges. It remains to be seen how she would promote these projects.