Lee Kwang-jae: “Even amid a semiconductor boom, Gyeonggi Province’s fiscal burden alone keeps growing ... Local consumption tax must be reformed”

[Financial News] Lee Kwang-jae, a Democratic Party of Korea lawmaker who chairs the National Assembly’s Special Committee on Budget and Accounts, called on the 30th for reform of the local consumption tax, pointing out that Gyeonggi Province’s fiscal burden grows as the semiconductor industry expands, while tax revenues do not increase sufficiently. He argued that the underlying structure must be fundamentally changed: local governments have more to spend as industries are promoted and demand for welfare rises, but revenues fail to keep pace.
At a policy debate on local tax reform to expand local government finances, held at the National Assembly that day, Lee said, “The better the enormous semiconductor factories in Yongin, Hwaseong and Pyeongtaek do, the more support funding Gyeonggi Province has to provide.” He pointed out, “The vast tax revenues generated there go to the local governments concerned, but Gyeonggi Province has no way to address that.”
He first cited the fact that Gyeonggi Province is a local government that does not receive ordinary local allocation tax from the central government as a challenge to fiscal management. Lee said, “By the volume of local government bonds issued, Gyeonggi Province ranks 13th among the 17 metropolitan-level local governments.” He added, “It may seem that there is no local fiscal crisis, but a fundamental look at the finances shows how difficult it is that, as a non-recipient of these grants, there is nowhere for funding to come from.”
He also pointed to rising spending on firefighting and elderly welfare as factors increasing the fiscal burden. Lee said, “The firefighting work Gyeonggi Province has to handle includes both local and central government responsibilities, and there are many central government responsibilities.” He added, “We need to consider how to fund what firefighting requires, including personnel costs and equipment.” He also stressed the fiscal pressure from rising welfare demand, saying, “If an elderly person who owns a home in Seoul moves to a care facility in Gyeonggi Province, the province has to shoulder an enormous financial burden.”
To expand local governments’ fiscal capacity, Lee argued that the ratio of national to local taxes should be adjusted to 7:3, saying, “The time has come to pursue fundamental changes to the local consumption tax.” The current ratio of national to local taxes is approximately 7.5:2.5. The so-called “7:3 principle” was a goal pursued by the Moon Jae-in administration, and the Lee Jae Myung administration has also made it a policy agenda item.
He also proposed reducing the fiscal burden through integrated management of metropolitan-area transportation. Lee said, “Seoul, Gyeonggi and Incheon spend enormous sums on metropolitan buses and subways,” and stressed that a metropolitan transportation management system like those in Paris, France, and London, England, should be established to ease both commuting inconveniences and Gyeonggi Province’s fiscal pressure.

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