Democratic lawmaker introduces bill to boost local government finances

As population decline accelerates across the country, local governments are facing a sharp rise in fiscal spending pressures. Legislation aimed at shoring up local finances — now pushed to the brink — is set to move forward in the National Assembly.

Democratic Party of Korea lawmaker Yoon Jun-byeong, who represents Jeongeup and Gochang-gun in North Jeolla Special Self-Governing Province and sits on the Assembly's Agriculture, Food, Rural Affairs, Oceans and Fisheries Committee, said Friday he had introduced a bill to raise the local allocation tax rate and reform the formula used to calculate ordinary allocation grants to better reflect the realities of population-declining regions.

Under current law, the local allocation tax is funded using an amount equivalent to 19.24 percent of total domestic tax revenue for the given year. That rate has not been adjusted even once since it was set in 2006, remaining frozen for the past two decades.

Critics have long argued that the fixed rate makes it nearly impossible to address the severe fiscal strain facing local governments, even as welfare demands expand, the threat of regional depopulation deepens and administrative needs grow more complex.

The current method for calculating the standard fiscal demand under the ordinary allocation tax also relies on outdated, one-dimensional criteria — such as island or remote-area development — and fails to meaningfully address population collapse, now the most serious structural challenge confronting local communities.

The proposed amendment would raise the share of domestic tax revenue allocated to the local allocation tax fund by 2 percentage points, laying the groundwork for a stronger local fiscal base.

The bill also adds new adjustment items to the standard fiscal demand calculation for the ordinary allocation tax. These cover cases where population-declining areas need funding for residential environment improvements and efforts to attract new residents, and cases where a local government's fiscal self-reliance falls below a threshold set by presidential decree, leaving it unable to provide essential administrative services from its own revenue alone. The changes are designed to channel a greater share of allocation tax funds to areas with the most pressing needs.

"Local governments have been suffering a double burden — worsening depopulation and fiscal exhaustion — caused by an allocation tax rate that has stood still for 20 years," Yoon said. "I hope this amendment passes swiftly, so that local governments can build a stable fiscal foundation, actively pursue policies to improve living conditions and attract new residents, and overcome the crisis of regional depopulation."