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Provinces Reeling From Lower Tax Revenue, Regulations

Posted February. 12, 2009 07:48,   


Provincial governments are suffering from a budget shortage since the economic crisis has cut their tax revenue, and have received neither government subsidies nor allocation taxes.

Moreover, they even have difficulty executing their budgets because of mounting regulations.

○ Lack of money

Incheon has almost used up its budget since it spent its funds two months earlier than other cities or provinces.

The country’s second-largest port city plans to spend 8.1 trillion won (5.8 billion U.S. dollars) for early execution of its budget in the first half. Of the amount, 1.73 trillion won (1.24 billion dollars) had been spent as of Monday.

As the government will place lots of construction orders starting this month, provincial governments are likely to face bigger financial difficulty. The contracting economy will result in the halving of tax revenue from sources such as acquisition and registration taxes, and a drastic drop in financial support from the central government.

Daejeon will spend 1.46 trillion won (one billion dollars) early, or 60 percent of its annual budget of 2.44 trillion won (1.74 billion dollars). When state-run companies and autonomous districts are included, the budget to be executed early amounts to 2.7 trillion won (1.93 billion dollars). Of the budget, 570 billion won (408 million dollars) will come from the central government.

Provincial governments, however, have received a mere 13 percent of their allocated funds from the central government as of the end of last month.

Gangwon Province is no different. It usually has 400 billion won (286 million dollars) in available funds in February. This year, however, the amount has fallen to under one billion won (716,846 dollars).

The province received an urgent loan of 50 billion won (35.8 million dollars) from financial institutions.

If Gangwon falls short of budget, it has to borrow more money.

A Gangwon official said, “Government subsidies and provincial tax allocations account for 75 percent of our budget. Our revenue accounts for just 25 percent. For earlier execution of budget, the central government should provide subsidies and provincial allocated taxes earlier than scheduled.”

○ Fettered by regulations

The city of Uijeongbu in Gyeonggi Province will build a broad administrative town in an area returned from the U.S. Army with 91.2 billion won (65.38 million dollars). The Defense Ministry, however, can transfer the land to the city only after eradicating contamination in the land. Considering the difficulty in predicting when the land will be cleared, Uijeongbu is unlikely to be able to execute the budget earlier than scheduled.

Gangseo ward in Busan plans to invest 1.4 billion won (one million dollars) to repair the coastal area in the Noksan district. The ward, however, cannot begin the project until the end of the month given its reputation as a resting place for migratory birds in winter.

Going against convention wisdom, however, Gangseo says it can begin the project anytime since migratory birds do not visit the area. In other words, the ward’s project is fettered by unnecessary requirements.

Cities or provinces holding a large share of rural areas are significantly affected by subsidies to farmers. A prime example is the rice subsidy, which has been a hot issue since last year. Such a subsidy, however, cannot boost the real economy of rural areas since it is usually distributed at the end of the year.

North Gyeongsang Province has urged the government to release the rice subsidy in the first half through law revisions, but no changes have been made.

○ More support and eased requirements needed

The central government has checked how much budget provincial governments have executed earlier than expected, while encouraging them to spend more money. Critics say, however, that many provincial governments are pressed by the central government’s unilateral policies.

Such governments have urged the central government to ease the goal of early execution. Certain experts say provincial governments are reluctant to execute their budgets early due to worries over mistakes.

In response, Gyeonggi Province has enacted instructions under which the legal responsibilities of public servants are partly relieved. If it creates additional ordinances, at least 50 days will be needed since it should be approved by the National Assembly. As a result, the province decided to create special instructions.

At the same time, the central government should urgently strengthen its financial support for cash-strapped provinces.

The interest income of North Jeolla Province is likely to decline five billion won (3.58 million dollars) this year. It raked in 15.3 billion won (10.97 million dollars) in interest income last year.

South Gyeongsang Province usually earns 30 billion won (21.5 million dollars) in interest income. This year, however, the figure will fall three billion won (2.15 million dollars), or 10 percent of last year’s due to the cancellation of time deposits or shorter savings products.

A South Gyeongsang official said, “The central government has urged provincial governments to execute 60 percent of their budgets in the first half. The goal is not much bigger than 53 percent, the average rate of early budget execution over the past three years. We face mounting difficulty since each city and county have demanded early budget allocation.”

The central government’s plan of early budget execution has been delayed, thus the general public has felt no benefit from such policies.