The Ministry of Strategy and Finance held the 2013 council of local governments on June 13 to listen to voices from local governments. More than 200 local government officials in charge of budgets and projects participated in the meeting to discuss with the central government budget officials.
The government held the council to more effectively communicate with local governments and narrow gaps between central government and local government policies.
In the first session of the two session meeting, the central government explained the Campaign Pledge Funding Plan in detail along with subsequent fiscal management plans. The central government also explained principles behind fulfilling province-related campaign pledges and discussed the issue with the local government participants.
In the second session, the local government participants had opportunities to meet with central government budget officials one-on-one and offer suggestions regarding the central government’s projects related to local governments.
Following is the excerpt from the keynote speech of the central government’s Deputy Minister for Budget:
The Council of Local Governments is an opportunity to exchange thoughts between the central and local governments regarding the current fiscal issues. In addition, the council provides the central government with opportunities to listen to the hardships local governments face and local governments with opportunities to understand the policies of the central governments.
First of all, we have to share the meaning of the Campaign Pledge Funding Plan. The Campaign Pledge Funding Plan, the first of its kind in history, is to keep promises with the Korean people, and will be a basis for a responsible and credible government. Annual budgets and fiscal management plans will be made on the basis of the Campaign Pledge Funding Plan.
Misunderstandings
There are some misunderstandings regarding the central government fiscal policies. First, adjustments in SOC investments are intended to reduce over-expanded SOC investment: The previous government’s four river restoration project and other stimulus packages to overcome the global economic crisis led SOC investments to increase to 25 trillion won annually. The normal level of SOC investment had been between 18 trillion won and 21 trillion won before the crisis arose. The central government will promote overseas construction investment, investment in culture, education and R&D, and private investment in public projects, in order to smooth the adjustment.
Second, some misunderstand the meaning of agricultural investment adjustment in the Campaign Pledge Funding Plan. There will be adjustments for over-expanded investments. However, the government will persistently increase income subsidies and natural disaster insurance in the agricultural and fishery industries.
The third misunderstanding is about how to fulfill province-related campaign pledges. The government will actively carry out both existing and new projects according to appropriate procedures. Action plans to fulfill province-related campaign pledges will be prepared this month in cooperation with local governments.
Issues Shared by Both the Central Government and the Local Governments
The government’s fiscal issues related to local governments include daycare support, province-related campaign pledges and local government debt. These can be addressed when we change the way we look at the issues. If local governments vie for central government subsidies and continue to increase budgets related to the subsidies, then that will hurt the central government’s fiscal flexibility. This will produce a vicious cycle of local governments demanding more, central government’s fiscal condition being hurt and local governments requiring an increase of central government subsidies. If local governments try to realize decentralization and take more fiscal responsibility while cooperating with the central government, this will change the vicious cycle to a virtuous one.
Welfare is the responsibility of both the central government and local governments. To achieve the most from welfare investment, the central government should be in charge of designing plausible welfare systems and the local governments should be in charge of efficient delivery. It is time for local governments to have serious interest in social investment.
The central government and local governments should work closely together in terms of fiscal management. Local governments’ mid-term fiscal plans and the central government’s fiscal management plan should be closely connected, and this will help build a strategic framework to most efficiently use national fiscal resources.
Challenges
The central government has to keep in mind economic situations and fiscal soundness when drawing up supplementary budgets and carrying out the Campaign Pledge Funding Plan. The local governments have to actively participate in the central government’s efforts by adjusting local tax breaks, removing prodigal spending and efficiently spending budgets.
The central government hopes that the Council of Local Governments will be a place for communication and thought-sharing between the central government and local governments. Today’s suggestions and opinions will be valuably utilized when the 2014 budget proposals are drawn up. Next week, the central government budget officials will visit local governments to listen to and reflect suggestions and opinions in detail from local governments.
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