Session Two B: Recent Developments In Intergovernmental Relations, Korea, Meeting 2019

15th Annual Meeting of the Network on Fiscal Relations Across Levels of Government, OECD, 2-3 December 2019

Economy & Finance

Recent development of fiscal decentralization
in Korea
Hyun-A Kim
Korea Institute of Public Finance
2-3 December 2019
OECD Conference Center

CONTENTS
Background
On going development
Main issues
Future direction
01
02
03
04

01 Background
A. New government’s National agenda in 2017
Fivegoals,Twentystrategiesand100Implementingpolicies
FourthagendaingoalsandstrategiesFiscalautonomyand Balancedregionaldevelopment
OnOctober10,2018, thegovernmentaddressedtheroadmapoffiscaldecentralization
Strengthening sub-centralfiscalautonomyandaccountability 20%ofsub-centraltaxsharetototaltaxes tobe
increased to30%in2020
BalancedregionaldevelopmentandthemitigationofregionaldisparitiesFiscalequalizationgrantwillbe
rearrangedforbalanceddevelopment
Gradualreform:1ststageto2020and then,2nd stage to2022Thedevolutionofspendingpower shouldbe
implementedbyreducingtheearmarkedgrants
B. Roadmap of Fiscal Decentralization in 2018
3

01 Recent development in FD
C. First stage of FD taskforce in 2018
FiscalDecentralizationTaskforce wasestablished,butwasunabletoreachanacceptableagreementtoallagencies
andpartiesinvolved
.
4
FiscalDecentralizationTaskforcewasconfirmedonlytheincreaseinVATtaxsharing
VATTaxsharingintosub-centralgovernments:11%→ 15% in 2019 → 21% in 2020
Fordetail,comprehensivefiscaldevolutionandfundamentalchangesofintergovernmentalrelationsshouldbe
discussedin2019.

02 On going development in FD
Noagreementbetweencentralandsub-centralgovernmentaboutthescopeofthedevolutionofcentralpower
hasbeencompromisedyet.
(Lesstransfer)Forfiscalsustainability,centralgovernment(MoF)raisesthefundamentalissueaboutthemoney
compositionofequalizationsystemfrom‘verticalequalizationsystem’to‘horizontalequalizationsystem’.
(Moretransfer)Forexpansionarysub-centralfiscalspace,sub-centralgovernmentsfocusontheincreaseinVAT
taxsharingrate.
Then,fiscaldisparitieshavewidened, doweincrease‘revenuesharingpool’?
5
The challenges of the second stage of taskforce in 2019

03 Main issues
(Softbudgetproblem)Theeasiestwayofcompromisingthisdiscrepancymightbetheriseincentralgovernment’s
debtlevel
(Asymmetricpoliticalburden)Noeffectontaxautonomyandaccountabilityin sub-centralgovernments
Sincecentralgovernment stilldecidestaxbaseandrate,centralgovernmentisfullyresponsibleforpolitical
burdenofraisingtaxrate.
Sub-centralgovernments are beneficiariesofnationaltaxes.
(Regionaldisparities)ThenegativeeffectoftaxconcentrationinCapitalareaandtheexacerbationofregional
disparities.
6

03 Future direction
2nd Taskforceishavingdifficultyachievingitsmission
(Governance)Forfiscalsustainabilityandsub-centralfiscaleffort,constitutionalamendmentshouldbe discussed
first
(TaxandGrants)Notonlyjusttheincreaseinsub-centraltaxpowerandbutalsothereductionofearmarked
grantsshouldberearrangedatthesametime.
(Balanced regionaldevelopment) InordernottoconcentratemoneyinCapitalarea,aligningsub-centraltaxation
andspendingresponsibilitiesshouldbestrengthened
(Fiscalmonitor)Effectivesub-centralfiscalruleshouldbealsoenhancedaftermoretaxdevolution
7

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The 17th Annual Meeting of the Network on Fiscal Relations Across Levels of Government featured a presentation by David Rowe from the U.S. Office of Management and Budget on state and local finances during the COVID-19 recovery. Rowe discussed federal legislation passed in response to the pandemic, current vaccination rates, and tensions between levels of government regarding vaccine requirements and COVID-19 mitigation policies.

Intergovernmental relations and the covid-19 crisis: early lessons

Monetary and fiscal support from central governments successfully accelerated the economic recovery from COVID-19. While GDP growth slowed, revenues and expenditures at subnational government levels were stabilized due to central support and reliance on stable tax bases. Despite vaccination programs, COVID-19 death rates remain high, and the future outlook is uncertain as infections rise again in winter months. Central government fiscal positions are now more fragile, and inflation and potential interest rate hikes could increase debt burdens across levels of government.

Transparencia Fiscal en América Latina 2021: Informe de Progreso de la Declar...

Tax Transparency in Latin America 2021: Punta del Este Declaration Progress R...

This document summarizes progress on tax transparency and exchange of information in Latin America. It finds that while commitments to transparency have grown, with most countries signing the Punta del Este Declaration, capacity for exchange of information still varies significantly between countries. It also reports that exchange of information requests from Latin American countries have yielded over EUR 298 million in additional tax revenue from 2014 to 2020. Going forward, further technical assistance is needed to fully implement transparency standards and help countries make greater use of automatic exchange of information.

Transparence fiscale en Afrique 2021 : Rapport de progrès de l'Initiative Afr...

Tax Transparency in Africa 2021: Africa Initiative Progress Report

OECD Tax Talks #18 (4 March 2021)

As the COVID-19 crisis continues to affect people's lives and force governments to take action, the international tax agenda remains highly relevant. Work has continued throughout the crisis on the pressing issue of reaching a multilateral, consensus-based solution to the tax challenges arising from the digitalisation of the economy, and in other areas of the OECD's tax agenda. With a number of recent and upcoming developments in the OECD's international tax agenda, experts from the OECD Centre for Tax Policy and Administration gave an update on our work. Topics included: - Update on G20 - Tax and digitalisation update on Pillar One and Pillar Two - Tax policy - COVID-19 response – tax treaties and transfer pricing - BEPS implementation and tax transparency - Tax and crime Visit our website: http://oe.cd/taxtalks

Independent oversight bodies lessons from fiscal productivity and regulatory ...

This document summarizes an academic paper that discusses the rise of independent oversight bodies in fiscal policy, productivity, and regulation. It begins by noting the growing trend for governments to establish independent, non-partisan institutions to provide oversight and analysis to inform policymaking. However, some argue this replaces democracy with technocracy. The document then examines three types of independent bodies - independent fiscal institutions, independent productivity commissions, and regulatory oversight bodies. It provides examples from different countries and discusses key features like independence. In conclusion, it considers lessons learned and debates around technocratic approaches.

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