Changing the Use of Comprehensive Real Estate Tax

The government has decided to change its existing standard allocation of comprehensive real estate tax, which local governments have used with discretion so far, so that some of the tax revenue can be spent entirely on social welfare and education. The Ministry of Government Administration and Home Affairs announced on May 9 that it will amend the Local Subsidy Act and reflect the demand for education and social welfare into the new standard as early as next year.

With regard to this issue, Lee Chang-ho, finance and strategy director at the Ministry of Finance and Economy (MFE), said, “We are coming up with measures to allocate larger proportions of tax revenue to the local governments which spend more on welfare than others; however, we have yet to determine the exact portion.”

A senior official of the MFE explained, “We are going to adjust the standard in order to support local autonomous entities whose welfare budgets have soared due to increased welfare policy since the current government took office.” According to the MFE, the total welfare budget of local governments reached 17.283 trillion won this year, up by 7. 856 trillion won from 9.426 trillion won in 2003. However, the local governments are opposing this measure saying that that is against the original purpose of the comprehensive real estate tax.

Currently, the central government collects the tax and distributes it to local governments considering their financial condition (80%), the areas in which the tax will be used (15%) and the size of real estate ownership tax (5%). After that, the local governments are allowed to spend the tax on prior business without designation for the use of the tax from the central government.

Employees in charge of local governments’ budget said, “Because the comprehensive real estate tax is supposed to be allocated among local governments, appointing the use of the tax is against the original intention, and, if the standard changes, local governments could not easily start new businesses due to a decreased discretionary budget.

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