The impact of unprecedented tax revenue collapse on the elderly

“It’s already challenging, and I’m unsure what to do if the budget is further reduced.”

A district mayor in Seoul expressed concern about increasingly difficult living conditions in essential local governments. As the government adopts austerity measures in response to an unprecedented collapse in tax revenue, unexpected budget cuts are occurring rapidly in various fields.

The narrative the mayor shared unfolds as follows: In Seoul’s 25 autonomous districts, agents are deployed from the city-affiliated facility corporation responsible for impounding vehicles with unpaid automobile taxes. These agents identify non-compliant vehicles and confiscate license plates. Newly recruited agents receive an annual salary of approximately 30 million won, and Seoul has covered the labor costs. However, recently, even when positions open up due to retirements or contract expirations, the Seoul Metropolitan Government opts not to fill them. The workforce dedicated to vehicle impoundment in the 25 districts, once numbering 100, has dwindled to around 30. While the city of Seoul contends that there is insufficient work to warrant additional hires, the autonomous districts are using their funds to recruit additional personnel. The district mayor said, “The city covers the automobile tax, but it seems the burden is being shifted to the districts. Cases like these have become commonplace since the government transitioned to austerity mode.”

When the government revealed a staggering 53 trillion won tax revenue shortfall and declared a reduction of approximately 23 trillion won in grant taxes to local governments, a sense of panic has swept through the local administrative bodies. In response, they are resorting to desperate measures, including downsizing existing operations and shelving new business initiatives. An increasing number of local governments are even incurring debt to sustain essential projects such as welfare programs.

Particularly, small-sized local governments with limited financial autonomy are grappling with a tsunami of tax revenue collapse. A notable instance is the contentious issue of increased allowances for village and bank managers, which has drawn significant complaints from local authorities. The Ministry of Public Administration and Security has proposed raising the upper limit on allowances for these managers, who play an expanded role in safety management and identifying welfare blind spots, from the current 300,000 won per month to 400,000 won from next year. However, local governments such as district offices will shoulder the financial burden. “It’s a scenario where the central government extends a favor, and the local government bears the burden,” County Governor B from the Chungcheong region remarked with a wry smile. “If we don’t increase allowances in other regions, we are compelled to do so due to concerns about backlash from village heads and bank leaders who wield considerable influence over local votes.”

Due to financial constraints, many local governments hesitate to undertake new public offering projects, even with government-provided budget support.

A prominent illustration is the Companion Restaurant project, designed to supply meals to 500 low-income seniors by partnering with local restaurants. While Seoul City has committed to covering 100% of the cost this year, it has proposed a plan for autonomous districts to bear 40% of the expenses starting next year. However, autonomous districts are hesitant to participate in the project, expressing concerns about the financial burden. In the aftermath of the budgetary challenges, the opportunities to provide warm meals to hundreds of hungry seniors are diminishing. “There are numerous projects that we cannot undertake even when approached,” a district mayor in Seoul commented. “The prevailing trend is to decline even seemingly sweet offers.”

The tax revenue shortfall is not merely a macroeconomic concern; its impact extends beyond the projects of central and metropolitan governments to affect even the smallest initiatives of local governments. Ultimately, it is poised to exacerbate the challenges faced by the most vulnerable in society. It is imperative for financial authorities to acknowledge that the impact of this fiscal downturn intensifies as one moves away from more affluent areas and to contemplate measures aimed at mitigating the repercussions on projects dedicated to supporting the vulnerable.