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🇰🇷 South Korea /Economy & Trade

South Korea’s future-response fund cuts ordinary local grants by 29.6 trillion won

From Hankyoreh · () Korean

Translated from Korean and summarized by DistantNews. Read the original for the full story.

At a glance

News Official statement New plan
  • South Korea’s 2027 budget plan creates a future-response fund and lowers ordinary local government grants from 97.2 trillion won to 67.6 trillion won under a revised calculation.
  • The government will exclude transfers to the fund from domestic tax revenue before applying the 19.24% allocation rate for ordinary and special grants.
  • Researchers estimate the largest potential reductions for North Gyeongsang, South Jeolla, South Gyeongsang and Gangwon provinces, while the government says much of the new fund will still go to local areas.

A new South Korean government fund could leave local governments with 29.6 trillion won less in ordinary grants next year, despite a projected increase in domestic tax revenue. Critics say the change conflicts with the government’s stated goal of strengthening local fiscal autonomy.

The Ministry of the Interior and Safety announced a 2027 budget plan totaling 77.19 trillion won in local transfers. Ordinary and special grants, funded through 19.24% of domestic tax revenue, account for about 69.7 trillion won. Ordinary grants are set at roughly 67.6 trillion won, up 5.9 trillion won from this year’s original budget of 61.7 trillion won. That represents 9.6% growth, below the 12.8% increase in national spending, and only 2.1% above this year’s supplementary budget.

Ordinary grants cover shortfalls in the funds local governments need to provide basic administrative services. Unlike earmarked national subsidies, local governments decide how to use them. Special grants address urgent needs such as disaster recovery. Seoul, which has relatively high independent revenue, cannot receive ordinary grants.

The future-response fund means the government selects the projects and regions and spends the money directly, which is the opposite of decentralization.

— Lee Sang-minThe senior researcher criticized the fund’s structure as weakening local control over public finances.

The reduction stems from a revised formula. The government will first remove the transfer to the future-response fund from domestic tax revenue, then apply the 19.24% rate to the remainder. The change cuts the combined grant budget by about 30.5 trillion won, with ordinary grants accounting for 29.6 trillion won, or 97%.

The Korea Tax and Finance Research Institute estimated that North Gyeongsang could lose 4.7 trillion won, South Jeolla 3.8 trillion won, South Gyeongsang 3.4 trillion won and Gangwon 3.1 trillion won, assuming current allocation conditions remain unchanged. The average financial independence of local governments was 43.2% in 2025. The Ministry of Planning and Budget says it will establish the 162 trillion won fund and invest a substantial portion in local areas, but researcher Lee Sang-min argued that direct government spending could work against decentralization.

The government has not disclosed which local governments will be affected, or by how much, while reducing local grants by more than 30 trillion won.

— Lee Sang-minLee criticized the lack of information about the regional impact of the grant reduction.
About this summary

Originally published by Hankyoreh in Korean. Translated, summarized, and contextualized automatically by DistantNews, with a note on how the source frames the story. Not individually reviewed before publishing. How this works.

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