Analysis of Local Governments’ National Subsidy Programs for Social Welfare
Published on 26 February 2021
Published by Social Administrative Program Evaluation Division
The government’s fiscal expenditures on social welfare are increasing at a pace faster than its total expenditures. In particular, the increase rate of the fiscal expenditures on social welfare pursued in the form of local government subsidies is even higher. This paper examines the system and process of determining specific grants for local government related to social welfare programs. The main content and outcomes of the analysis are as follows:
First, the fiscal allocation and program coordination principles between the central and local governments are somewhat unclear. The Municipal Autonomy Act and the Local Finance Act stipulate that the country shall cover the expenses for national clerical affairs and the local government shall cover the expenses for autonomous clerical affairs. In reality, however, it is difficult to make a clear distinction between central and local government clerical affairs. Also, there is no clear principle defining the beneficiaries of programs financed by specific grants or the burden sharing of funds between the central and local governments. In addition, under the Framework Act on Social Security, the central and local governments must consult with the Minister of Health and Welfare when changing or introducing new social security programs by reviewing its relationship with existing programs. The Social Security Committee should step up to coordinate if a conclusion is not reached. However, the principle underlying the consultation and coordination process is unclear and management effectiveness is weak. Therefore, the government must come up with a principle for the central and local governments to share the financial burden related to welfare-related clerical affairs, based on which a coordination principle for an efficient division of roles may be developed and managed.
Second, from the perspective of fiscal management, the Local Financial Burden Deliberation Committee plays a minor role in determining the size of specific grants for each program. Also, the government does not provide and manage information on the medium-to-longer term corresponding local expense demand for implementing social welfare programs financed by specific grants. Therefore, consideration should be given toward strengthening the linkage between the conclusions made by the Local Financial Burden Deliberation Committee and budgeting, as well as making medium-to-long term estimations on corresponding local expenses, including them in the national fiscal management plan to be discussed at the National Assembly.
Third, the standard subsidy rates lack consistency and the differential subsidy rates fail to reflect the gap in fiscal conditions among local governments. The government has not determined any principle for setting the standard subsidy rates for each program, and those actually used for each program lack consistency. Also, the financial autonomy interval used for determining the differential subsidy rates is not an effective tool, and the subtle differences in social welfare expense index decide the differential subsidy rates. This makes it possible for the size of social welfare expenses to be determined in a way that eases the burden on local finances rather than meeting policy demands. Therefore, the government should establish a principle for applying program-specific standard subsidy rates while incorporating fiscal disparities and the gap between the program demands among local governments when determining differential subsidy rates.