KLRI : KOREA LEGISLATION RESEARCH INSTITUTE

Ⅰ. Backgrounds and Purpose

▶ Demographic Change and Current Status of Concentration in Seoul Metropolitan Area

○ Population Decline and Demographic Change

-The world's population and the population in Asia are expected to continue to grow, but Korea's population is expected to continue to decline.

-Korea is the only OECD member country with a total fertility rate of less than 1, and is continuously declining in the number of births.

-As the number of births decreases, the pre adolescent population, school-aged population, youth population, and working population are expected to continue to decline.

-Therefore, the proportion of the elderly population in total population is continuously increasing. The increase in the elderly population is a global trend, but in the case of Korea, the pace is fast.

-In particular, Korea is expected to enter a super-aged society with more than 20% of the total population in 2025, and all regions except Sejong Special Self-Governing City have entered the aged society and super-aged society.

○ Concentration of Population, Economy, etc. in Seoul Metropolitan Area

-According to the regional funeral population estimates, the population is expected to decrease in all regions except Sejong Special Self-Governing City and Gyeonggi-Do Province in 2052.

-Although Seoul Metropolitan Area is only 12% of nation's land, more than 50% of the total population in Korea has lived in this area since December 2019.

- Looking at the total fertility rate by region, Seoul Metropolitan Area cannot be said to be higher than the non-metropolitan area, but the number of people moving from the non-metropolitan area to Seoul Metropolitan Area is increasing.

- In terms of economy, the gross regional domestic product of Seoul Metropolitan Area is higher than that of the non-metropolitan area, and 736 out of top 1,000 companies based on domestic sales are located in Seoul Metropolitan Area.

▶ Poor Fiscal Situation in the Depopulated Area

○ Current Status of the Designation of the Depopulated Area

- According to subparagraph 12 of Article 2 of Special Act on Local Autonomy and Decentralization, and Balanced Regional Development and paragraph 1 of Article 2 of Enforcement Decree of the same Act, the depopulated area refers to the area designated and notified by the Minister of Ministry of Public Administration and Security after deliberation and resolution of Presidential Committee for Decentralization and Balanced Development, taking into account the number of senior citizens aged 65 or older, the number of pre adolescent aged under 14 or the number of working population, the population reduction rate, the birth rate, the continuity of population reduction, movement trend of population, financial conditions, etc.

- In 2021, Ministry of Public Administration and Security designated 89 depopulated areas, and in 2022, according to attached table 1 of Standard for Distribution of Provinces Dissolution Countermeasure Fund, 18 areas were designated as areas of concern(including areas within around 20/100 of the number of depopulated areas in order of high population reduction index among city, Gun, and Gu except the depopulated areas).

○ Financial Situation in the Depopulated Areas

-The degree of financial independence of metropolitan local governments, including more than 10 depopulated areas, is very low compared to Seoul Metropolitan Area.

-According to the types of basic local governments, the degrees of financial independence of Namwon City in Jeonbuk Special Self-Governing Province, Wando Gun in Jeollanam Do, Dong Gu in Daejeon City are the lowest among the same types of local governments, which are designated as the depopulated area or the area of concern.

-Of the total 89 depopulated areas, 82 are local governments that cannot solve labor costs through local tax revenues, and 48 of them cannot solve labor costs with their own income.

-In other words, it can be seen that the depopulated area has a weak revenue base and poor financial situation compared to other regions, which is the background of national financial support for the depopulated areas.

 

Ⅱ. Main Contents

▶ Legal Basis for the Response to Provinces Dissolution

○ Constitutional Basis

- Due to the population decline and concentration in Seoul Metropolitan Area, the population of the non-metropolitan areas is continuously decreasing. and the discussion on provinces dissolution are taking place

-The purpose of responding to provinces dissolution is the same as the purpose of balanced regional development aimed at realizing a society where all regions live well by reducing the gap between regions, and the constitutional basis for balanced regional development can be understood as the constitutional basis for provinces dissolution countermeasure.

-In other words, our Constitution stipulates the state's responsibility for balanced regional development in the Preamble and the Chapter IX  Economy, which can be seen as a constitutional basis for provinces dissolution countermeasure.

- In terms of the guarantee of self-government under the Constitution, it is also required that the state actively respond to the issue of provinces dissolution. Provinces dissolution has a negative impact on the financial situation in the region, in this case, local governments may not be able to faithfully carry out the constitutional guaranteed tasks.

○ Establishment of Provinces Dissolution Countermeasure Fund under Framework Act on The Management of Local Government Funds

- The law that directly regulates provinces dissolution countermeasure fund is Framework Act on the Management of Local Government Funds.

- This Act stipulates basic matters such as the financial resources, uses, and account of provinces dissolution countermeasure, and deliberation committee of provinces dissolution countermeasure fund. With the delegation of the same Act, standards on distribution of provinces dissolution countermeasure fund regulates specific distribution standards of provinces dissolution fund and evaluation procedures for investment plans.

○ Financial Support Legislation for Depopulated Areas

- Local Autonomy Act stipulates the legal basis for the local fiscal adjustment system, and Local Finance Act stipulates the basis for the national financial support for local governments.

- Special Act on Local Autonomy and Decentralization, and Balanced Regional Development stipulates the basis for the designation of the depopulated areas, and the state's responsibility and support for balanced regional development, and Special Act on Support for Provinces with declining population stipulates that a number of exceptions and support systems for depopulated areas should be linked to the framework on depopulated areas and the investment plans for provinces dissolution countermeasure fund. 

▶ Current Status of Management of Provinces Dissolution Countermeasure Fund

○ Financial Resources and Management Entity

- Provinces Dissolution Countermeasure Fund will be operated temporarily for 10 years from 2022 to 2031, and will be funded with 1 trillion of government contribution each year.

- Provinces Dissolution Countermeasure Fund is established in the metropolitan local governments, and the management and operation of fund is carried out by the regional win-win development fund association composed of the metropolitan local governments. And this association entrusts the management and operation of the fund to Local Finance Association.

○ the Purpose of Fund and the division of account

- The purpose of Provinces Dissolution Countermeasure Fund is the financial support for the metropolitan local governments and basic local governments for the creation of related infrastructure such as provinces dissolution countermeasure.

- Accordingly, Provinces Dissolution Countermeasure Fund is divided into metropolitan support account and basic support account, and each account is 25% and 75% of the total amount of fund.

○ Standards of Distribution of Fund and Procedure

- 90% of the fund of the metropolitan account, excluding the amount invested in collective investment  organizations, will be allocated to the metropolitan local governments in charge of the depopulated area, and the remaining 10% will be allocated to the metropolitan local governments in consideration of finance and population-related situation.

- In the case of basic support account, 95% of the fund will be allocated to the depopulated areas, and the remaining 5% will be allocated to the areas of concern. The fund of basic support account is distributed differentially based on the evaluation on the investment plans by the depopulated areas and the areas of concern.

- In 2022 and 2023, the rating of the investment plans was divided into 5 stages, and in 2024, it was changed into 4 stages, and will be changed into 2 stages in 2025.

 ▶ Limits of Provinces Dissolution Countermeasure Fund and Improvements

○ Limits of Temporarily Operation and Preparation of Sustainable Financial Support System 

- Provinces Dissolution Countermeasure Fund is a state's financial support system for the depopulated areas, and has the characteristics of a local fiscal adjustment system.

- To effectively respond to provinces dissolution, each local government is promoting policies to maintain and expand the resident population, and to expand the living population. Since the effect of these policies don't appear in a short period, the transition to financial support system that can ensure the sustainability is required.

○ Need to Review the Funding of the Fund

- Through basic support account, fund is distributed in 89 depopulated areas and 18 areas of concern. In other words, 107 basic local governments out of a total of 226 basic local governments are eligible for funding.

- Although 1 trillion won in government contribution is not a small amount as a source of Provinces Dissolution Countermeasure Fund, there are many distribution targets, so in reality, the depopulated areas are not allocated sufficient fund.

- More specifically, in the evaluation of the investment plan in 2024, the lowest-rated depopulated areas and the areas of concern were allocated 6.4 billion won and 1.6 billion won, and it is necessary to review how these amounts can drive the effect of responding to population decline. Even if the net budget of depopulated areas is at least 200 billion won per year, the allocation of the fund has realistic limits.

○ Need to Abolish Differential Allocation according to Investment Plan Evaluation

- The establishment of investment plan has limits that may vary depending on the financial situation of local governments. In other words, local governments with relatively financial capacity can have an advantage in evaluating the investment plan such as establishing investment plan through consulting and services and planning larger project including self-funding.

- Differential allocation according to investment plan evaluation is not different from the support system through the public offering method before the introduction of Provinces Dissolution Countermeasure Fund, and there is a limit that the competition between local governments can be overheated.

- Therefore, it is necessary to review how to allocate fund according to the severity of the population decline crisis, not the differential allocation according to the investment plan evaluation. At the same time, it is also necessary to review whether the current number of the depopulated areas and the areas of concern is adequate.

○ Need to Regulate Provinces Dissolution Countermeasure Fund through Special Act on Support for Depopulated Areas

- The purpose of Framework Act on the Management of Local Government Funds is to regulate basic matters concerning the management and operation of fund established in local governments, so it is not appropriate to regulate Provinces Dissolution Countermeasure Fund, which is individual and specific fund, through the same Act.

- In particular, since Special Act on Support for Depopulated Areas is enacted and enforced, to ensure the consistency of the legal system and the regulatory system related to support for depopulated areas, it is appropriate to regulate Provinces Dissolution Countermeasure Fund through Special Act on Support for Depopulated Areas.

○ Direction for the Reestablishment of Financial Support System for Depopulated Areas

- Under the current law, financial support system for depopulated areas includes Provinces Dissolution Countermeasure Fund, as well as Local Grant Tax, and Special Account for Balanced Regional Development.

- In the case of Local Grant Tax(ordinary grant tax), depopulated areas are considered in the calculation of the standard financial demand, and the contents of the project supported through the regional autonomous account for balanced regional development special account can be said to be similar to the projects promoted by depopulated areas through Provinces Dissolution Countermeasure Fund.

- The fact that there are many financial support systems for depopulated areas cannot be pointed out as a problem in itself, but operating a number of systems with similar characteristics can cause the inefficiency in state's finances and the confusion in terms of local governments.

- Therefore, it is necessary to discuss the restructuring of the financial support systems for depopulated areas. And these discussions should focus on the establishment of systems that can complement the limits mentioned above and ensure sustainability.

   

Ⅲ. Expects

▶ Proposing a Constitutional Basis for Provinces Dissolution Countermeasure

▶ Proposing Improvements of Provinces Dissolution Countermeasure Fund

▶ Proposing Improvements of Legislations related to Provinces Dissolution Countermeasure Fund

▶ Proposing the Direction of Reestablishment of Financial Support System for Depopulated Area