Local Finance under the First Constitution of Korea (1948 to 1961)
The first Constitution of Korea (1948) with its inclusion of articles on self-government (Chapter 8) enshrined local government as a key constitutional and democratic principle. But leaving fiscal policymaking to the National Budget and Accounting Act and local laws and regulations eventually led to much inconsistency and disorder in the devising and implementing of local fiscal policies, thus compelling the enactment of more consistent and effective local finance ordinances. Though the Local Government Act (LGA) was enacted to that end, its impact was short-lived since the Korean War broke out shortly after it went into effect. Moreover the military government, which later rose to power as a result of the coup
of May 16, 1961, passed the Provisional Measures Act on Local Government (PMA) that largely rendered the LGA null and void (KRILA, 1998, 393).
(1) Supervision over Local Finance
The LGA, originally enacted in 1949, required local councils to inspect the revenue and spending of their respective local governments twice each fiscal year, and local government heads to produce reports on the settlement and execution of budgets on an annual basis and submit them to their respective local councils for review and approval. Ironically, however, the enactment of the LGA did not immediately lead to the creation of local councils. The central government, already supervising local government heads, thus came to supervise and control local finance to a great extent.
It was not until the creation of the first local councils in Korea on April 6, 1952 that local governments began to oversee and control their own finances. The first local councils were given new authority with respect to decisions on budgets, service charges and fees, public dues, local taxes, cost allocation, subscription fees, labor conscription, payments in kind, and tax collection etc. not already covered in law or presidential decrees; the imposition of non-budget-related financial obligations; and the review and approval of settlement reports (Article 19, LGA, December 15, 1949). These provisions allowed local councils to exert independent control over their own finances.
(2) Revenue Structure
The revenue structure of local governments during this period, for general accounting purposes, first included fee-based revenue on local taxes and other such fees or charges, as well as 11 accounts of non-tax revenue, collected by local governments on their own. The local revenue structure also included local government allocation taxes and subsidies provided from the National Treasury and provinces (KRILA, 1998, 400).
Statistics from 1951 show that Seoul and the provinces relied on the National Treasury and on local government allocation taxes (levied by the central government) from the central government for 48 percent and 10 percent of their combined budgets, respectively, while drawing only 19 percent of their budgets from local tax revenue. Local tax revenue made up only 19 percent or so of their budgets. Cities, on the other hand, drew 28 percent of their budgets from usage fees and service charges, and 25 percent from local tax revenue, while relying on subsidies and local government allocation taxes for only 9.5 percent. Districts below the level of cities or counties, known as eup,
had a similarly independent revenue structure dependent on service charges for 27 percent of their budgets, local tax revenue for 22 percent, and local government allocation taxes and subsidies for only 11 percent. Myeon
, another type of district below the level of city or county, relied on refunds for 37 percent, local tax revenue for 19 percent, local government allocation taxes for 13 percent, and subsidies for 7 percent of their budgets (KRILA, 1998, 401).
[Table 4∙1] Changes in Local Revenue Statistics 1951~60
(Unit: KRW 1,000,000)
||Fee-based revenue (B)
||Subsidies and local government allocation taxes
||Proportion (B/A, %)
Source: Korea Research Institute for Local Administration (KRILA), 1998, 401
Note: The year 1956 has been omitted from the official fiscal history of Korea as the concept and period of the fiscal year changed. At the time of the LGA’s enactment, a fiscal year for a local government began on April 1 and ended on March 31 the next year, just as it did for the central government. The amendment of the National Finance Act (NFA) in 1954, however, changed the starting and ending dates of each fiscal year to July 1 and June 30 of the subsequent year, respectively. In June 1956, the government again amended the NFA to make each fiscal year start on January 1 and end on December 31 of the same year. In this process, the fiscal year of 1954 actually came to comprise 15 months, and the fiscal year of 1955 included 18 months, thus effectively removing 1956 as a fiscal year.
Korea Institute of Public Administration. 2008. Korean Public Administration, 1948-2008, Edited by Korea Institute of Public Administration. Pajubookcity: Bobmunsa.