Day care support raised but mayors unsatisfied

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Day care support raised but mayors unsatisfied

In an effort to keep floundering free day care programs afloat, the government announced yesterday that it would increase its share of funding for the program by 10 percentage points to help cash-strapped local governments. Currently, the central government pays 20 percent of the cost of day care programs run by the Seoul city government and 50 percent of the costs for other provincial and city governments. Central government support would rise to 30 percent for Seoul and 60 percent for all other government units.

The Ministry of Strategy and Finance said it would divert more revenue from Korea’s value-added tax to local government coffers to support the increased spending. At present, 5 percent of VAT revenue goes to cities and provinces; by 2015, the figure will rise to 11 percent.

Korea’s local governments have fallen on hard fiscal times recently, even as they have been asked to increase welfare spending under President Park Geun-hye’s administration. To help stimulate the housing market, the administration has also lowered the real-estate acquisition tax, which has further hit local government tax collections.

“The measures will provide local authorities with an additional 5 trillion won ($4.64 billion) per year,” Finance Minister Hyun Oh-seok said at a joint meeting of officials from his and the public administration and welfare ministries.

“The changes will recoup losses caused by the tax reforms and will give more autonomy to local governments in financial management,” Hyun said.

The central government plans to use reserve funds of 1.2 trillion won for additional financing next year.

Local governments have been pushing hard for more central government support for day care, and most of the reaction to the announcement was negative. The Governors Association of Korea said yesterday that they wanted the central government to raise its share of the total bill by 20 percentage points, not 10.

“We urge the central government to increase financial support for local governments,” the association said in a statement. “The National Assembly approved the free day care programs without consulting local authorities. Local governments will do whatever it takes to get a better funding plan.”

Park Won-soon, Seoul’s mayor, had asked for central government support worth 40 percent of the social programs’ cost when his city issued 200 billion won’s worth of municipal bonds earlier this month.

“Even if the central government increased funding by 10 percentage points, Seoul city still needs to secure 326 billion won for the day care program next year,” said Jeong Hyo-seong, a director at the city’s Planning and Coordination Division. “The central government’s plan is simply not enough.”

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