AnalysisGyeonggi Province faces sustainability test as spending cuts meet resistance

Gyeonggi Province’s fiscal emergency is exposing a growing dilemma for local governments nationwide: how to meet rising spending obligations with volatile revenues when attempts to cut funding face strong resistance.

Gyeonggi Gov. Choo Mi-ae’s warning about the finances of Korea’s most populous province, followed by the restoration of child care funding after intense protests, has highlighted both the need for reform and the political obstacles to carrying it out.

Experts differ on how much weight to give funding reform and spending cuts, but agree that municipal governments must assess whether they can sustain their commitments over the long term.

The numbers illustrate the strain. According to the province, its budget this year reached 42.21 trillion won ($32 billion) after a supplementary budget. Welfare expenditure increased from about 7.01 trillion won in 2018 to 18.86 trillion won in 2026, while provincial matching contributions for centrally funded programs nearly doubled from about 1.4 trillion won to 2.7 trillion won.

The province’s consolidated fiscal balance has remained in deficit since 2022, which means spending has consistently exceeded revenue on that measure.

Meanwhile, acquisition tax revenue — which accounts for about half of the province’s tax receipts — has fallen sharply amid a slowdown in property transactions.

Lee Sang-min, a researcher at the think tank Fiscal Reform Institute, told The Korea Times that the more fundamental problem lies in how resources are shared between the central and regional governments.

“More than anything, this is a structural problem,” Lee said, calling for changes to funding arrangements to give the province more room to address local needs.

A researcher at another think tank, the Korea Institute of Local Finance, noted Gyeonggi’s growing population adds to its financial burden, as it increases the number of beneficiaries of centrally subsidized welfare programs that require local matching contributions.

But shifting more of those costs to the central government would not, by itself, ensure long-term sustainability, she said. Governments at both levels must assess the continuing costs of such programs before introducing them, rather than proceeding simply because they look affordable in the short term.

She cited cash assistance programs that were introduced or expanded since the pandemic as examples of spending whose long-term affordability should be reviewed.

As policymakers consider potential changes to the tax system, she said they should examine whether local governments nationwide can sustain the growing cost of national programs.

The difficulty of reducing benefits was illustrated by the province’s recent reversal on child care subsidies. Its second supplementary budget proposal initially excluded 2.7 billion won sought to maintain support for child care operations and staff through December. Following protests, the funding was included in the budget approved on Oct. 12.

Kim Gi-seung, a professor at Pusan National University, said such benefits become politically difficult to undo once recipients grow accustomed to them.

“Once people start receiving support, they complain and protest if it is reduced or revoked,” Kim said.

Asked whether the province could repair its finances, he said, “It is difficult, but failing to act will lead to financial ruin.”

The dilemma extends beyond Korea. In France, protests over deteriorating public services have unfolded alongside government efforts to curb spending and public debt, highlighting the politically fraught question of who should bear the cost of restoring fiscal stability.

Kim said the aging population and growing demand for welfare services would continue to push spending higher in Korea, making caution over new commitments essential.

“Spending needs to be planned very cautiously,” he said, adding that Choo deserved credit for openly acknowledging the province’s financial difficulties.

Gyeonggi Provincial Council member Choi Ji-won said strong opposition from legislators and the education sector had helped protect the child care funding this time, but could push the province to seek savings elsewhere.

“We are worried that other groups could follow suit with protests of their own,” Choi said, noting that protecting funding in one area could mean cuts elsewhere.