The National Grant has many problems. The first point, there are some strings attached to the resources, and what is or is not subsidized and the rate of subsidy is determined soly by the national government. Although the national grant is only 20% of the amount of the total local revenue, local governments contribute almost the same amount as the national government to do a national project, therefore it may be said that 40% of the financial resources of local governments must be used for national projects and these national grant projects are among the most important projects. Thus, the local budget is decided by the national policy.
And the second point, because the national government determines what is to be the national grant project, this results in smaller amount of subsidy than actual total outgoing costs. This in turn results in deficit financing.
It may be said that this kind of centralized feature of local finance prevents the development of local selfgovernance.
The financial mechanism necessary for transference of a source of taxation is the national grant. Sharp adjustment should be made on the national grant system, allowing independent financial operation of local areas.
