[비즈한국] Since taking office, President Lee Jae-myung has been staking his administration on policies aimed at balanced regional growth, including the three mega-projects such as the Honam Semiconductor Cluster, the '5+3' initiative (5 super-megaregions and 3 special self-governing provinces), and the 'Create 10 Seoul National Universities' project. Among these regional balance policies, one of President Lee's campaign pledges is the expansion of the Hometown Love Donation system, which includes raising tax deduction limits and allowing corporate donations.
Introduced in 2023, the Hometown Love Donation system has been growing rapidly, with total donations doubling in just three years. However, because the system prohibits residents from donating to their own local government, a problem of 'reverse discrimination' is emerging: as the benefits of the system—such as tax deductions—grow, the tax revenue of the municipalities where donors reside decreases.
In fact, Japan's 'Hometown Tax' (Furusato Nozei) system, which served as the model for Korea's program, has seen severe fiscal imbalances between municipalities as deduction limits were increased. Since most donors live in cities, the system has led to a noticeable decline in residential tax revenue in urban areas. Consequently, there are growing calls for a system to compensate municipalities that suffer losses in local income tax revenue as the Hometown Love Donation program expands.
The government is pushing various policies to revitalize the Hometown Love Donation system. Individuals can donate up to 20 million won annually. Previously, a 100,000 won donation was fully tax-deductible. Starting this year, however, in addition to the full deduction for the first 100,000 won, the tax deduction rate for the portion between 100,000 won and 200,000 won has been significantly increased from 16.5% to 44%. Furthermore, donors can receive 60,000 won worth of gifts, meaning that a 200,000 won donation results in a total benefit of 204,000 won (144,000 won in tax deductions plus 60,000 won in gifts).
The Hometown Love Donation system was introduced in 2023, inspired by Japan's model, and was designed to revitalize local economies and reduce fiscal gaps between regions through individual donations. Donors can contribute to any region except for the local government where they reside.
According to the Korea Institute of Public Finance, donations under the system grew from 65.1 billion won in 2023, the first year of implementation, to 87.9 billion won in 2024, and surged to 151.5 billion won in 2025—more than a twofold increase in just three years. Donations of 100,000 won or less, which are fully tax-deductible, accounted for 97% of all donations in 2023, 98% in 2024, and 98% in 2025. This indicates that full tax deductions have had a major impact on participation. With the new 204,000 won benefit for a 200,000 won donation starting this year, donation amounts are expected to rise significantly.
However, as donation volumes increase, municipal budgets may face issues. Because these donations are tax-deductible, both national income tax and local income tax revenues inevitably decline. This creates a clear divide between municipalities that see an increase in income through donations and those that suffer losses due to the resulting tax deductions.
In fact, Gyeonggi Province saw a fiscal revenue decline of 911 million won in 2023 due to tax deductions related to the Hometown Love Donation system, a figure that grew to 1.4 billion won in 2024. During the same period, Seoul's revenue loss increased from 702 million won to 1.065 billion won. Incheon's revenue loss grew from 167 million won to 268 million won. In 2024, Busan recorded a revenue loss of 179 million won, and Daegu recorded 163 million won.
While these levels are currently manageable for local governments, the Japanese case suggests that such fiscal losses could snowball in the future. In Japan, the 'Hometown Tax' amount rose from 8.14 billion yen in its first year (2008) to 10.22 billion yen three years later (2010), a slower growth rate than Korea's. However, 10 years after its introduction, the amount grew 44.9-fold to 365.32 billion yen in 2017, and it exceeded 500 billion yen in 2018. By 2023, 15 years after its inception, it surpassed 1 trillion yen at 1.1175 trillion yen—a 137.3-fold increase over 15 years.
As a result, some local governments in Japan have faced a decline in public services due to shrinking revenues, leading to growing calls in the 2020s for reform or abolition of the system. Even if one were to simply project the Japanese experience onto Korea's expanding system, it is possible that the revenue losses seen in Seoul, Gyeonggi, and Incheon could grow nearly 45-fold in 10 years and 140-fold in 15 years, eventually exceeding manageable levels.