"South Korean Economic Conditions and Population Decline... Difficult to Expect Revenue Boom"

'2020~2024 National Fiscal Management Plan Discussion'

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] It is forecasted that revenue conditions will worsen further due to the economic activity contraction caused by the novel coronavirus infection (COVID-19) and the future population decline.

On the 20th, at the joint forum held by the Ministry of Economy and Finance and the Korea Institute of Public Finance on the '2020?2024 National Fiscal Management Plan,' such opinions were expressed. This forum was conducted through presentations and discussions on four topics to gather expert opinions on the medium-term fiscal management direction.

Professor Sung Myungjae of the Department of Economics at Hongik University said, "The period from 2016 to 2018 was a temporary tax revenue boom," adding, "At that time, the population increased, broadening the tax-paying base." He noted, "Since the current population growth rate and the working-age population are low, it is difficult to expect tax revenue growth factors similar to the past." According to the Statistics Korea's special future population projection 2017?2067, the population is expected to drop to 24.96 million by 2100 and to 20.82 million by 2117.

Professor Sung pointed out that it is also difficult to expect a path of economic growth recovery → price increase → movement to higher tax brackets, indicating that long-term revenue conditions are unfavorable. Earlier, the Bank of Korea also anticipated increased downward pressure on Korea's potential growth rate in its report on economic structural changes and impacts on the Korean economy after COVID-19 released on the 29th of last month.

Jung Kyucheol, head of the Economic Forecasting Office at the Korea Development Institute (KDI), said, "Economic vitality is declining due to low growth and low inflation," adding, "The low-interest-rate phenomenon can be seen as reflecting the economic situation where current income and revenue conditions are deteriorating."

Experts advised a comprehensive review of the expenditure structure, including subsidy reform and tax exemptions and reductions.

Professor Ryu Deokhyun of the Department of Economics at Chung-Ang University said, "Subsidy reform and expenditure restructuring such as tax exemptions and reductions are necessary." He pointed out, "Although issuing government bonds is temporarily unavoidable, a clear roadmap for medium- to long-term fiscal financing methods must be established and prepared." Kim Jeonghoon, director of the Fiscal Policy Research Institute, also advised, "Both the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) emphasize the automatic stabilizing function of fiscal policy in response to economic recessions. Given the increasing uncertainty of future economic conditions, it is necessary to utilize the temporary automatic mechanisms of expansionary fiscal policy."

In response, the government stated its position to actively promote drastic structural reforms in fiscal expenditures. Ahn Ilhwan, the 2nd Vice Minister of the Ministry of Economy and Finance, said, "In the medium term, the fiscal deficit, which has increased significantly in a short period during the COVID-19 crisis response, will be gradually reduced and adjusted to the normal level before the crisis, considering the economic recovery trend. To this end, efforts to drastically restructure temporarily increased projects and unnecessary expenditures must be actively promoted." He added, "We will continue efforts to strengthen taxation on undeclared income, improve tax exemption and reduction systems, expand non-tax revenue, and diversify funding sources such as revitalizing private investment."

Meanwhile, the Ministry of Economy and Finance plans to submit the 2020?2024 National Fiscal Management Plan along with the budget proposal for next year to the National Assembly by September 3.

This content was produced with the assistance of AI translation services.