Tax Revenue Decreases While Spending Increases, National Budget Faces 98.1 Trillion Won Deficit

Government: "Proceeding as Initially Expected... Management Planned Based on the 3rd Supplementary Budget"

[Asia Economy Reporter Kwangho Lee] Due to the government's tax support policies in response to the novel coronavirus infection (COVID-19), the amount of national tax collected from January to July this year decreased by more than 20 trillion won compared to the previous year, while expenditures increased by nearly 40 trillion won. With tax revenue decreasing and expenditures surging, the size of the managed fiscal balance deficit, which reflects the government's actual financial condition, reaches 100 trillion won. Although there are concerns about fiscal deterioration, the government believes it is necessary to take a longer-term view and plans to manage the budget based on the third supplementary budget (supplementary budget) standard of -111.5 trillion won until the end of the year.

According to the "Monthly Fiscal Trend September Issue" published by the Ministry of Economy and Finance on the 8th, the integrated fiscal balance, which is total expenditure minus total revenue, recorded a deficit of 75.6 trillion won through July this year. During the same period, the managed fiscal balance deficit, which excludes various social insurances from the integrated fiscal balance, was 98.1 trillion won, an increase of 49.9 trillion won from 48.2 trillion won the previous year.

The rapid increase in the fiscal deficit size is due to total revenue decreasing while total expenditure increased due to emergency disaster relief funds and employment insurance fund payments.

Total revenue through July was 280.4 trillion won, a decrease of 13.5 trillion won compared to the previous year. This decrease in total revenue was largely influenced by national tax revenue dropping to 168.5 trillion won, down 20.8 trillion won from the previous year.

By national tax revenue type, corporate tax decreased by 13.8 trillion won compared to the previous year. This was due to a decline in operating profits caused by the economic downturn from the COVID-19 crisis.

Income tax and value-added tax also decreased by 3 trillion won and 4.5 trillion won respectively. Income tax declined due to the government's tax support through payment deferrals, and value-added tax decreased due to reduced revenue in July.

Although government revenue decreased, expenditures increased significantly. Total expenditure through July was 356 trillion won, an increase of 37.8 trillion won compared to the previous year. This was due to the execution of the third supplementary budget, which includes support for the Credit Guarantee Fund and Korea Development Bank equity investments, employment stabilization subsidies, job-seeker benefits, and expansion of the employment safety net.

Accordingly, as of the end of July, national debt stood at 781 trillion won, an increase of 16.9 trillion won compared to the previous month. Of the 308.8 trillion won in early execution management projects for central government ministries and public institutions this year, 221.3 trillion won (71.7% of the annual plan) was executed by July.

A Ministry of Economy and Finance official stated, "Due to monthly revenue characteristics such as value-added tax payments and the effect of tax support payments, total revenue (as of July) increased significantly compared to total expenditure, resulting in a fiscal surplus. Fiscal balance and national debt are proceeding according to usual trends, and will be managed based on the third supplementary budget standard until the end of the year."

As of July, total revenue was 54.4 trillion won, an increase of 6.5 trillion won compared to the same month last year. Meanwhile, total expenditure was 40.1 trillion won, an increase of 6.4 trillion won.

Based on the third supplementary budget, the government expects the managed fiscal balance deficit this year to be 111.5 trillion won, and the expected national debt to be 839.4 trillion won.

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