The Largest Ever Fiscal Deficit Due to COVID-19 Impact... Tripled in One Year

Ministry of Economy and Finance, October Issue of Fiscal Trends

Fiscal deficit of 70.9 trillion won until August... Expanded by 48.5 trillion won compared to the same period last year
Corporate tax revenue fell short by 900 billion won in August alone
Central government debt nearing 800 trillion won

[Sejong=Asia Economy Reporter Joo Sang-don] The integrated fiscal balance deficit has increased to an all-time high due to the impact of the novel coronavirus infection (COVID-19). The deficit size has nearly tripled compared to last year's previous record high. Additionally, corporate tax revenue fell short by nearly 900 billion won in August alone due to a significant decrease in interim tax payments caused by poor corporate performance amid COVID-19. Central government debt is on the verge of surpassing 800 trillion won.

According to the 'October Monthly Fiscal Trend' announced by the Ministry of Economy and Finance on the 12th, the integrated fiscal balance recorded a deficit of 70.9 trillion won from January to August. The deficit expansion compared to the same period last year was 48.5 trillion won, marking the largest increase ever.

Last year, the integrated fiscal balance from January to August showed a deficit of 22.3 trillion won, which was a decrease of 38.3 trillion won compared to the 16 trillion won surplus recorded in 2018 (January to August), marking the largest decline at that time. However, this year, the deficit widened further due to the spread of COVID-19, breaking the record for the largest increase.

The managed fiscal balance, which excludes the four major social security funds including the National Pension, Teachers' Pension, Employment Insurance, and Industrial Accident Insurance from the integrated fiscal balance, is in a more serious situation. From January to August this year, the managed fiscal balance recorded a deficit of 96 trillion won, an increase of 46.5 trillion won compared to the same period last year. This is also the largest increase ever. During the same period last year, the managed fiscal balance deficit was 49.5 trillion won, which had expanded by 37.5 trillion won compared to the previous year.

This deterioration in the fiscal balance is due to expenditures for COVID-19 response increasing more than revenues. Total revenue from January to August this year was 317.8 trillion won, a decrease of 8.8 trillion won compared to the same period last year. National tax revenue, which excludes non-tax revenue and fund revenue from total revenue, was 192.5 trillion won up to August this year, down 17 trillion won from the previous year. On the other hand, total expenditure was 388.7 trillion won, an increase of 39.8 trillion won compared to the same period last year.

In particular, corporate tax revenue significantly decreased. From January to August this year, 41.8 trillion won was collected, down 14.6 trillion won from last year. In August alone, the interim corporate tax payment period, revenue fell short by 900 billion won, from 11.9 trillion won last year to 11 trillion won this year. Interim corporate tax payments must be made if the business period exceeds six months and the tax amount is over 300,000 won. At this time, the taxpayer can choose to pay half of the previous year's corporate tax or the performance of the first half of the current year. The decrease in interim payments indicates that corporate performance in the first half of this year worsened. A Ministry of Economy and Finance official explained, "Corporate performance was poor last year as well, but it worsened further this year, and the decrease in interim payments is based on this performance."

The increase in national debt slowed compared to the previous month but continues to rise. Due to the execution of the third supplementary budget, central government debt as of the end of August was 794.1 trillion won, an increase of 13.1 trillion won compared to the previous month.

Meanwhile, the government is accelerating budget execution to support and overcome COVID-19 damage. Of the 308.8 trillion won in early execution target projects managed by central ministries and public institutions this year, 233.2 trillion won was executed by August. This corresponds to 75.5% of the annual plan. The execution rate until July this year was 71.7%.

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