Government Estimates Annual National Tax Revenue at 50.5 Trillion Won... Ruling Party Likely to Accelerate 'Populist Spending'

[Sejong=Asia Economy Reporter Son Seon-hee] As the government raised its annual national tax revenue forecast by more than 50 trillion won in two rounds this year, the political sphere's 'populist spending' has accelerated. The Ministry of Economy and Finance (MOEF) is already under pressure ahead of budget reviews due to criticism over excessive tax revenue forecast errors and unnecessary reversals during the revision process. However, despite tax revenues exceeding expectations, the ministry maintains its stance to uphold fiscal principles as the fiscal situation remains in a serious deficit.

Within the ruling party, there is a sentiment that the MOEF's 'obstacle' to securing funds for presidential candidate Lee Jae-myung's disaster relief payments has effectively disappeared. On the morning of the 17th, Song Young-gil, leader of the Democratic Party of Korea, said at the party's election countermeasures committee general headquarters meeting at the National Assembly, "The prospect of excess tax revenue reaching 50 trillion won is shocking," adding, "A clear review of the MOEF's passive attitude is necessary." He pressured the MOEF over excess tax revenues for two consecutive days.

The atmosphere sharply changed after the MOEF unexpectedly released a press statement the previous afternoon, stating, "At this point, the forecast is about 19 trillion won compared to the supplementary budget." The day before, the MOEF announced in its fiscal trend report that cumulative national tax revenue for the third quarter reached 279.7 trillion won, with a progress rate of 87.3%. When the ruling party floor leader mentioned the excess tax revenue as 19 trillion won and even referred to a state audit, the debate over excess tax revenue reignited. Until then, the MOEF had repeatedly stated the excess tax revenue was in the "10 trillion won range," but could no longer hold out and disclosed the figure as 19 trillion won. This differed from Deputy Prime Minister and MOEF Minister Hong Nam-ki's response during last week's National Assembly Budget and Accounts Committee, where he said, "It seems to be a little over 10 trillion won" when asked about excess tax revenue.

The MOEF's tax revenue forecast differed significantly from that made in September last year when the annual budget was prepared. At that time, the MOEF estimated annual national tax revenue to be 282.7425 trillion won. However, due to better-than-expected asset conditions in the first half of the year, tax revenue exceeded expectations, and when preparing the second supplementary budget in July, the forecast was raised by about 31.5 trillion won to 314.2816 trillion won. This was used as funding for the 33 trillion won second supplementary budget. Ultimately, after two revisions of the tax revenue forecast this year, the government expects the final national tax revenue by year-end to reach 333.3 trillion won. This represents a 19 trillion won difference from the second supplementary budget forecast and about a 50.5 trillion won discrepancy from last year's original budget forecast.

Despite being cornered, the MOEF dismissed claims of "intentional underestimation of tax revenue" as impossible. In fact, in June before preparing the second supplementary budget, the Korea Institute of Public Finance forecasted annual tax revenue at 315.7 trillion won, and the National Assembly Budget Office projected 318.2 trillion won (as of July).

A former official familiar with the tax revenue forecasting process said, "Fiscal authorities tend to be conservative in tax revenue forecasts because having a surplus is better than a shortfall," adding, "Especially in Korea, where volatile tax items like capital gains tax and corporate tax exist, forecasting itself is difficult." However, he emphasized, "Excess tax revenue means more than initially forecasted, not that the fiscal balance is in surplus." In other words, it is difficult to immediately use excess tax revenue as cash support funds as the ruling party claims.

The MOEF responded that considering the deficit size, it cannot neglect its role as the fiscal steward. As of September, the managed fiscal balance still shows a deficit of 74.7 trillion won. As of last month, national debt (central government basis) reached 936.5 trillion won, posing a threat to national finances ahead of the interest rate hike period.

The MOEF stated, "Additional excess tax revenue will be used as much as possible this year for tailored support measures for small business owners' loss compensation and sectors not covered by loss compensation, and the remainder will be carried over as next year's surplus according to the National Finance Act." This indirectly expressed that there is no capacity to use the funds as cash support as the ruling party suggests.

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