Where the 19 Trillion Won Excess Tax Revenue Is Used... The Key Issue Is the Scale of National Debt Repayment

[Sejong=Asia Economy Reporter Kwon Haeyoung] Attention is focused on the use of the government's excess tax revenue. The government's policy is to allocate the remaining amount, excluding the local government grants, to support small business owners and repay national debt. However, the amount available for next year's supplementary budget will vary depending on the yet undisclosed scale of national debt repayment.

According to the Ministry of Economy and Finance on the 21st, the government plans to announce the utilization plan for 19 trillion won of excess tax revenue at the Emergency Economic Central Countermeasures Headquarters meeting chaired by Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki on the 23rd.

The government expects tax revenue to exceed the revenue forecast (314.3 trillion won) at the time of the second supplementary budget this year by 19 trillion won. This means nearly 20 trillion won of additional funds are secured beyond the tax revenue reflected in the budget.

The government cannot use the entire excess tax revenue, and approximately 40% of the excess tax revenue, 7.6 trillion won, must be allocated to local governments. According to the National Finance Act and the Local Allocation Tax Act, 19.24% of the total domestic tax revenue for the year must be allocated as local allocation tax, and 20.79% as local education finance grants to each local government. This means that additional tax revenue beyond what is reflected in this year's budget must also be settled with local governments.

Special purpose taxes originally allocated to local governments, such as the Comprehensive Real Estate Holding Tax (Jongbu-se) and the Special Tax for Rural Areas (Nongteuk-se), are fully allocated to local governments, not just 40%.

Of the remaining 11.4 trillion won, 1.4 trillion won will be used to cover the shortfall in compensation funds for small business owners' losses. The Small and Medium Venture Business Administration's Loss Compensation Deliberation Committee estimated and approved 2.4 trillion won for loss compensation payments in the third quarter of this year, but the budget secured through the second supplementary budget for small business loss compensation is only 1 trillion won, so additional funds are needed.

Additional support funds in the trillion-won range will also be invested for small business owners in sectors excluded from loss compensation, such as travel and accommodation. Specifically, plans include launching new policy loan products with interest rates in the low 1% range for small business owners excluded from loss compensation and distributing vouchers usable in those sectors. Inside and outside the government, it is expected that 1.5 to 2 trillion won of funds will be invested here.

However, the expansion of small business loss compensation, which both ruling and opposition parties unanimously advocate, will be addressed in next year's budget review and is unrelated to this year's excess tax revenue usage.

Some of the excess tax revenue in the 8 trillion won range, excluding local allocation tax settlements and small business support, will be used for national debt repayment.

The National Finance Act stipulates that when excess tax revenue occurs, "within the amount of national bonds issued in the relevant year, national bonds can be repaid first." The intention is to repay national bonds first with any surplus funds and then use or carry over the remaining funds to the next year. In other words, there is an obligation to repay national debt before allocating funds to small business owners.

Surplus funds carry over to next year's global surplus, but not all of it can be used. At least 30% of the global surplus must be contributed first to the Public Fund Repayment Fund, and at least 30% of the remaining amount must be used again for debt repayment. However, the remaining global surplus after deducting fund contributions and debt repayments can be used for supplementary budget formation. Depending on the scale of national debt repayment this time, it is possible to estimate how much the global surplus will be next year and, furthermore, how much money the new government to be established next year can use as supplementary budget funds.

The Democratic Party of Korea is discussing a supplementary budget after next year's presidential election to realize the universal disaster relief fund advocated by presidential candidate Lee Jae-myung, while the People Power Party is considering a supplementary budget after the election to fully compensate self-employed damages as advocated by presidential candidate Yoon Seok-youl. However, since President Moon Jae-in directly mentioned national debt repayment in the 2022 budget address, the scale of national debt repayment cannot be arbitrarily reduced.

Previously, the government repaid about 2 trillion won of national bonds through the second supplementary budget, and it is expected that 2 to 3 trillion won of national bonds may be repaid this time as well. Methods of national debt repayment being considered include repaying previously issued national bonds or reducing the planned issuance volume remaining this year.

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