Hong Nam-ki: "Tax revenue discrepancy was excessive... We will self-assess the accuracy of projections as 'pass or fail'"

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, Explains to Reporters on the 17th

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, is answering reporters' questions at a press briefing held at the Government Complex Sejong on the afternoon of the 17th.

[Sejong=Asia Economy Reporter Kim Hyunjung] Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, said on the 17th regarding last year's record-high tax revenue forecast error, "I take the excessive error seriously," and announced that an internal standard will be established to self-evaluate the accuracy of forecasts by categorizing them as Pass or Fail. However, he added that the purpose is not to impose a separate penalty when the forecast error exceeds the standard point, but rather to view it as a process of identifying the causes and countermeasures of the forecast error.

Deputy Prime Minister Hong stated this during a meeting with reporters at the Government Complex Sejong in the afternoon, saying, "I believe fundamental institutional changes are necessary." Regarding the 60 trillion won error in last year's tax revenue forecast process, he diagnosed, "There may be various factors such as the appropriateness of the tax revenue forecasting model, but also the personnel management of the Tax Policy Office, decision-making structure, and recognition and response to tax revenue errors are causes."

He also announced plans to establish a Tax Deliberation Committee chaired by the head of the Tax Policy Office to make decision-making more in-depth and rational. Similar to how the Budget Office has a Budget Deliberation Committee, this committee will include the head of the Tax Policy Office and directors of divisions and sections to review tax revenue forecasts by tax item and tax reform by tax type, forming a deliberation structure for decision-making.

He explained, "Although decisions have been made based on expertise so far, I have instructed to consider establishing a Tax Deliberation Committee comparable to the Budget Deliberation Committee to rationally gather more opinions, and I believe it will be introduced. The divisions and departments responsible for corporate tax revenue, value-added tax revenue, and income tax revenue will make primary judgments, which will then be reviewed by the Tax Deliberation Committee including the head of the Tax Policy Office, directors, and key section chiefs for decision-making."

Along with this, the Tax Policy Office plans to introduce a Pass-Fail system that self-evaluates ▲accuracy of tax revenue forecasts and ▲fairness in tax reform and operation by distinguishing quantitative and qualitative indicators. First, quantitative allowable standards for tax revenue forecasts will be preset to minimize errors, and if errors exceeding the standards occur through the introduction of tax revenue forecast regression models and quantitative measurements, a task force (TF) will be activated to identify causes and devise countermeasures. For example, it will judge whether the regression model of actual and forecasted tax revenue over 10 years falls within the allowable error range, and if it exceeds the baseline, the TF will be activated to find out why the error occurred and prepare measures to supplement it.

Qualitatively, the annual tax operation and tax reform contents will be evaluated on a five-level scale from A to E based on how much they satisfy tax fairness, with grades A and B considered Pass, and grades C to E considered Fail. If a Fail grade is given, it is explained that more caution and efforts to improve will be made when operating taxes and changing tax items the following year.

However, Deputy Prime Minister Hong cautioned against interpreting the plan announced that day as disciplinary action or organizational reform targeting specific departments. He emphasized, "This system is not intended to impose special penalties," and added, "I do not deny that the minister bears overall responsibility, and I believe it is our duty to prepare and implement measures to minimize tax revenue errors from now on."

He also expressed willingness for personnel exchanges with other departments beyond the Tax Policy Office. He said, "While expertise of the Tax Policy Office personnel is important, diversity and communication are also crucial, so we will lower barriers to personnel recruitment and conduct personnel exchanges with other departments." Regarding future volatility in tax revenue forecasts, he only responded, "Although the first supplementary budget has been made this time, if a new government comes in, there may be movements to change the budget in a different form after May," adding, "The Omicron quarantine situation and the direction and speed of economic recovery must be taken into account."

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