Chronic Fiscal Deficit... National Tax Revenue Increased by 48 Trillion Won, but Government Budget Shows 86 Trillion Won Deficit (Comprehensive)

MoF 'December Monthly Fiscal Trends'

[Asia Economy Sejong=Reporter Kwon Haeyoung] This year, up to October, the national budget recorded a deficit of 86 trillion won. Although national tax revenue increased by 48 trillion won compared to the previous year, expenditures also rose, causing the fiscal deficit to increase by nearly 19 trillion won during the same period. As the large-scale fiscal deficit, reaching 100 trillion won annually, becomes chronic, concerns are growing that without a strong shift to sound fiscal management, the speed of national debt increase will accelerate.

According to the 'Monthly Fiscal Trend (December 2022 issue)' released by the Ministry of Economy and Finance on the 15th, total revenue from January to October this year was 537.6 trillion won, an increase of 47.8 trillion won compared to the same period last year. Among this, national tax revenue was 355.6 trillion won, increasing by 48.2 trillion won in one year due to higher collections of income tax, corporate tax, and value-added tax. Non-tax revenue was 25.3 trillion won, up 1.5 trillion won from a year earlier. On the other hand, fund revenue was 156.5 trillion won, down 2 trillion won due to a decrease in asset management income.

Although government total revenue increased due to strong national tax income, the increase in expenditures was larger. Total expenditures from January to October were 580.7 trillion won, up 71.5 trillion won compared to the same period last year. Budget spending increased due to local allocation tax and grants, and responses to the COVID-19 crisis, while fund expenditures rose due to payments such as loss compensation for small business owners.

As government spending exceeded revenue, the integrated fiscal balance (total revenue minus total expenditure) showed a deficit of 43.1 trillion won. Excluding the balances of the four major social security funds from the integrated fiscal balance to show the actual state of the national budget, the management fiscal balance recorded a deficit of 86.3 trillion won. Compared to a year ago, the deficit widened by 18.7 trillion won.

The deterioration of the national budget like this is because the Moon Jae-in administration, which pursued expansionary fiscal policy throughout its term, formulated deficit budgets until the end, and the Yoon Seok-yeol administration also launched a supplementary budget worth 62 trillion won immediately after its inauguration to compensate small business owners for losses. In particular, despite a significant increase in corporate and income taxes this year, the fiscal deficit increased by 19 trillion won, which can be interpreted as the fiscal deficit becoming chronic. The management fiscal balance deficit increased from 18.5 trillion won in 2017 to 54.4 trillion won in 2019 and 90.6 trillion won in 2021. The deficit size already exceeded 50 trillion won in 2019 before the COVID-19 outbreak, and it is expected to widen to 110.8 trillion won by the end of this year.

Excessive expansionary fiscal policy ultimately led to an increase in national debt. National debt surged by 47% from 660.2 trillion won in 2017, when the Moon administration took office, to 970.7 trillion won in 2021. This year, it has already surpassed 1,000 trillion won, reaching 1,038.2 trillion won as of the end of October. This exceeds the national debt forecast (1,037.7 trillion won) announced by the government during the second supplementary budget.

The problem lies in next year. Due to the global economic recession, if South Korea's growth rate falls to the 1% range, tax revenue is expected to decrease, and fiscal conditions will worsen further. Especially if the economy cools rapidly next year, the government may prepare a supplementary budget as a countermeasure against the recession, increasing government spending even more. In this case, although not yet legislated, the fiscal rules established by the current government to maintain fiscal soundness are expected to become ineffective. Since fiscal rules allow exceptions when preparing supplementary budgets, the possibility that the government will run a large-scale fiscal deficit next year cannot be ruled out.

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