[Secret Budget Negotiations] ① Lowered Jongbuse Tax... But Taxes Remain the Same?

Corporate Tax Rate Cut by 1%p from Next Year
National Assembly Budget Amendment Keeps Next Year's Tax Revenue Unchanged
Ministry of Economy and Finance: "Could Not Amend Due to Delayed Budget Approval"

Editor's NoteThe budget bill for next year barely passed the National Assembly, exceeding the legal deadline by three weeks. Now that the budget has been processed to avoid a provisional budget crisis, does that mean there are no more issues? This year's budget review was a clash between the government and ruling party, who have the authority to approve increases, and the opposition party holding the majority of seats. Throughout this process, fundamental problems with the National Assembly's budget review system were revealed all at once. Although the budget was barely passed, it cannot be overlooked because this year's issues may recur in next year's budget. Over three parts, we will shed light on the problems in the National Assembly's budget review and seek solutions.

[Asia Economy Reporter Naju-seok, Sejong=Reporter Lee Jun-hyung] "That can't be. Wasn't it misprinted?"

On the 24th, Kim Kwang-mook, visiting professor at Seoul National University Graduate School of Public Administration, who saw part of the revised budget bill for next year passed by the National Assembly plenary session, expressed disbelief when a reporter explained that despite tax law revisions, the tax revenue forecast for next year was the same in both the government's proposal and the National Assembly's revision. For Professor Kim, who served as chief expert for the National Assembly's Budget and Accounts Special Committee and the Planning and Finance Committee, it was an unexpected situation that the revenue forecast for next year's budget was identical. A National Assembly official familiar with budgets also said, "This is nonsense."

What happened?

In fact, among the total revenue items in next year's budget, all national tax revenues such as income tax, corporate tax, and inheritance tax are the same in both the government's submitted proposal and the National Assembly's approved tax revenue. When the government submitted the budget on September 2 this year, it projected collecting 131.8632 trillion KRW from income tax, 104.9969 trillion KRW from corporate tax, totaling 400.457 trillion KRW in taxes to the National Assembly. This included a forecast of 5.7133 trillion KRW in comprehensive real estate tax revenue. The tax revenue forecast passed by the National Assembly is exactly the same as the government's original proposal, with no increases or decreases.

The problem is that the tax laws, which were the basis for these tax revenues, were changed along with this year's budget. For example, regarding corporate tax, the government and ruling party initially proposed lowering the current top rate of 25% (for taxable income exceeding 300 billion KRW) by 3 percentage points, but ultimately agreed to reduce it by 1 percentage point each. This fundamentally changed the premise of corporate tax revenue.

In the case of the comprehensive real estate tax, the basic deduction amount was raised from 600 million KRW to 900 million KRW (for single-home owners, from 1.1 billion KRW to 1.2 billion KRW), and for two-home owners, heavy taxation was abolished regardless of whether the property was in a regulated area, applying the basic tax rate instead. Only owners of three or more homes are subject to heavy taxation on taxable amounts exceeding 1.2 billion KRW, with the maximum tax rate set at 5.0%. According to this, comprehensive real estate tax revenue should have significantly decreased, but the budget did not reflect any of these changes.

In past budgets, changes in tax laws and tax revenue were reflected in the budget. For example, in this year's (2022) budget, national tax revenue increased by 4.7349 trillion KRW during the National Assembly review process.

Moreover, this year was also a heated year politically due to tax revenue forecasting issues. There was controversy over the occurrence of excess tax revenue?53 trillion KRW this year and 61 trillion KRW last year?meaning more taxes were collected than the government expected. The Board of Audit and Inspection even conducted an audit on the Ministry of Economy and Finance regarding the "operation status of revenue budget estimates" because of this.

At such a critical time for tax revenue forecasting, next year's tax revenue was not even properly reflected in the budget. Lee Sang-min, senior researcher at the National Fiscal Research Institute, criticized, "Despite the social problem caused by this year's large excess tax revenue and the Ministry of Economy and Finance's apology, they are still recklessly forecasting national tax revenue."

[Image source=Yonhap News]

The Ministry of Economy and Finance attributed this to the delay in budget agreement at the National Assembly. A ministry official told this publication, "Last year, the budget passed without delay like this year, so there was time to reflect national tax revenue, but this year, because the budget processing was delayed, if we revised the national tax revenue, it would cause too much delay, so we couldn't reflect it." The official added, "If we revise national tax revenue, the grants and all sub-items must also be revised, which takes time."

In fact, the budget was finally settled on the 22nd through negotiations among the National Assembly Speaker, floor leaders of the ruling and opposition parties, and Deputy Prime Minister for Economy Choo Kyung-ho. Since the tax law and budget were settled together, the Ministry of Economy and Finance and others began coefficient adjustment work for budget processing. The plenary session was tentatively scheduled for 6 p.m. on the 23rd (actually processed in the early morning of the 24th), so the detailed budget work was done in a rush, and the revenue part was skipped due to lack of time.

Additionally, the Ministry of Economy and Finance argued that the overall tax revenue difference was not significant. The ministry explained to Representative Jang Hye-young of the Justice Party that "the tax revenue change was only about 80 billion KRW, so it was reflected without revision." However, according to this explanation, if national tax revenue changes, grants and other related items should also change, but these parts were not reflected, which remains a problem.

What did the National Assembly do?

The National Assembly Budget and Accounts Special Committee, which has been responsible for the practical work of drafting the budget, refused to comment on the tax revenue issue in this revised budget. An official said, "Since the revised budget was not passed through the Budget and Accounts Committee, there is no official position to present."

Ultimately, next year's budget was processed amid last-minute negotiations without properly reviewing tax revenue. In fact, among politicians and budget experts, concerns had already been raised about the method of drafting next year's budget based on tax revenue forecasts made in July and August. The budget was drafted without reflecting changes in the economic situation. However, this year, the problem went beyond that, with the total revenue budget prepared without reflecting even the tax law revisions.

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