Government "Able to Handle Tax Revenue Shortfall"... Specific Solutions Remain Questionable

National Tax Revenue Shortfall of 33.9 Trillion Won from January to April
Choo Kyung-ho "Tax Revenue Re-estimation Results to be Announced as Early as August"
Experts "Shortfall and Available Resource Size Must Be Presented as Soon as Possible"

The tax revenue situation is worsening. In April alone this year, nearly 10 trillion won less in national taxes was collected, pushing the cumulative tax revenue shortfall to a record high of 34 trillion won. Although the government claims that it can respond using the global surplus funds and available fund reserves, it has yet to present concrete measures, raising criticism that concerns over a tax revenue shortfall are growing.

According to the Ministry of Economy and Finance on the 31st, national tax revenue in April was 46.9 trillion won, down 9.9 trillion won compared to the same month last year (56.8 trillion won). The scale of the tax shortfall has expanded again. It was -6.8 trillion won in January, -15.7 trillion won in February, and -8.3 trillion won in March, but the shortfall increased by 1.6 trillion won to 9.9 trillion won in April.

Tax Revenue Re-estimation to be Released in August-September, "Utilizing Available Resources such as Funds"

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho visited the Ministry of Economy and Finance press room at the Government Complex Sejong yesterday and is answering reporters' questions during a meeting with attending journalists.

Despite facing the worst tax revenue shortfall in history, the government maintains that it can respond. On the previous day, Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho made a surprise visit to the press room and emphasized, "Even if the tax revenue situation worsens from now, we have several options available to respond, including the remaining portion of the global surplus funds and available fund reserves." However, he did not disclose the specific scale of each resource. Instead, he explained, "If possible, we will announce the official re-estimation results to the public in August, or at the latest, early September." This was a message from the Deputy Prime Minister a day before the tax revenue performance announcement, assuring that it is possible to respond to the tax shortfall without borrowing, so there is no need to worry.

Regarding this, Professor Ahn Chang-nam of Gangnam University pointed out, "The global surplus funds and available fund reserves are far from sufficient to cover the tax shortfall," and added, "The government should present the specific scale of resources it can utilize and explain concrete measures to the public, such as 'Even so, the tax revenue is short by this much, so we will reduce fiscal expenditures by this amount.'"

Amid the worsening tax revenue situation, the Ministry of Economy and Finance has formalized the re-estimation. Tax revenue re-estimation is the process by which the Ministry adjusts the tax revenue target by reflecting changed economic indicators to prevent tax revenue errors. Deputy Prime Minister Choo said, "We will announce the official re-estimation results to the public in August, or at the latest, early September." Earlier this year, the Ministry held the position that it was too early to conduct a re-estimation. The expected tax revenue for this year is 400.5 trillion won, but it is expected to shrink significantly after the re-estimation.

The officially announced government response to secure tax revenue is to utilize part of the global surplus funds and various available fund reserves. The global surplus funds refer to money left unused by the government last year. The previous year's 'general account' surplus is about 6 trillion won, but after deducting local allocation tax and public fund repayment funds, approximately 2.8 trillion won remains. Although it is difficult to use freely, if combined with the 'special account' surplus of 3.1 trillion won, about 5.9 trillion won is available. The scale of available fund reserves is unknown, so it is uncertain how much can be utilized.

The most recently discussed measure is budget non-use. Budget non-use refers to the act of eliminating or carrying over the allocated budget to the next year. Deputy Prime Minister Choo said in the National Assembly, "We are not considering forced non-use at all," but there is room to utilize naturally occurring non-use. Last year, about 12.9 trillion won of budget non-use occurred, and if a similar level occurs this year, a significant portion can be used to cover the tax shortfall.

Opposition Party's Intensified Pressure for Supplementary Budget... "No Large Tax Revenue Decrease from May Onwards"

Choi Sang-mok, Chief Economic Secretary [Image source=Yonhap News]

The opposition party insists on preparing a supplementary budget, but the government draws a line. However, regarding the supplementary budget, Choi Sang-mok, Senior Secretary for Economic Affairs at the Presidential Office, seems to have left some possibility open. On the 24th, during a current affairs inquiry at the National Assembly's Steering Committee, Choi responded to a question from Hong Sung-guk of the Democratic Party of Korea, saying, "Considering various macroeconomic situations, I think it is worth discussing the supplementary budget."

Another option is to reduce temporary tax benefits, but this is difficult as it could dampen consumption that was hard-won to increase. A representative tax item is the individual consumption tax imposed on automobiles. In July 2018, the government reduced the individual consumption tax on passenger cars from 5% of the car's price to 3.5%, a 30% cut, to stimulate domestic demand. Initially introduced as a six-month temporary measure, it has been extended continuously and is in effect until the first half of this year. One more extension would negatively impact tax revenue, while expiration would hurt domestic demand.

The Ministry of Economy and Finance holds the view that tax revenue conditions will somewhat improve after the first half of the year. Jeong Jeong-hoon, Director General of Tax Policy at the Ministry, said, "The tax revenue situation is still not easy," but added, "I think there will no longer be a large decrease in tax revenue after May."

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