National Budget Deficit of 52.5 Trillion Won... Growing Concerns Over Tax Revenue Decline

As of April, the national budget deficit, which had slightly decreased to 45 trillion won, increased to 52.5 trillion won in just one month. The size of the deficit is close to the government's annual forecast, raising concerns that the tax revenue shortfall may become prolonged.

According to the Monthly Fiscal Trend report published by the Ministry of Economy and Finance on the 13th, the cumulative managed fiscal balance as of May was recorded at a deficit of 52.5 trillion won. The managed fiscal balance is the figure obtained by subtracting social security funds from the integrated fiscal balance, serving as an indicator of the overall national budget. The deficit increased by 7.1 trillion won from 45.4 trillion won in the previous month. This amount corresponds to 90.2% of the government's annual managed fiscal balance deficit forecast of 58.2 trillion won for this year.

The fundamental reason for the increase in the managed fiscal balance deficit is the continuous decline in related tax revenues due to prolonged real estate stagnation and worsening corporate performance. Among the 'three major tax items,' the decrease in corporate tax is the largest. Corporate tax is paid based on companies' operating profits from the previous year, and poor performance is leading to a shortage in tax revenue. From January to May this year, corporate tax revenue was 43.6 trillion won, down 17.3 trillion won compared to 60.9 trillion won in the same period last year. Due to the decline in real estate asset prices, income tax (-9.6 trillion won) and value-added tax (-3.8 trillion won) also decreased, resulting in national tax revenue being 36.4 trillion won less than the same period a year ago.

The problem is that the possibility of poor corporate performance in the second half of this year is increasing, leading to expectations that the interim corporate tax payment due in August will also shrink. As of the 10th of this month, the trade balance deficit was 2.2 billion dollars, returning to a deficit after turning to a surplus last month. The accumulation of worsening external conditions such as sluggish exports and the Russia-Ukraine war has led the government to lower its economic growth forecast for this year from 1.6% to 1.4%. Some voices express concern that if this deficit trend continues into the second half of the year, the managed fiscal balance deficit for this year could exceed last year's record high level (-117 trillion won).

National research institutes have also advised caution regarding fiscal spending in the second half amid the increasing fiscal deficit. The Korea Development Institute (KDI) noted that although the manufacturing sector slump, led by semiconductor exports which drove the economic downturn in the first half, is partially easing, the underwhelming effect of China's reopening of economic activities is a factor limiting economic recovery. The government already acknowledges that a large-scale tax revenue shortfall is inevitable and plans to announce the results of tax revenue re-estimation between August and September. However, there are also forecasts that the national budget could improve in the second half due to a pattern of a weak first half followed by a stronger second half. A Ministry of Economy and Finance official said, "From 2013 to 2018, the managed fiscal balance in the first quarter continued until the end of the year," adding, "The reason for the poor balance at the beginning of the year is that revenue comes in slowly and expenditures increase, but if the economic conditions improve in the second half, the balance could improve."

Meanwhile, total revenue was 256.6 trillion won, down 37 trillion won compared to the same period last year. Total expenditure was 287.4 trillion won, a decrease of 55.1 trillion won from the same period last year due to the reduction of COVID-19 projects and decreases in local allocation tax and grants. Central government debt rose by 16 trillion won from the previous month to 1,088.7 trillion won, and increased by 55.3 trillion won compared to the end of last year.

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