First Half National Budget Deficit 83 Trillion Won... 40% Higher Than Forecast

Ministry of Economy and Finance Monthly Fiscal Trends August Issue
Deficit Increased by 30.5 Trillion Won in One Month
Causes: 'Deterioration of Corporate Performance' and 'Real Estate Slump'

The national budget deficit for the first half of the year approached 83 trillion won. In June alone, the deficit increased by more than 30 trillion won. This figure far exceeded the government's projected deficit forecast. It is analyzed that the deterioration in corporate earnings and the slump in the real estate market were larger than expected. Since the economic outlook for the second half of the year is also uncertain, it is unlikely that the deficit will significantly decrease going forward.

According to the Monthly Fiscal Trend report published by the Ministry of Economy and Finance on the 10th, the managed fiscal balance recorded a deficit of 83 trillion won from the beginning of this year through June. The managed fiscal balance is the integrated fiscal balance (total revenue - total expenditure) minus social security funds, showing the overall national budget status. The deficit increased by 30.5 trillion won from 52.5 trillion won at the end of May.

Typically, the managed fiscal balance deficit is largest in June and tends to gradually decrease afterward, due to major tax revenues being collected late in the second quarter. The problem is that the managed fiscal balance deficit is 24.8 trillion won (42.6%) higher than the government's initial forecast of 58.2 trillion won. Although the managed fiscal balance deficits in June of 2020 (110.5 trillion won), 2021 (79.7 trillion won), and last year (101.9 trillion won) were also large, they all fell within the forecast range.

The cause of the managed fiscal balance deficit exceeding government expectations is the shortage of corporate tax revenue due to worsening corporate earnings and the decrease in income tax caused by the real estate market slump. Corporate tax revenue collected through June was 46.7 trillion won, which is 16.8 trillion won (26.4%) less than the same period last year. Income tax during the same period was also only 57.9 trillion won, 11.6 trillion won less. The decisive factor was the reduction in capital gains tax due to decreased real estate transactions. Value-added tax (-3.4 trillion won) and comprehensive income tax (-2.4 trillion won) also had an impact.

The Ministry of Economy and Finance maintains that the managed fiscal balance deficit is not a situation to be overly concerned about. A ministry official said, “At the end of each quarter, departments encourage spending, but in June, there were no special tax items coming in, so the deficit tends to worsen significantly in June,” adding, “Value-added tax revenue comes in July, and the situation often improves toward the end of the year. If the economy improves in the second half, the situation will get better.” Regarding the deviation from the forecast, the official explained, “Since tax revenue is poor, it is an unavoidable situation.”

However, whether tax revenue will increase as expected and the managed fiscal balance deficit will improve significantly remains uncertain. The pace of economic recovery in the second half is slower than initially expected. In particular, despite China's reopening of economic activities, the economy has not revived easily, and many evaluations suggest the effects are weak. In June, exports to China amounted to $10.5 billion, which is 19.0% less than the same period last year ($12.96 billion).

Domestic and international institutions continue to lower South Korea's growth forecasts. The International Monetary Fund (IMF) lowered South Korea's growth rate from 1.5% to 1.4%. The Organisation for Economic Co-operation and Development (OECD) also adjusted it from 1.6% to 1.5%, and the Asian Development Bank (ADB) revised it from 1.5% to 1.3%.

Total expenditure recorded 351.7 trillion won, a decrease of 57.7 trillion won. Although spending increased last year due to the first supplementary budget (16.9 trillion won) and the second supplementary budget for small business loss compensation (23 trillion won), this year, COVID-19 related projects were scaled back, resulting in a significant decrease. Total revenue was 296.2 trillion won, down 38.1 trillion won from the previous year due to decreases in national taxes and non-tax revenue.

Central government debt stood at 1,083.4 trillion won, down 5.3 trillion won from the previous month. The issuance of treasury bonds in July amounted to 17.6 trillion won, bringing the cumulative total to 116.3 trillion won. This is 69.3% of the annual total issuance limit of 167.8 trillion won.

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