[Inside Chodong] In the Era of Tax Revenue Shortfalls, Principles of Budget Review

Next Year's Budget Drafted Amid Tax Revenue Shortfall
A Fierce Budget Battle Is Unavoidable
A Time for Principled Budget Deliberation

"Seeing even a key ruling party lawmaker mention local projects during the Budget and Accounts Special Committee's settlement issue questioning, it’s clear that the situation is quite serious."

This is according to a source from the National Assembly’s Budget Committee. Since next year’s budget is being tightly drafted, even ruling party lawmakers who could exert influence during the government’s budget formulation stage have actively joined the fight to secure local budgets starting from the settlement review.

The government has prepared next year’s budget with total expenditures amounting to 656.9 trillion won. This is a 2.8% increase compared to this year, which is significantly lower than the usual growth rate. This year’s total expenditure growth rate was 5.1%, and under the Moon Jae-in administration, it ranged from 7% to 9%. The lower budget growth rate is partly due to the government’s stance on sound fiscal management, but the decisive factor is the shortfall in tax revenue. This year, there has already been a tax revenue shortfall (where tax collections fall short of the government’s initial estimates) of about 50 to 60 trillion won, and next year’s tax revenue is also projected to decrease significantly. In fact, total revenue is about 45 trillion won less than total expenditures, at 612.1 trillion won. Next year’s total revenue has decreased compared to this year’s 625.7 trillion won. Naturally, the overall budget must undergo a high-intensity diet, causing uproar over budget issues everywhere.

For these reasons, next year’s budget review in the National Assembly is likely to become a fierce battle. The scope of the budget war is complex and multifaceted, ranging from issues that should be handled at the level of multiple standing committees, such as research and development (R&D) budgets, to local issue projects. Moreover, with local allocation tax and local education finance grants?major sources of revenue for local governments and education offices?being cut by 15.4 trillion won compared to this year, local finances are facing even greater difficulties than the central government. Constituency lawmakers have no choice but to desperately seek funding sources amid this ‘drought’ of money for their local budgets.

Typically, the National Assembly reviews the budget by having standing committees examine the government’s budget proposal, which then serves as the basis for the National Assembly’s Budget Committee to finalize the budget through negotiations with the government. Simply put, this process involves the National Assembly first cutting the government’s budget and then increasing it again with the government’s consent to a similar level. During this process, budget priorities set by the leadership of both ruling and opposition parties are gradually incorporated. Therefore, budget review usually involves first reviewing reductions and then additions. The problem this year is that it is difficult to find projects to cut in a ‘dieted’ budget like this. It is a situation where even wringing a dry towel again is necessary.

For these reasons, this year’s budget is likely to be a decisive showdown that could determine the fate of the party. Budget reviews will require a different approach than in previous years when the country’s coffers were more abundant. American political scientist David Easton defined politics as the ‘authoritative allocation of values.’ It means deciding how to divide limited resources. Especially in times like these, budget reviews must adhere to principles. It is necessary to consider what choices are for the future and how to rationally allocate the available fiscal capacity. This is not the time for ruling and opposition parties to bicker over budget tags. For example, if it is for the greater cause of increasing R&D budgets or securing funds to respond to the climate crisis, courage and principles are urgently needed to put local issue projects aside.

Voters must also change. Lawmakers should not be evaluated solely on how much constituency budget they bring in. Budgeting that takes from one area to prop up another ultimately does not help the lives of the people. Support should be given to politicians who think about the country’s future rather than immediate constituency complaints.

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