[Viewpoint] The Hidden Truths Behind the 'Tax Revenue Revision'

This year’s national tax revenue is projected by the government’s revised estimate to be only 341.4 trillion won, which is 59.1 trillion won (14.8%) less than the initially expected 400.05 trillion won. The tax revenue error rate reaches 17.3%, the largest deficit recorded in any year. The government has decided to cover the shortfall using funds such as the Foreign Exchange Equalization Fund. There are several points that need to be addressed through this revised estimate.

First, the tax revenue error rate. Not only has the largest-ever “tax revenue shortfall” been recorded, but the tax revenue forecasts have also been significantly off for three consecutive years. In 2021 and last year, 6.13 trillion won and 5.26 trillion won more taxes were collected, respectively. The error rates were 17.9% and 13.3%. The Ministry of Economy and Finance, responsible for managing the country’s finances, has suffered a serious blow to its credibility.

The government explains that the tax revenue errors in recent years were due to significant fluctuations in economic trends caused by COVID-19 and other factors. Looking at the average tax revenue error rates over the past three years up to last year, countries such as the United States (8.9%), Japan (9.0%), Canada (10.6%), and the United Kingdom (12.7%) show similar levels to South Korea (11.1%). Even considering the difficulties in economic forecasting during the pandemic and endemic phases, the Ministry of Economy and Finance bears responsibility for not providing more detailed and accurate forecasts.

It is even more important to face the essence of the tax revenue revision. The background of the tax shortfall lies in poor corporate performance and a downturn in the asset market. Major tax categories are expected to decline sharply: income tax (revised forecast 114.2 trillion won) down 13.4%, corporate tax (79.6 trillion won) down 24.2%, and value-added tax (73.9 trillion won) down 11.2%. In the real estate market, it is time for an adjustment to remove the bubble. Tax support and regulatory reforms are also urgently needed to improve corporate performance. The effect of reducing corporate tax and comprehensive real estate tax amounts to only 1.8 trillion won this year. The claim that “tax revenue shortfall is due to tax cuts for the wealthy” is close to speculation.

It is also noteworthy that the tax shortfall is being covered by resources such as funds rather than by issuing government bonds. In particular, using the Foreign Exchange Equalization Fund, which amounts to 24 trillion won, through early repayment shows a determination not to issue government bonds despite the burden of defending the exchange rate. By the end of last month, 131.1 trillion won worth of treasury bonds had been issued, filling 78.1% of the annual total issuance limit of 167.8 trillion won.

National debt (D1) was 443.1 trillion won at the end of 2012, but after 10 years, it increased 2.4 times to 1,067.7 trillion won at the end of last year. Most of this amount was raised through government bond issuance. The ratio of national debt to gross domestic product (GDP) rose from 30.8% to 49.4% during the same period. Especially during the Moon Jae-in administration, national debt surged from 626.9 trillion won (end of 2016) to 970.7 trillion won (end of 2021). The ratio to GDP also jumped more than 10 percentage points from 36% to 46.7%.

The opposition party frequently calls for supplementary budgets. Supplementary budgets are a kind of steroid injection. They are effective temporarily but lose their effect if chronic. Overuse can ruin the national economy.

It is unlikely that the Yoon Suk-yeol administration is not spending money because it does not know how to spend it lavishly. The concern is that worsening fiscal soundness will increase the burden on future generations. Regardless of party lines, fiscal resources should not be treated like petty cash. Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho, whom I met recently, said this: “Don’t just insist on supplementary budgets; how many people would agree if you say ‘let’s borrow money’ to fund supplementary budgets?”

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