"Increase Execution Rate or Raise Unused Funds... Fiscal Execution Dilemma"

More than 9 Trillion Won in Fiscal Surplus Needed
To Cover Tax Revenue Shortfall as Planned

The government's fiscal management has fallen into a dilemma. By the end of the year, unused funds (unspent money) of more than 9 trillion won must be confirmed in order to cover the tax revenue shortfall with fund surpluses, global surpluses, and unused funds instead of issuing government bonds. On the other hand, the government must execute the budget without any setbacks and minimize unused funds to slightly boost the gross domestic product (GDP) growth rate. The government plans to catch both rabbits with ‘jeongchihan’ (precise and meticulous) fiscal execution.

According to the Ministry of Economy and Finance on the 10th, excluding the local governments' share (about 23 trillion won) from the approximately 59 trillion won tax revenue shortfall, the central government needs to cover about 36 trillion won. Instead of issuing additional government bonds, the government plans to cover the shortfall with fund surpluses such as the Foreign Exchange Equalization Fund (24 trillion won), global surpluses available for the general account (2.8 trillion won), and unused funds (undecided).

The global surplus is 4 trillion won, but according to the National Finance Act, local government grants must be settled first, then at least 30% of the remaining balance must be sent to the Public Fund Repayment Fund, and at least 30% of the remaining balance after that must be used to repay national debt. Therefore, the amount available for the general account is 2.8 trillion won. The Ministry of Economy and Finance explains that global surpluses generated in special accounts can only be used as revenue for each special account, so they are not considered freely available resources to offset tax revenue shortfalls.

Because of this, a simple calculation shows that unused funds confirmed by the end of the year must be at least 9 trillion won. However, since unused funds vary each year, it is difficult to guarantee that unused funds of around 9 trillion won will occur this year. Unused funds were 7.9 trillion won last year but were 3.7 trillion won in 2021. Some have expressed concerns that the government might artificially create unused funds to respond to the tax revenue shortfall.

For the government, artificially increasing unused funds to lower the fiscal execution rate is also an undesirable situation. While more unused funds help cover the tax revenue shortfall, the government's contribution to economic growth declines simultaneously. In particular, the government's contribution to GDP growth was negative, at -0.3 percentage points in the first quarter and -0.5 percentage points in the second quarter this year. Since the government has continuously emphasized a ‘high-low’ pattern, the role of fiscal policy is crucial at this point.

In this situation, the government announced a somewhat abstract fiscal execution direction of ‘jeongchihan fiscal execution.’ On September 9, Kim Wan-seop, the 2nd Vice Minister of the Ministry of Economy and Finance, chaired a fiscal execution inspection meeting and said, “We will focus on politically designed fiscal management, such as utilizing available funds like fund surpluses and prioritizing fund allocation for relevant projects, to ensure that livelihood economy revitalization projects are executed without setbacks.” A Ministry of Economy and Finance official explained, “It means conducting fiscal management that is precisely and meticulously designed,” adding, “We plan to manage and execute the budget well, focusing on priority management projects selected at the beginning of the year.”

"Some adjustment of fund input scale possible... Monitoring resource status"

The Ministry of Economy and Finance believes that even if unused funds of about 9 trillion won are not secured, the scale of fund input can be partially adjusted. If the necessary amount of unused funds does not materialize, fiscal measures can be slightly adjusted to respond sufficiently. Another official from the Ministry said, “We said we would secure 24 trillion won from funds, but we can adjust by increasing the scale of fund input or other methods,” adding, “We can monitor the progress of resources and adjust measures accordingly.”

There is also a prospect that the tax revenue shortfall, which was derived from the re-estimation, may not reach 59 trillion won. There is a possibility that the scale of the tax revenue shortfall itself will shrink. The official said, “Since it is only an estimate, we need to wait and see how much will actually come out.”

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