Strengthening Tax and Fiscal Expenditure Linkage... Consolidating Classification Systems and Organizing Similar Expenditures

Announcement at the Economic Ministers' Meeting on the 21st

Classified and Integrated into 12 Major Areas for Disclosure
Checking for Duplicate Expenditures in Tax and Budget Proposals

The government will integrate the management of the two major policy tools for achieving national fiscal goals: tax expenditures and fiscal expenditures. Tax expenditure classifications will be unified into 12 sectors, the same as fiscal expenditures, and disclosed, with mandatory inspections for similar and overlapping expenditures.

On the 21st, the government announced the "Plan to Strengthen the Linkage between Tax and Fiscal Expenditures" at the Economic Ministers' Meeting chaired by Choi Sang-mok, Deputy Prime Minister and Minister of Economy and Finance.

Tax expenditures arise from various tax reductions, exemptions, income deductions, and tax credits. They are made according to special provisions in laws and regulations. This differs from fiscal expenditures, which are made according to the budget for the relevant year. As of this year, tax expenditures are related to a total of 276 projects, while fiscal expenditures are related to 9,557 projects.

Choi Sang-mok, Deputy Prime Minister for Economic Affairs and Minister of Economy and Finance. Photo by Huh Young-han younghan@

The government recently viewed integrated management as necessary to establish sustainable finances amid a trend where tax expenditures are increasing beyond fiscal expenditures.

Accordingly, the government will resolve the issue of difficulty in direct comparison by sector due to differences in classification systems and the difficulty in grasping the overall scale of government expenditures. Tax expenditure classifications will be unified into 12 sectors like fiscal expenditures and disclosed. Additionally, starting next year, tax expenditure data will be input into the digital budget accounting system (dBrain+) to enable integrated calculation and utilization of fiscal information.

The government will also improve cases where strategic resource allocation and expenditure efficiency were limited due to difficulties in prior review of similar and overlapping expenditures during budget formulation and tax special case review processes.

A reference standard for selecting expenditure methods will be prepared for officials to consult when designing policies and reviewing similar and overlapping expenditures. Furthermore, each ministry will be required to submit information on similar and overlapping expenditures when requesting expenditures. During the preparation of tax reform plans and government budget proposals, checks will be conducted to identify any similar or overlapping expenditures between tax and fiscal expenditures.

To address the issue of insufficient feedback and institutional improvements based on comprehensive comparisons due to separate in-depth evaluations and policy satisfaction surveys for each expenditure, an integrated in-depth evaluation will be introduced. The system will be operated targeting projects (groups) that require adjustment and institutional improvement due to similarities and overlaps between tax and fiscal expenditures. Policy satisfaction surveys will also be introduced for overlapping project groups to promote institutional improvements.

The government plans to complete the overall improvement work by the end of this year and finalize this initiative by March next year.

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