Tax revenues fall short by 24 trillion won in 1Q

In the first three months of this year, the government collected 24 trillion won less in taxes than it did during the same period last year. The decrease in tax revenue can be attributed to declining real estate transactions and poor corporate performance. This year's tax revenue was expected to total 400.5 trillion won, according to the Ministry of Economy and Finance's predictions from last year while preparing this year's budget. However, with far less taxes collected than anticipated, a significant shortfall in tax revenues seems inevitable.

Tax revenues from the three major tax categories - income tax, corporate tax, and value-added tax - all dropped by over 20 percent in the first quarter of the year compared to the same period last year. Among them, income taxes fell the most, by 7.1 trillion won, due to the reduced collection of capital gains tax. This happened because the number of housing transactions in the first quarter was only half of last year's. Corporate taxes also fell by 6.8 trillion won as more companies reported lower profits. Value-added taxes decreased by 5.6 trillion won due to decreased consumption caused by high prices and economic slowdown. Furthermore, the amount of real estate holding taxes, which includes comprehensive real estate tax and property tax, is also expected to decrease. The posted prices of apartment homes nationwide this year have decreased by 18.6 percent compared to last year, leading to the expected decline in real estate holding taxes.

Moreover, the government has extended the fuel tax cut until the end of August, which has delayed the normalization of tax revenues that were previously affected by the COVID-19 pandemic. However, there are still many areas where tax money needs to be spent. The fight against jeonse scams, which are currently spreading out of control, will inevitably require significant investment in taxes. Additionally, the demand for easing financial burdens is likely to increase in the second half of the year as politicians aim to gain favor in the lead up to the general election in April next year. For instance, the "1000 won breakfast" policy for university students, which is being considered for expansion by both the ruling and opposition parties, is expected to require additional funding from tax revenues.

If the current trend continues, the government is likely to collect more than 20 trillion won less in taxes by the end of the year. This is in stark contrast to last year when the government collected almost 60 trillion won more in taxes than expected due to the easing of social distancing measures and robust exports. With an economic growth rate of only 1% and the weak performances of Samsung Electronics and SK hynix, the top two corporate taxpayers, there is a significant possibility of a major tax revenue shortfall. This contrasts the government's expectation that tax revenues will return to normal levels as early as May.

It is high time for the government to acknowledge its failure in tax collection forecasting and to reconsider this year's budget of 638.7 trillion won. It should revise the revenue budget downward and reduce unnecessary spending plans to align with the shrinking revenue. Moreover, the relaxation of the SOC preliminary feasibility study exemption criteria, which was proposed by both the ruling and opposition parties in unison but has been criticized as populist, should be halted. If the government continues to make fiscal forecasting errors and politicians continue to prioritize pork barrel spending, it will only lead to an unsustainable national debt that will burden future generations.