Korea’s Tax Revenue Shortfall Expected to Hit Record High of 4.4 Trillion Won

The nation’s 2005 tax revenue shortfall is expected to reach a record high of 4.4 trillion won.

The government is likely to seek supplementary budget money to compensate for the tax revenue shortfall based on this estimate.

But experts forecast that the supplementary budget will make no significant difference for the nation’s economic growth.

Byeon Yang-kyoon, the minister of Planning and Budget, said on September 1, “The 2005 tax revenue shortfall is estimated to be 4.4 trillion won. The government will take this figure into account in drawing up the supplementary budget.”

The revenue shortfall has increased by 2.3 percent this year from 4.3 trillion won last year.

Han Duck-soo, the deputy prime minister and minister of Finance and Economy, and Chung Sye-kyun, the floor leader of Uri Party, already said that they were expecting a tax revenue shortfall of 3-5 trillion won. But this is the first time that a government official made public the exact figure. As the final declaration for the value added tax, which accounts for 30 percent of the tax revenue, was recently completed, the government could estimate the tax revenue shortfall.

Since the government plans to raise the money for the supplementary budget by issuing national bonds, the nation’s debt is set to grow beyond last year’s national debt level of 203 trillion won.

Last year, the government had the tax surplus, which was passed on from the FY 2003, to use for the supplementary budget. But this year, it has no tax surplus.

Huh Yong-suk, the senior tax auditor of the Ministry of Finance and Economy, said, “There are so many variables, to name a few: exchange rates, international oil prices and consumer prices, so the government couldn’t put a finger on the exact tax revenue shortfall,” adding, “The government will decide the size of the supplementary budget in mid-September and propose it to parliament in early October.”

The Korea Institute of Public Finance said that the supplementary budget will have limited impact on GDP growth.

According to its assessment, the first supplementary budget (4.2 trillion won) in July, 2003 pushed GDP growth by 0.35 percent, and the second supplementary budget (three trillion won) in September that year drove up the growth by 0.29 percent.

Park Hyung-soo, the head of the Center for Fiscal Analysis under the institute, said, “The government is highly likely to spend the supplementary budget in training the unemployed and supporting low-income families rather than on bolstering the construction sector that can help greatly boost GDP growth. So we can hardly expect the supplementary budget to enhance growth.”

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