Government Announces Tax Shortfall of 4.6 Trillion Won

According to the Ministry of Planning and Budget and the Ministry of Finance and Economy, this year`s tax revenues will fall short of the government forecast by about 4.643 trillion won.

This revenue shortfall results from a decrease in revenues from most taxable items. Due to a slowdown in consumption, Value Added Tax (VAT) revenues are projected to be down by 7.2 percent (2.8 trillion won) and income tax collection is expected to drop by 3.8 percent (975.3 billion won) from last year.

The government plans to issue 4.1 trillion won in national bonds and propose a supplementary budget amounting to 5.1 trillion won.

While tax revenues decline, government expenditure is continuously on the increase. The government announced comprehensive welfare measures on September 26 to strengthen the social safety net, which is going to need a total of 8.6 trillion won in funding over the next four years. Next up, the government is going to introduce countermeasures for the low birth rate, which is going to require more than 10 trillion won. Furthermore, the government recently promised to supply electricity to North Korea for about 10 years: this would entail 11 trillion won.

Park Hyeong-soo, chief of the Fiscal Analysis Center at the Korea Institute of Public Finance, said, “An increase in welfare budget is unavoidable in the mid-long term, but a rapid increase needs to be carefully considered since it could hurt fiscal stability.”

The problem is that the government is not doing something on its own, such as cutting down its expenditures. Instead, it is trying to finance itself with money pulled from the common people’s pockets.

The tax revision bill, which is designed to expand the tax base by increasing tax rates on Liquefied Natural Gas (LNG) and liquors such as soju and whiskey, and by curtailing tax deductions on credit card usage, has already passed the cabinet meeting stage. In addition, it will be going to widen the scope of the Comprehensive Property Holding Tax Act so that property tax revenues would increase from this year’s 700 billion won to 1.02 trillion won next year.

The government intends to raise next year’s spending to 221 trillion won, which is 6.5 percent up from this year. According to this plan, the tax per head would rise to 2.85 million won, which is 260,000 won more than this year’s tax.

Concerns have been expressed that, since the tax rate reduction in income tax and corporation tax will be in force next year, the tax revenue shortage will be greater than the 7.8 trillion won government projection by two to three trillion won.

Civil opposition is growing. The Liberty Union, a civic organization, has decided to analyze the government’s draft budget for next year with a group of experts in financial matters and public finance and campaign for budget reduction. Ahn Jong-bum, an economics professor at Sungkyunkwan University and a leading figure of this movement, said, “We are going to strongly urge the government to eliminate unnecessary projects.”

National assemblymen from both sides are also calling for more cuts in corporate and income taxes, and no increase in liquor taxes.