Largest tax revenue dip in history seen at start of the new year

Reduced tax revenues are already sounding the alarm bells at the start of the new year. In January, the national tax revenue was 42.9 trillion won, down 6.8 trillion won from a year ago. This is the biggest decline ever recorded in January. In particular, except for the liquor tax, all taxes were collected less than last year. Due to the slumping economy, the decrease in VAT and corporate tax revenues were particularly noticeable. The sluggish real estate and the stock market also significantly reduced asset tax revenues, such as capital gains tax and securities transaction tax.

The problem is that the decrease in tax revenues will be more likely to intensify. The government officially acknowledged that the Korean economy is facing an economic slowdown. As a result, various economic indicators have passed the economic slowdown to enter the phase of an economic recession, and the situation is worsening. The tax progression rate, which refers to the actual tax collection rate compared to the tax revenue target, fell to 10.7% in January. This is the lowest in 18 years. Due to the down-trending export and consumption, causing corporate earnings to falter, it is feared that the corporate tax will decline further. With fewer housing transactions and prolonged financial market uncertainties, it is difficult to expect asset tax revenues to recover anytime soon.

If the economic downturn is extended and the tax progression rate is not recovered, some project that a large-scale tax revenue loss will occur. The government allocated the budget, assuming this year's national tax revenue will be 4.6 trillion won more than last year, but the worst tax income loss has already occurred. Even if the base effect stressed by the government is not considered, the tax revenue in January has already decreased by 1.5 trillion won.

If the economic recession becomes serious, there are many concerns that despite the need for government finances, the lack of tax revenues will prevent the budget execution in the necessary areas. If the tax revenue loss becomes a reality, the budget of 630 trillion won earmarked for this year may be a talk fest. If the tax proceeds are not supported, issuing treasury bonds, which can impose a financial burden on the future generation, cannot be ruled out.

Under these dire circumstances, the best way forward is to tighten the belt and reduce unnecessary expenditures. For its part, the government needs to re-assess all ministries' fiscal projects and eliminate similar or redundant projects by implementing expenditure restructuring measures. Although they are an inevitable area of expenditure, increased public pensions and welfare policies also need thorough vetting, as they already have exceeded half of the government budget. The political circle should also do its part by refraining from engaging in fiscal populism competition, such as seeking to provide cash support. Above all, it must utilize limited financial resources to revitalize the private sector and expand growth potential. This will help end the economic slowdown and turn the tax base solid again.