High likelihood of a tax revenue deficit next year

The year 2024 hasn't even started, but many people are already worrying about next year's potential tax revenue deficit. “There is bound to be a tax revenue deficit next year as well,” a government official said. “An unusually large amount of tax revenue was collected last year.” It is already clear that the most significant tax revenue deficit in history will occur this year. When the government announced the results of tax revenue re-estimates last month, it stated that this year’s national tax revenue would fall short of the original estimate by 59.1 trillion won. Compared to taxes collected last year, tax revenue is expected to be 55 trillion won less.

It is highly likely that the tax revenue deficit, where less tax is collected than expected, will continue next year. Even in the third quarter of this year, the earnings of large companies are sluggish. In the third quarter of the year, SK hynix posted a deficit of 1.8 trillion won and Samsung Electronics' operating profit fell by 78% year-on-year. Corporate tax, which accounts for about 20% of the total national tax revenue, is levied based on companies' earnings in the previous year. Unlike last year, the economic slump has been continuing throughout the year, which means collecting next year's corporate tax will not be as easy as it was this year.

The ruling party announced an increased budget for people's livelihood even before the National Assembly began reviewing next year's budget. The People Power Party’s Policy Committee recently revised the government budget to a 'starting from scratch' level and initiated a comprehensive review. First, the party is considering ways to increase the budget for small businesses, currently set at about 5 trillion won. With a red flag raised for next year's general election due to the defeat in the Gangseo District mayor election in Seoul, they plan to adjust the budget to regain public support in the general elections.

When a family has less money to run a household, they reduce their spending. The government's total spending next year will approach 657 trillion won. Even if there was no tax revenue deficit, more money is already going out than coming in. The government has been covering the cost of passing the National Assembly through a 'memo budget' to ensure that the budget bill can clear the National Assembly's threshold. “We expect next year’s growth rate to be 2.2%,” Bank of Korea Governor Lee Chang-yong said. “But depending on how the Chinese economy and the Middle East situation pan out, we must consider adjusting the growth rate from square one again.” When one cannot predict the future, we must closely monitor how much the government will increase its spending by utilizing earmarked funds to ensure the budget's passage through the National Assembly, especially with an eye on the upcoming general election.