Tax revenue miscalculation over four years with two years of shortfalls

This year's tax revenue will be 30 trillion won less than the government's initial forecast, the Ministry of Economy and Finance announced yesterday. The government had initially budgeted for more than 367 trillion won in tax revenue this year. Still, after reassessment, it is expected to collect only 337 trillion won, resulting in a shortfall of 29.6 trillion won. This marks the second consecutive year the government has officially acknowledged a significant 'tax revenue gap.' As the government continues to miss its tax revenue projections by trillions of won, criticism is mounting that it is managing the country without clear direction. A clear direction is needed to address this issue.

This year's tax revenue shortfall is mainly due to the decline in corporate tax revenues following the economic downturn, the slowdown in the semiconductor industry, and a decrease in asset-related taxes, such as capital gains tax, due to sluggish real estate transactions. Corporate taxes alone accounted for 14.5 trillion won, half of the total shortfall. However, the government's insistence on a rosy economic outlook makes it difficult to avoid criticism for failing to appropriately forecast the economy. This is fundamental to tax revenue estimates, especially since weak corporate performance and a shrinking asset market were anticipated.

For the second year in a row, the government has reiterated that there will be no supplementary budget but has yet to present a plan to address the revenue shortfall. The government is forced to play the 'no budget' card, which involves diverting funds or reducing planned expenditures, as it did last year when it tapped into its Korea Foreign Exchange Stabilization Fund, which is collected to stabilize the exchange rate. We are concerned that the government's inability to respond to the downturn, let alone properly execute its planned budget, will further exacerbate sluggish domestic demand.

Worse, massive revenue miscalculations have almost become an annual event. The Ministry of Economy and Finance's tax revenue forecasts have been off by tens of trillions of won for four years since 2021, diverging significantly from actual tax revenues. This year, the error rate is expected to exceed 8%, which is a de facto failure considering that the average error rate has been around 4% since 2000. Even ordinary households carefully analyze their expected income and plan their expenditures, so I question whether we can entrust the Ministry of Economy and Finance to run the country when it repeatedly makes inaccurate tax revenue forecasts.

It is impossible to maintain a country's ledger in order when tax revenue estimation, the foundation of the budget, is poorly done. A significant revenue shortfall can lead to a vicious cycle of inadequate budgeting, which could ultimately result in lower tax revenues. There is an urgent need to overhaul the entire system to improve the accuracy of revenue forecasting. We also need to balance the tax cut initiatives to ensure that the revenue shortfall does not worsen. A balanced approach is crucial for the future financial stability of the country.