Korea’s National Tax Revenue for 2023 is Projected to Fall Short by 59 Trillion Won of Budget
- 2023 Tax Revenue Re-estimation Results and Fiscal Response Direction -
The re-estimated national tax revenue for 2023 is projected to amount to approximately 341.4 trillion won, falling short by 59.1 trillion won of its budget (400.5 trillion won).
The drop in the national tax revenue is attributed to a significant decline in corporate operating profit and a contraction in the asset market due to a drastic deterioration of domestic and international economic conditions from the fourth quarter of last year to the first half of this year. In other words, the continued export slump stemming from the global economic slowdown and semiconductor industry downturn has led to a significant decrease of corporate operating profit, resulting in corporate income tax revenues falling far below the initial expectation. In addition, the property tax revenues such as capital gains tax are also expected to be much less than the initial prediction owing to the stagnation in asset markets, including real estate.
* Operating profit of listed companies (individual standards, trillion won): 119.7 (2021) → 81.7 (2022)
* Housing Transactions (ten thousand): 35.0 (January to July 2022) → 32.3 (January to July 2023)
House Price Index (June 2021=100): 104.8 (July 2022) → 95.7 (July 2023)
※ In October 2022, the National Assembly Budget Office also forecasted this year's national tax revenue to be approximately 399.4 trillion won, similar to the government's projection of 400.5 trillion won.
It bears noting that the forecast errors in tax revenue have occurred not only in South Korea but also in several major countries. In the case of the United States and Japan, for example, tax revenues fell short of projections in 2020 due to the economic downturn caused by the COVID-19 shock. However, in 2021 and 2022, a faster-than-expected economic recovery generated a substantial excess tax revenues in those countries.
In 2023, even major countries are experiencing a wider fluctuation in tax revenue than expected, with the United States and Japan facing significant tax revenue declines again due to the impact of global high inflation and high interest rates on the global economy.
* Forecast error rates of tax revenue (%)
US: -9.7 (2018), +1.8 (2019), -7.5 (2020), +4.1 (2021), +15.3 (2022)
Japan: +2.1 (2018), -6.9 (2019), -4.4 (2020), +14.3 (2021), +8.3 (2022)
Korea: +8.7 (2018), -0.5 (2019), -2.3 (2020), +17.8 (2021), +13.3 (2022) 〈main budget〉, -0.2 〈supplementary budget〉
Going forward, the government plans to seek various measures to strengthen the accuracy of tax revenue forecast, amid the expanded volatility in economic conditions, corporate profits, and asset-related tax revenues.
Above all, the estimation model for each tax category will be further developed through better operation of the public-private joint tax estimation committee, such as greatly expanding the participation of experts, while further strengthening efforts to verify and supplement the estimation method and results. It also plans to explore measures to improve the accuracy of tax estimates through technical advice from experts of international organizations such as the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development (OECD) as well as review other countries’ cases. At the same time, it will discuss strategies to enhance cooperation with the National Assembly Budget Office, which is one of the nation’s top specialized institutions concerning tax revenue estimation.
Despite the lack of tax revenue this year, the government is committed to utilize available resources to ensure that financial projects such as support for people's livelihoods and economic vitality can be implemented without a hitch.
To be specific, it will utilize the net budget surplus (approximately 4 trillion won, including general accounts) and surplus funds (approximately 24 trillion won, including foreign exchange equalization funds), while also managing unused budget (3.7 trillion won in 2021 and 7.9 trillion won in 2022), such as projects that are inevitably difficult to be implemented within the year.
In terms of local subsidies (approximately 23 trillion won), which are decreased in conjunction with a decline in tax revenues under the relevant laws (Local Subsidy Act, Local Education Subsidy Act), the government will work closely with relevant ministries such as the Ministry of the Interior and Safety (MOIS) and the Ministry of Education as well as local governments, aiming to preserve those subsidies by utilizing local government’s own financial resources[1] including fiscal stabilization funds.
Based on those plans, the government will efficiently carry out projects to support people’s livelihood and boost economic vitality scheduled for this year, while providing financial incentives[2] for local governments that successfully enforce fiscal plans utilizing their own financial resources.
Taking all these fiscal measures into account, the impact on people's livelihoods and the macro economy due to the tax revenue shortfall is expected to be very limited. However, as internal and external uncertainties still persist, the government will make all-out efforts to ensure the preservation of local government’s resources and meticulous management of the execution process by holding meetings for budget execution (chaired by the Second Vice Minister of the Ministry of Economy and Finance) until the end of the year. Not only that, much focus will be placed on revitalizing economic activities in private sectors such as exports, investments, and consumption.
[1] Integrated fiscal stability funds of local governments and educational offices (34 trillion won) and net budget surplus (7 trillion won) totals approximately 41 trillion won.
[2] Allocation of additional limits for special accounts for balanced regional development; grant of special subsidies and general subsidies.
Please refer to the attached files.
