Korea’s bigger tax surplus to fuel political demand for extra budget

2022.01.11 14:10:05 | 2022.01.11 14:10:37

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South Korean rivalling parties are pressing for a supplementary budget just a month into the new year budgeted with another record spending on increased tax revenue from surge in property taxes ahead of the March presidential election, fanning market yields on the debt market on oversupply concerns on top of faster tightening pace in the U.S.

The Ministry of Economy and Finance on Thursday releases tax revenue in its monthly fiscal balance up to November on Thursday. Even without December income, the data will give a rough estimate of how much more tax revenue was collected last year.

After two revisions, tax revenue is expected to exceed government target one again.

The government under political pressure in July raised the second supplementary budget by estimating 31.6 trillion won in excess of original estimate in annual budgeting. It packaged another relief funding for merchants by estimating 19 trillion won extra revenue in November

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By November, the surplus could be close to 20 trillion won (or 60 trillion won in total), 10 trillion won more than last estimated surplus of 19 trillion won in November.

The surplus has been beating estimates due to surge in housing prices and taxes.

The extra revenue could heighten political pressure to raise supplementary budget before March. But since the year-end surplus would be reflected in other reserves after April, supplementary budget before then would have to be raised through debt issues. The three-year government bond broke above 2 percent while the 10-year government bond nears 2.5 percent amid oversupply concerns on top of jitters about faster and sharper tightening pace in the U.S.

Poor estimate in fiscal balance also undermines predictability and credibility in budgeting.

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If total excess tax amounts to over 60 trillion won last year, it would be 21.4 percent higher than the estimate in the original budget, marking the highest error since 19.6 percent in 1990.

Kim Jung-sik, professor emeritus at Yonsei University, said that cooperation among ministries like National Tax Service and Ministry of Economy and Finance is essential in tax revenue estimation and that miscounting in figures show tax revenue calculation system isn’t working right.

Lee In-ho, economics professor at Seoul National University, pointed out economic policy management is losing efficiency due to frequent changes in real estate policies.

By Chun Gyung-woon, Lee Hee-jo, and Lee Eun-joo

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