The South Korean government has run a budget surplus of around $10 billion for the last two years under President Moon Jae-in, suggesting poor fiscal management through rigorous tax collection at a time of weak economic growth.
Under the liberal government, the budget surplus in public finance, or the overall difference between government revenue and spending, jumped to 11.3 trillion won ($10.1 billion) in 2017 from 8 trillion won in 2016. The excess tax revenue topped 11.3 trillion won by November last year, according to the Ministry of Finance and Economy.
Moon, who came into office in May 2017, has administered a series of tax hikes on companies and high-income earners to fund the new government’s welfare programs and wage-led growth initiative.
Experts also believe the surge in budget surplus owes to the government’s conservative tax revenue planning that has led to annual creation of supplementary budgets. A low revenue forecast leads to reduced budget spending for the year, which could result in a huge surplus if the government collects more taxes than expected.
The ministry explained the conservative estimates were based on data from 2012 to 2014, when expenditure outstripped revenue for three straight years. But economists point out that this still fails to explain the spike in the forecast error rate, or actual revenue divided by projected revenue, which jumped to an average 9.2 percent in 2016-2017 from 3.4 percent in 2011-2015.
Most view the low revenue forecasts as a government scheme to leave greater room for maneuvering when planning next year’s budget as the surplus revenue could be carried over to the supplementary budget. Thanks to the generous tax revenue, the Moon administration was able to win parliamentary approval for record-sized budgets for 2018 and 2019.
By Moon Jae-yong and Kim Hyo-jin
[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]