Budget deficit hits record for first nine months

The budget deficit hit 26.5 trillion won ($22.9 billion) in the first nine months, a record for that period, raising worries about the Moon Jae-in government’s fiscal management.

During the same period last year, the government ran a budget surplus of 14 trillion won thanks to strong tax collections.

According to the Finance Ministry on Friday, this year’s deficit was largely the result of shrinking tax collections and increased spending on welfare.

The government’s total revenues in the first nine months of this year were 359.5 trillion won, 300 billion won or 0.08 percent more than a year ago. Spending was 386 trillion won, 40.9 trillion won or nearly 12 percent more than a year ago.

Tax revenues, which account for 63 percent of all government revenues, declined 2.4 percent or 5.6 trillion won to reach 228.1 trillion won in the first nine months.

While corporate taxes saw a slight increase, the government saw declines in other taxes including income taxes and value-added tax.

In the first nine months, the government collected 60.7 trillion won in income taxes, which was 2.4 trillion won less or a 3.8 percent drop. Value-added taxes declined 0.8 percent to 52 trillion won. Corporate taxes increased 600 billion won or 0.9 percent to reach 65.8 trillion won.

The government spent 268.9 trillion won, which was 29.4 trillion won or 12 percent more than the previous year.

The operational budget balance, which excludes social security funds, saw a 57 trillion won deficit.

In terms of spending, welfare spending has grown sharply.

Social security spending amounted to 106.6 trillion won, 7.2 trillion won or 7 percent more than a year ago.

Some 5 trillion won was spent on earned income tax credits (EITC) and child tax credits (CTC) for 4.7 million households, which is a sharp increase of 177 percent from last year’s 1.8 trillion won. The ETIC and CTC belong to a major welfare program by the government that subsidizes low-income households.

As of the end of September, central government debt shrunk 42.6 trillion won or 6.5 percent compared to the same period a year ago and 3.5 trillion won less than the previous month to 694.4 trillion won. The government was able to pay off matured treasuries.

The latest numbers on fiscal management came as Korea’s economic growth outlooks have been lowered.

While the government continues to argue that the economy could achieve 2 percent or higher growth, many private institutions have been lowering their projections to below 2 percent.

In hopes of boosting the economy, the Bank of Korea cut the key interest rates to 1.25 percent last month, its lowest level in two years.

The government projected that its income would increase with greater tax collections in the last three months of this year, including the comprehensive real estate tax that is due next month.

“We expect by the end of the year to have tax collections nearing our target of 294.8 trillion won,” said a ministry official.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]