Irony of more tax revenue
This year, the government could finance the supplementary budget thanks to tax revenue that exceeded expectations. The government is to use the 9.8 trillion won to be raised in the remaining part of the year and the 1.2 trillion won left from last year’s tax revenue.
As of May, the government has collected 112.7 trillion won, 50.6 percent of this year’s estimate. Compared to the same period last year, 19 trillion won more was raised. It is a drastic improvement from three consecutive years of deficit in tax revenue. Taxes were short 2.8 trillion won in 2012, 8.5 trillion won in 2013 and 10.9 trillion won in 2014.
The economy was worse than the foreign currency crisis, and people were concerned about a possible fiscal cliff. Things have changed, and national finances are solid. But Koreans don’t seem to be happy about it. After all, the economic slump has not improved,
Since 2012, the only year that the economic growth rate exceeded 3 percent was 2014. Affected by the global financial crisis, the economic growth rate fell to 2.3 percent in 2012, rose to 3.3 percent in 2014, only to fell back to 2.6 percent last year.
This year, Korea is expected to make barely mid-2 percent growth. The Bank of Korea lowered economic growth prospects three times.
Morgan Stanley and other financial companies predict 2.4 to 2.5 percent growth. But as about 10 trillion won more tax revenue is expected than the goal of 223 trillion won, the total national tax revenue is expected to increase by 6.7 percent from last year’s 218 trillion won.
Generally, when the economic growth rate goes up, tax revenue increases, and a fall in the growth rate leads to less revenue. But this year, the rate of increase in tax revenue is expected to be more than double the economic growth rate. The government explained that the increase in general income tax by individual proprietors, active real estate transactions, readjustment of tax exemption and reduction on businesses and improved consumer spending led to increased tax revenue.
The pockets of the private sector are not getting any fuller, and they are paying more taxes, meaning that government’s role is growing. In a sluggish economy, government’s role is important, but reviving spending and investment psychology in the private sector is more important. It is worrisome that the increasing tax burden may discourage spending and motivation psychology.
JoongAng Ilbo, July 25, Page 30
*The author is the business and industry news editor of the Korea JoongAng Daily.