Revenue problemsThe red light is blinking in terms of the government’s tax revenues. According to the Ministry of Strategy and Finance, the Moon Jae-in administration collected 109.4 trillion won ($92.6 billion) in taxes from January to April, a whopping 500 billion won ($423.3 million) decrease compared to the same period last year. Many people could shrug this off given the astronomical amount of money the liberal administration has spent in the name of stabilizing the labor market and raising welfare benefits for the poorer classes to the extent of skipping the mandatory preliminary feasibility studies for public spending. But if the public simply ignores such big fluctuations in such an important factor — tax collections — it could lead to serious problems in the nation’s finances.
Such a possibility can be gauged by measuring the amount of taxes actually collected vis-à-vis the original goal. From January through April, the rate of government tax collection fell to 37.1 percent — a 3.9 percent reduction from a year ago — which suggests troubles for the government collecting taxes in a rapidly declining economy. Only when the economy is functioning well can the government collect more taxes thanks to increased corporate investment and consumer spending. Yet the depressed mood of our economy points in the opposite direction.
Fortunately, taxes on earned incomes increased slightly because of the government’s push for rapid hikes in the minimum wage. Yet due to an alarming shrinkage of the real estate market because of countless regulations, revenues from a transfer tax nosedived. The progress of the government collecting corporate tax also fell to 31.4 percent from 37.2 percent last year. The shockwaves led to the simultaneous decline of revenues from major sources of tax — such as traffic and customs taxes — not to mention a noticeably slower pace of collecting value-added tax.
If that continues, the government’s 470 trillion won super budget for this year could turn into a pipe dream. If it fails to recover tax collections by the end of this year, a critical deficit in tax revenues could ensue. The government was able to implement supplementary budgets for two consecutive years since 2017 thanks to a surplus in its tax revenues. The administration is pressing ahead with an additional 6.7 trillion won supplementary budget. Next year, it is expected to draw up a budget exceeding 500 trillion won. The time has come for the government to stop spending as if there is no tomorrow. It must also revitalize sullen corporate investment. Without revenues, the government cannot do anything.
JoongAng Ilbo, June 12, Page 30