Tax revenue needed as many challenges loomThe government needs to spend more money it doesn’t have as it faces problems it can’t afford.
“Economic conditions are more grave than ever before, and they demand active fiscal management next year,” said Koo Yoon-cheol, vice minister of economy and finance speaking at the Korea Chamber of Commerce and Industry on Thursday.
His comments came ahead of the announcement next month of the 2020 budget and a five-year plan on fiscal management.
The government is at a crossroads as it looks to encourage private investment with higher tax credits but requires more revenue in light of a slowing economy and demographic changes. It has outlined plans last month to increase tax credits for businesses making investments into facilities improvement.
The vice minister on Thursday called for increased taxes to finance spending as the country prepares to commit more to research to reduce the reliance on foreign imports in the wake of Tokyo’s export restrictions.
“Firstly, there needs to be an increase of government revenue,” explained Koo. “Expanding tax revenue is the base for stronger fiscal health.”
“We need to continually modify tax exemption policies that are not essential or urgent, improve transparency in taxation and strengthen management of tax evaders.”
The senior official also highlighted the need to prepare for a shrinking population.
“Total population is expected to decrease from 2029,” said Koo. “The elderly population will pass 10 million in 2025 from 7.69 million this year, and the burden stemming from health care and social welfare expenditure will increase.”
While Korea has recently enjoyed healthy tax revenue, recording annual revenue growth of 10.4 percent in the past three years, overall revenue this year is expected to slow as concerns about the economy grow over headwinds in global trade and declining exports.
In the first six months this year, the government collected 156.2 trillion won ($129.1 billion) in taxes, which was 1 trillion won less than in the same period a year earlier.
Meanwhile, expenditures have increased as the government has tried to stimulate a slowing economy. In the first six months of the year, the government spent 190.7 trillion won of the central government’s budget, which is 28.1 trillion won more than the same period a year earlier. That comes to 65.4 percent spent in the first half of this year’s 291.9 trillion won budget.
Although the National Assembly recently passed a supplementary budget of 5.8 trillion won, the extra spending is expected to have a limited impact amid compounding global uncertainties, such as the U.S.-China trade conflict and export restrictions by Japan.
Exports fell for the eighth consecutive month in July, dropping 11 percent from the previous year as memory chip prices fell.
As uncertainties about the local economy and global trade increase, the Bank of Korea downgraded its GDP growth estimate by 0.3 percentage points last month to 2.2 percent.
BY CHAE YUN-HWAN [firstname.lastname@example.org]