Deficit grows as lawmakers are poised to spend moreA Finance Ministry report released Tuesday showed an increasingly grave financial situation for the government, with a fast-growing deficit looming as lawmakers weigh another 11.7 trillion won ($9.8 billion) in spending to combat the economic fallout from the coronavirus outbreak.
In January, the government began ramping up spending as the coronavirus took hold in China, spending 6.5 trillion won more than last year, according to the report, for an increase of 14.6 percent.
The government’s total income, meanwhile, fell by 100 billion won, or 0.20 percent, compared with January 2019.
As the supplemental appropriation bill awaits passage in the National Assembly, concerns are growing that increasing in the deficit further will hurt the country’s fiscal standing.
More recent tax collections are expected to be even worse, as the epidemic and subsequently deepening economic crisis didn’t kick into high gear in Korea until February.
As a result, the balance between the total income and total spending was 300 billion won surplus, according to the Finance Ministry report.
The operational budget balance, however, which excludes social security funds including the national pension, showed a 1.7 trillion won deficit.
The Finance Ministry acknowledged the deficit as it began aggressively ramping up spending at the beginning of this year. More recently, doubts have grown over whether the government could even achieve its target of collecting 292 trillion won in taxes by the end of this year.
Tax collections in January were down 600 billion won, or 1.7 percent, although value-added taxes saw a 1 trillion won increase, rising 5.7 percent on-year.
Income tax collections rose by 200 billion won, or 2.2 percent. Corporate and customs tax collections, meanwhile, both shrank by 200 billion won, dipping by 14.3 percent and 40 percent, respectively.
The government in January lowered its target for corporate taxes from 72.2 trillion won last year to 64.4 trillion won, an 18 percent adjustment.
This figure is widely expected to further decrease, as the breadth of the outbreak’s impact on the economy didn’t become clear until after the January estimate was issued.
When including its supplementary budget as well as disaster funds, the government’s total spending to counter the coronavirus is estimated at around 31 trillion won.
As 10.3 trillion won of the 11.7 trillion won will be financed by issuing bonds, the country’s debt to GDP ratio is expected to exceed 41 percent this year.
Recently, research institutes have been revising Korea’s economic outlook downward, even the ones that were already adjusted at the start of the outbreak.
Many are projecting a growth south of 1 percent, a change from previous estimates in the north of 1 percent.
The Moon government has received criticism over its aggressive fiscal spending, particularly measures that focused on welfare spending and non-productive programs, such as paying senior citizens to patrol parks.
BY LEE HO-JEONG [firstname.lastname@example.org]
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