Deficit soars on emergency spending, low tax revenue

Economy

Published: 07 May. 2020, 19:59

Deficit soars on emergency spending, low tax revenue

A store in Myeong-dong, central Seoul, on April 29 seeks tenants as small businesses have been hit hard by the coronavirus pandemic. As a result, the government's corporate tax collection has shrunk. [YONHAP]

The Korean government's deficit grew sharply in the first quarter of 2020, with struggling businesses pulling down tax revenue while the government has spent heavily to offset the economic fallout from the coronavirus pandemic.

The government’s consolidated balance from January through March amounted to a 45.3 trillion won ($37 billion) deficit, according to a report released by the Ministry of Economy and Finance on Thursday. That’s a 162 percent increase from the 17.3 trillion won deficit recorded during the same period a year ago. In March alone, the deficit nearly quadrupled on year, from 5.5 trillion won to 19 trillion won.

The first-quarter figures bring the government's debt total to 731.6 trillion won.

With two new supplementary budgets in the works, the government is expected to soon add around 40 trillion won in new spending.

The operational budget balance, which excludes the four social insurances, reported a 55.3 trillion won deficit for the first quarter. That’s more than double the 25.2 trillion won deficit a year ago. The deficit grew 24.4 trillion won in March, nearly triple the deficit in March 2019.

The government collected 69.5 trillion won in taxes during this year's first quarter, a 10.9 percent drop from a year ago. That included just 15.4 trillion won in corporate tax revenue, a 30.6 percent drop from last year.

The government cited its policy of allowing businesses to postpone corporate tax payments, which many have pursued as the impacts of the coronavirus outbreak have made it difficult for many of them to pay their bills.

Value-added tax revenue shrank on year by 14.9 trillion won, or 7.5 percent, in the first quarter, indicating that people were spending less as they followed the government's strict social distancing guidance.

Income tax collections increased 7.8 percent to 22.2 trillion won, largely thanks to active real estate transactions. In January alone, real estate transactions grew by 31 percent.

In March, income tax revenue grew 6.7 percent to 3.2 trillion won.

Government spending, meanwhile, increased significantly as it worked to contain the spread of the virus while attempting to defend the economy.

The government spent 164.8 trillion won in this year's first quarter, a 19 percent increase compared to a year ago.

In March, the government spent 60.8 trillion won, a 24 percent increase on year.

Government debt ticked up 4.7 percent from the end of 2019.

The burden is expected to increase further with the additional two supplementary budgets.

Last week the National Assembly approved the government’s second supplementary budget, amounting to 12.2 trillion won, an increase from the initial proposal of 7.6 trillion won. Of the 4.6 trillion won increase, 74 percent or 3.4 trillion won will be covered by government bonds.

This is expected to raise the central government’s total debt by the end of this year to 819 trillion won. The country’s debt-to-GDP ratio, including local government debt, is expected to hit 41.4 percent, up from 38.1 percent. But this is expected to further increase as the government prepares a third supplementary budget, which is expected to cost around 30 trillion won. Of that, 10 trillion won will be used to help Koreans secure jobs.

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