Choo insists on discipline as Korea's fiscal deficit jumps

Economy

Published: 13 Oct. 2022, 17:20 Updated: 13 Oct. 2022, 18:32

Choo insists on discipline as Korea's fiscal deficit jumps

Finance Minister Choo Kyung-ho meets with foreign investors in New York on Tuesday. He is currently visiting the U.S. promoting Koreaand meeting with international officials, including the World Bank president, in Washington. [MINISTRY OF ECONOMY AND FINANCE]

The fiscal deficit jumped 70 percent on year in the first eight months of the year as the government spent heavily on Covid relief and on support for lower-income households, although in the month of August a surplus was achieved.

According to the Finance Ministry on Thursday, the deficit was 50.6 trillion won ($35 billion) in 2022 through August, compared to a deficit of 29.8 trillion in the same period the previous year.

The deficit was 85.3 trillion won in the first eight months when social insurance contributions are excluded, up from 70.2 trillion won in the same period the previous year.

In August, a surplus of 5.7 trillion won was achieved.

Revenue totaled 438.6 trillion won in the year through August, including 289.3 trillion won in tax revenue, which is up 16.6 percent on year.

Income, corporate and value-added taxes increased on year as consumer spending increased with the lifting of Covid regulations.

A total of 91.1 trillion won of incomes taxes were collected, up 11.9 trillion won on year, and 82.5 trillion won of corporate taxes, up 27.2 trillion won.

Transportation tax collections fell due to fuel tax cuts.

The government spent 489.3 trillion won in the first eight months of the year, up 15 percent on year.

“When compared to a year ago, there was 20.1 trillion won of additional spending on projects that countered Covid-19, including supporting vulnerable households and quarantine efforts,” said a Finance Ministry official. “Also, we spent an additional 33 trillion won compensating small businesses.”

The national debt hit 1,031 trillion won in August, up 9 trillion won on month.

With the economy weakening and the world in turmoil, the deficit could continue to grow.

“The IMF has projected our growth for this year at 2.6 percent, the same as our own forecast,” Finance Minister Choo Kyung-ho said Tuesday in Washington. “However, next year will be more difficult than this year.”

The finance minister insisted the government will not try to artificially prop up the economy through expansionary fiscal spending. It will create an environment supportive of business activities with measures including tax cuts and regulatory reform.

He noted that while there is demand for additional spending by the government even with a slight decline in economic growth, such measures contribute to the fiscal deficit, even when the government is cutting expenses.

“Resorting to spending should be the last card we consider,” Choo said.

“One of the reasons I have come up with the tax reform including cuts of corporate and income taxes is because next year the economy is expected to be unfavorable,” the finance minister said. “More importantly is easing regulation.”

The finance minister expressed confidence in the Bank of Korea’s latest rate decision. On Wednesday, the central bank raised the base rate 0.50 percentage points to 3 percent.

He said the current priority is controlling inflation.

Regarding the volatility of the financial markets, the finance minister said the government will keep an eye on the situation and support healthy companies facing short-term liquidity problems.

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