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The government is moving ahead with expanding its spending to revitalize the economy and create more jobs. Tax revenue, however, declined during the first three months of the year, which could threaten Korea's fiscal soundness.
According to data released by the Ministry of Economy and Finance, Friday, the government's total tax revenue stood at 78 trillion won ($66.2 billion) in the first quarter of the year, down 800 billion won from a year ago.
Tax revenue for the first quarter had grown continuously for years ― 8.9 trillion won in the first quarter of last year from the same period the previous year. The government also collected 5.9 trillion won more in taxes in the first quarter of 2017 from the year before.
The ministry claimed its first-quarter tax revenue is at a similar level compared to the same period last year, considering it raised last year's local consumption tax rate of 11 percent to 15 percent this year, but concerns are mounting that a decline in its tax revenue reflects the sluggish economy.
According to the Bank of Korea, Korea's GDP growth contracted 0.3 percent in the first quarter of the year due to falling private investments and exports.
The last time the quarterly growth declined was in the fourth quarter of 2017 when it shrank 0.2 percent. But the 0.3 percent contraction in the first quarter marks the biggest drop since the fourth quarter of 2008 when the economy declined 3.3 percent amid the global financial crisis.
A series of government measures to impose stricter regulations on the nation's housing market dragged its transfer income tax revenue. Shrinking consumption trends also plunged its revenues from value-added tax and customs.
Thank to firms' strong quarterly earnings, the government managed to collect more corporate tax during the first three months of this year, but a sluggish job market discouraged its income tax revenue.
"The government has been expanding its spending to boost the economy and create more jobs. Unfortunately, its efforts haven't really come to fruition yet," said a domestic brokerage researcher who asked not to be named.
"If the economy is stagnating at the current level even after the budget spending, the outcome will be disastrous. The massive tax burden will eventually reflect people's lives."
The ministry said it will closely monitor the situation to counter growing economic uncertainties regarding the U.S.-China trade talks and increasing unemployment rate.
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