Budget Deficit Widens to Record High
By Yoon Ja-young
Staff Reporter
The government recorded the biggest budget deficit ever in the first half of the year and is most likely to be in the red for the fourth year in a row due to growing expenditures and decreasing tax revenue growth.
The Ministry of Finance and Economy (MOFE) said Thursday that the government's budget account, excluding the social security balance, recorded a deficit of 22.6 trillion won in the first half, far higher than its initial prediction of 13.6 trillion won for 2007.
The Roh Moo-hyun government has recorded fiscal deficits since 2004, and has been criticized for constantly increasing the civil servant payroll. The government has had to issue foreign exchange stabilization bonds and other state bonds to help stabilize the won's value and finance various social welfare programs.
Also, the ministry announced Wednesday that it will revise the rules governing the tax base so that it can cut income taxes for mid-to-low income salaried workers and the self-employed, beginning next year. The new tax system will cut the government's revenue by more than 3 trillion won by 2013.
The cuts are expected to add further pressure to the government's balance sheet in the coming years, though the absolute deficit _ less than 2 percent of the nation's gross domestic product _ is still not high compared to other developed nations.
The government believes that a strong economic recovery will help boost its coffers. But it remains unclear whether the country will be able to regain growth strong enough to make up for the growing deficit.
The ministry reported that the consolidated fiscal balance recorded a 6.1 trillion won deficit _ the government spent 131 trillion won while revenue, including taxes and the sales of stocks and the country's assets, stood at 125.1 trillion won as of June.
The adjusted fiscal balance, which is the consolidated balance minus the surplus in social security funds, indicates the overall state of government finances.
``The fiscal deficit increased as we spent 62 percent of this year's budget in the first half and as June is a slow season in terms of tax revenue,'' the ministry said. It concentrated budget spending in the first half of the year with the outlook that the economy would be worse off then, and estimated the deficit to fall to 13.6 trillion won by the end of the year.
Despite the government explanation, the 13.6 trillion won deficit is still an increase. In 2004, a 4 trillion won deficit was incurred, which increased to 8.1 trillion won in 2005 and 10.8 trillion won last year. The debt could be even bigger next year because of the income tax cuts.