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S. Korea suffers record budget deficit in H1
Officials from the Ministry of Economy and Finance give briefing at the Sejong Government Complex, Tuesday. Yonhap
By Lee Kyung-min
By Lee Kyung-min
The country's financial soundness has been deteriorating fast, with its budget deficit reaching a record high of 111 trillion won ($93.6 billion) in the first six months of this year due to the government's fiscal splurge in fighting the COVID-19 pandemic, official data showed Tuesday.
According to the Ministry of Economy and Finance, the nation's fiscal balance, excluding four social security funds, recorded a 110.5 trillion won deficit, up 51 trillion won from the year before.
The snowballing deficit in the first half was attributed to a mixture of a fall in tax revenue and a hike in expenditure including cash handouts to citizens.
Seoul National University economist Kim So-young said the government should be mindful of the rapid increase in the deficit as it could pose a major risk to the country's' fiscal soundness.
“Increased spending is inevitable at this point to weather the economic crisis brought on by the coronavirus. But the government should always maintain a cautious approach in incurring debt,” he said.
The ministry said total tax revenue stood at 132.9 trillion won in the January-June period, down 23.3 trillion from a year earlier. Spending, by contrast, was up 31.4 trillion won, recording 316 trillion won over the same period.
Of the 23.3 trillion won shortfall in tax revenue, half, or 11.9 trillion won was the result of a delayed due date to pay (11.3 trillion won) and an expansion of the earned income tax credit (EITC) (600 billion won).
These are part of key emergency measure put in place to help many virus-hit businesses and low-wage earners, coupled with three extra budgets drawn up as a 59.2 trillion won stimulus package.
“Two trillion won was collected as scheduled after the government delayed the date for 13.3 trillion won worth of tax. We expect an increasing amount to be paid gradually in the coming months,” a ministry official said.
The budget shortfall is illustrated more clearly by a steep fall of what the government calls a “tax revenue progress ratio,” measured by actual revenue total divided by expected revenue total, standing at 45.7 percent in June, down 7.5 percentage points from the year before.
When measured excluding the third extra budget, the ratio for income tax, corporate tax and value added tax all stood at a range of between 45.2 percent and 46.2 percent.
“The ratio of 45.7 percent in June will jump to 47.5 percent with the third budget factored in, a figure that we consider appropriate given the ratio for the past five years averaged 51.9 percent,” he added.