Budget surplus to finance 2nd extra budget this year

Democratic Party of Korea Floor Leader Yun Ho-jung, center, speaks at a meeting attended by the party, the government and Cheong Wa Dae officials at the National Assembly on Yeouido, May 28. Yonhap

By Lee Kyung-min

The government will be able to draw up a second extra budget this year, driven by a projected annual “surplus” of about 17 trillion won ($15.2 billion) in tax revenue.

The greater-than-expected income is likely to come mostly from capital gains tax paid by real estate traders, the value of which has nearly doubled over the past few years.

This will advance the discussion on how best to allocate state resources amid the COVID-19 pandemic, being narrowed down to whether across-the-board cash payouts would work better over targeted financial assistance to the hardest-hit, low-income earners.

According to the Ministry of Economy and Finance, the country's tax revenue will increase by 15 trillion won from 285.5 trillion won in 2020. This will be 17 trillion won greater than this year's budget of 282.7 trillion won, pushing up the total to over 300 trillion won.

The tax paid in the first three months of this year was already up a reported 19 trillion won.

The increase was attributed to a 6.4 trillion won year-on-year jump in income tax that totaled 28.6 trillion. Nearly half or 3 trillion won came from capital gains tax from real estate transactions. The figure will soar further to 9 trillion won, since capital gains tax in the first quarter was about 5.5 trillion won a year ago.

The first-quarter surplus fanned optimism because the first three months in any year are generally known to be in deficit due to the base effect and bookkeeping reasons.

The tax income surplus this year will exceed 19 trillion won in the April-June period and will begin to inch down in the two following quarters.

The discussion on a second extra budget came to the fore after President Moon Jae-in stressed the need for greater fiscal spending, buoyed by a spike in tax revenue to navigate the pandemic-induced economic crisis.

“This year's budget should be promptly executed and room must be allowed for additional government spending to best facilitate quarantine measures and the rapidly changing economic conditions,” he said at a national fiscal strategy meeting, May 27.

The drive was backed further by Rep. Yun Ho-jung of the ruling Democratic Party of Korea. The floor leader of the ruling party said the second extra budget will “grease the wheel” for the country's economy to rebound, May 28.

The government is likely to give targeted assistance to workers who suffered a layoff or a pay cut, and businesses that suffered a major sales drop due to gathering bans and operating hour restrictions.

This will be pushed given the growing concern over inequality, often referred to as a K-shaped recovery whereby high-income earners with asset ― notably real estate have enjoyed an asset increase, coupled with job security. Low-income earners and self-employed small business owners by contrast have experienced a rapid deterioration in living standards following declining sales and job losses, compounded by soaring rental prices.