ed Gloomy fiscal reality

Last year’s national tax collection fell far short of the government’s forecast, raising concerns about the nation’s long-term fiscal soundness.

According to the Ministry of Strategy and Finance, the government collected a total of 292.9 trillion won in gross revenue ― tax revenue plus non-tax revenue ― last year, falling short by 10.9 trillion won of its estimate.

Of the 292.9 trillion won gross, tax revenue accounted for 201.9 trillion won, 8.5 trillion won shy of the government’s forecast, due to declines in corporate, value-added and capital gains taxes amid the prolonged economic slump.

Fortunately, earned income tax revenue climbed 2.3 trillion won or 11.7 percent thanks to rises in the number of employed persons and nominal wages. But this can’t be welcome thoughtlessly, given that salaried workers grapple with a relatively heavier tax burden.

Corporate tax revenue fell 2.1 trillion won short of the target last year owing to the economic downturn, but this may be the result of our industry’s failure to move upmarket. Revenue shortages from capital gains taxes amounted to 800 billion won, and those from value-added taxes reached 600 billion won.

Most worrisome is that the revenue-generating effect of economic growth has been waning significantly. According to the National Assembly Budget Office, a 1-percent growth in GDP triggered an increase of 0.8-0.9 percent in national tax revenue in the past, but the gain fell to 0.72 percent recently.

That means that the revenue shortfall could be a structural problem haunting the economy in the extended period of time, not a passing phenomenon arising from economic woes.

This year is no exception. The finance ministry expected this year’s national tax revenue to reach 218.5 trillion won, up 16.6 trillion won from the 201.9 trillion won in 2013, on the assumption that the Korean economy would grow 3.9 percent.

But this prediction may be too optimistic, considering that our economy may be dented severely in the aftermath of the U.S. Fed’s tapering of quantitative easing, which has been shaking emerging markets.

The chronic tax revenue shortfall comes as a serious concern for the incumbent administration, which took power by pledging to expand welfare expenses and nursing the bruised middle class back to health.

In fact, President Park Geun-hye vowed to spend 135 trillion won delivering on her election promises by 2017, but the looming budget deficit will prevent the government from meeting basic welfare needs, let alone enable her to make good on her campaign promises.

What’s urgently needed is to boost domestic demand so that it can lead to a sharp rise in corporate tax revenue. To this end, the government should focus on lifting unnecessary red tape and encouraging businesses to invest more actively.