Due to the Impact of COVID-19... Rapid Deterioration of 'National Finances' as Income Decreases and Expenditure Increases

Ministry of Economy and Finance, 'Monthly Fiscal Trends July Issue'

Fiscal Balance Trend (Cumulative Basis).

[Sejong=Asia Economy Reporter Joo Sang-don] To support overcoming the damage caused by the novel coronavirus infection (COVID-19), the government postponed the payment deadlines for corporate tax and comprehensive income tax, and with the change in the corporate tax attribution month, national tax revenue in May decreased by more than 12 trillion won. On the other hand, as the expenditure for the emergency disaster relief fund increased by nearly 12 trillion won, the national treasury is rapidly depleting.

According to the 'July Fiscal Trend' announced by the Ministry of Economy and Finance on the 7th, total revenue in May this year was 31.9 trillion won, a decrease of 13.2 trillion won compared to the same period last year. Total revenue from January to May was 198.2 trillion won, down 17.7 trillion won.

An official from the Ministry of Economy and Finance said, "Total revenue significantly decreased due to tax support measures such as changes in corporate tax payment deadlines and extensions of comprehensive income tax deadlines," adding, "Since deferred corporate tax and extended comprehensive income tax, corporate tax, and value-added tax will be collected between June and August, tax revenue levels are expected to recover from August onward."

The largest decrease in tax revenue this year is corporate tax. Corporate tax collected in May was only 4.4 trillion won, 10.8 trillion won less than a year ago. Of the decrease due to the change in the corporate tax attribution month in May, 6.6 trillion won was due to this change, and 4.2 trillion won was due to a decline in last year's business performance. The cumulative amount from January to May was 26.1 trillion won, down 13.9 trillion won compared to the same period last year. This includes the extension of payment deadlines due to tax support.

Comprehensive income tax also decreased by 4.4 trillion won due to the extension of the filing and payment deadlines. Including this, the total amount of deferred payments due to COVID-19 tax support from January to May reached 8.9 trillion won. Accordingly, cumulative national tax revenue up to May this year was 118.2 trillion won, down 21.3 trillion won compared to the same period last year.

The Ministry of Economy and Finance explained that considering temporary factors such as the extension of payment deadlines (8.9 trillion won), corporate tax attributed to June (1.1 trillion won), and comprehensive real estate tax changed from February to June (600 billion won), the actual decrease in cumulative tax revenue in May is reduced to 10.7 trillion won.

On the other hand, expenditures increased significantly. With 93% of the 12.2 trillion won emergency disaster relief fund disbursed by the end of May, total expenditure was 49.8 trillion won, an increase of 11.5 trillion won compared to the same period last year. On a cumulative basis, expenditure surged by 24.5 trillion won compared to a year ago.

With tax revenue sharply decreasing due to tax support for overcoming COVID-19 and expenditures increasing, the national finances rapidly deteriorated. The integrated fiscal balance, which is total revenue minus total expenditure in May, recorded a deficit of 17.9 trillion won, with the deficit size increasing by 24.7 trillion won compared to the same period last year. The cumulative deficit from January to May was 61.3 trillion won, expanding the deficit by 42.2 trillion won. The management fiscal balance, excluding social security funds such as the National Pension and Employment Insurance from the integrated fiscal balance, recorded a deficit of 21.4 trillion won in May, worsening by 23.7 trillion won compared to the same month last year, and on a cumulative basis, it reached a record worst of 77.49 trillion won, deteriorating by 41.4 trillion won.

National debt reached 764.2 trillion won, increasing by 17.9 trillion won in one month. The Ministry of Economy and Finance projected that the management fiscal balance deficit for this year, including the third supplementary budget, will reach 111.5 trillion won, and national debt will reach 839.4 trillion won.