[Yoon Administration Supplementary Budget] '53.3 Trillion' Large Excess Tax Revenue, Again?…Ministry of Economy and Finance's 'Faulty Estimates' for 2 Consecutive Years

The Fastest Ever 'Supplementary Budget Increase'... Top Deputy Minister of Finance Choi Sang-dae "Another Excess Tax Revenue Occurred, Apologies"

[Asia Economy Sejong=Reporter Son Seon-hee] The Ministry of Economy and Finance, which caused controversy last year with a record-breaking tax revenue forecast error exceeding 60 trillion won (based on the original budget), announced that this year’s excess tax revenue will also reach the 53 trillion won level. Following last year, the ministry is expected to face criticism again for 'faulty forecasts' as it records a double-digit excessive error rate for two consecutive years while managing the national finances.

On the 12th, the Ministry of Economy and Finance announced the first supplementary budget (supplementary budget) of the Yoon Seok-yeol administration, totaling 59.4 trillion won, stating that 53.3 trillion won of excess tax revenue will be used as the funding source. Of the excess tax revenue, 44.3 trillion won, excluding partial national debt repayment (9 trillion won), will be used as the supplementary budget funding. In other words, the ministry plans to significantly increase this year’s national revenue based on the annual excess tax revenue and simultaneously spend it all.

Choi Sang-dae, the 2nd Vice Minister of Economy and Finance, apologized during a briefing related to the supplementary budget, saying, "I am sorry that excess tax revenue has occurred again this year following last year."

Choi Sang-dae, 2nd Vice Minister of Strategy and Finance Photo by Yonhap News

When preparing last year’s original budget, the Ministry of Economy and Finance projected this year’s national tax revenue to be 343.4 trillion won. However, within just a few months, the forecast was revised upward by 53.3 trillion won to 396.3 trillion won. The error rate compared to the original budget is 15.5%. Although this is somewhat lower than last year’s record-high error rate of 21.7%, it still represents a high double-digit error rate.

Accordingly, this year’s total revenue is 608.3 trillion won, which is 54.7 trillion won more than the original budget and the first supplementary budget combined (553.6 trillion won). This is the largest single revenue revision in history. Total expenditure is 676.7 trillion won, which is 52.4 trillion won more than the first supplementary budget (624.3 trillion won).

However, this year’s economic growth rate (GDP) is likely to be revised downward to the mid-2% range, below the government’s target of 3.1%. Generally, GDP and tax revenue are known to be positively correlated. Moreover, given the significant domestic and international economic uncertainties and the fact that only the first quarter’s tax revenue has been collected so far, questions arise about conducting a large-scale revenue revision of over 53 trillion won. Notably, all five previous revenue increases were submitted to the National Assembly after June, making this the earliest in terms of timing. Since most of the increased revenue will be spent on one-time cash support for 'loss compensation,' there are cautious concerns that a 'tax revenue shortage crisis' might occur at the end of the year.

The Ministry of Economy and Finance dismisses such possibilities for now. Ko Kwang-hyo, Director General of Tax Policy at the ministry, said during the supplementary budget briefing, "(This excess tax revenue) is the best estimate reflecting recent macroeconomic conditions," adding, "Considering collection performance and progress rates up to March, it is sufficiently achievable."

The ministry cited 'corporate tax, income tax, and value-added tax' as the main factors behind the excess tax revenue. Due to last year’s export boom improving the performance of major companies, corporate tax revenue is expected to increase by 33.7 trillion won from last year’s results to 104.1 trillion won. As of March, the confirmed increase in corporate tax alone is estimated at about 10.9 trillion won.

Additionally, with employment recovery continuing from the beginning of the year, along with wage increases and higher bonuses in large companies, earned income tax is expected to increase by 10.3 trillion won to 58 trillion won. Capital gains tax is also expected to increase by 11.8 trillion won due to rising real estate prices and official property values.

However, even if such large tax revenues are actually collected by the end of the year, criticism is expected to be unavoidable as the Ministry of Economy and Finance has caused rapid volatility in managing the national budget. In this regard, opposition parties have already begun calling for a 'state audit' targeting the ministry to uncover the truth. Yoon Ho-jung, Co-Chairman of the Democratic Party’s Emergency Response Committee, said in a radio interview on the morning of the same day, "It is highly suspicious how last year’s tax revenue was calculated," adding, "When excess tax revenue occurred last year, I said it was a matter for a state audit, and now is exactly that situation." Park Hong-geun, floor leader of the Democratic Party, also said at a National Assembly floor meeting that morning, "The Ministry of Economy and Finance’s forecast errors have gone too far," and "We will launch a truth-finding investigation at the National Assembly level and hold them accountable."