Q1 National Budget Deficit 75 Trillion Won 'Record High'

May Fiscal Trends
Record High Fiscal Deficit
Simultaneous Decline in Income and Corporate Taxes

The managed fiscal balance deficit, which reflects the actual state of the country's finances, recorded the largest deficit ever as of the end of March this year. This is due to decreased tax revenue amid economic sluggishness while expenditures have significantly increased.

According to the 'Monthly Fiscal Trends May Issue' released by the Ministry of Economy and Finance on the 9th, the integrated fiscal balance (total revenue minus total expenditure) for the first quarter showed a deficit of 64.7 trillion won. Excluding the four major social security funds such as the National Pension and Employment Insurance, the managed fiscal balance, which shows the government's actual fiscal condition, recorded a deficit of 75.3 trillion won, the largest since the monthly fiscal trends began in 2014.

The government’s income sharply decreased, but the areas requiring spending increased. To counter the recession caused by the three highs?high interest rates, high inflation, and high exchange rates?the government spent 212.2 trillion won (total expenditure) through early fiscal execution, including support for small business owners and social overhead capital (SOC) projects. This amount increased by 25.4 trillion won compared to a year ago.

Han Ju-hee, Director of Fiscal Soundness at the Ministry of Economy and Finance, explained, "The widening deficit in the managed fiscal balance is largely due to increased total expenditure from the fastest fiscal execution at record levels." Of the annual fiscal expenditure plan of 252.9 trillion won, 106.1 trillion won was executed by the end of March, raising the execution rate to 41.9%.

During the same period, the government’s total revenue was 147.5 trillion won, an increase of 2.1 trillion won. National tax revenue, which accounts for about 60% of total revenue, was 84.9 trillion won, a decrease of 2.2 trillion won.

By tax category, corporate tax revenue collected from companies decreased by 5.5 trillion won due to poor business performance, and income tax revenue also decreased by 700 billion won due to reduced bonuses from major companies. Value-added tax revenue increased by 200 billion won due to increased filing and payment and decreased refunds. Securities transaction tax increased by 200 billion won due to increased trading volume of listed stocks, but customs duties decreased by 300 billion won due to reduced imports.

The worsening national finances have led to an increase in national debt. As of the end of March this year, national debt stood at 1,115.5 trillion won, increasing by 23 trillion won in just three months compared to the end of last year.

Meanwhile, the issuance of government bonds from January to April was 63.4 trillion won, about 40.0% of the annual total issuance limit. The April funding interest rate rose to around 3.40% from 3.32% in the previous month, while the bid-to-cover ratio fell to 326% from 334% in the previous month. A Ministry of Economy and Finance official stated, "The April government bond interest rate rose due to factors such as rising international oil prices caused by escalating tensions in the Middle East and global interest rate increases driven by concerns over delayed rate cuts by the U.S. Federal Reserve (Fed)."