Russia-Ukraine War and Real Estate Market Slump Lead to Corporate Earnings Decline
Decrease in Tax Revenues Including Corporate Tax
Deficit Narrowed Compared to 2022
Last year, the public sector recorded a deficit of approximately 46 trillion won, continuing a four-year streak of deficits. This was due to a decrease in total revenue caused by reduced tax income such as corporate tax, resulting from poor corporate performance amid worsening domestic and international economic conditions. However, as COVID-19 related support came to an end, the deficit narrowed compared to 2022.
According to the "2023 Public Sector Accounts (Provisional)" released by the Bank of Korea on the 24th, the total revenue of the public sector (general government and public enterprises) last year was 1,106.7 trillion won, and total expenditure was 1,153.1 trillion won. Accordingly, the public sector balance (total revenue - total expenditure) recorded a deficit of 46.4 trillion won, narrowing from the previous year's deficit of 58.7 trillion won.
Total revenue decreased by 11.5 trillion won (-1.0%) compared to 2022, and total expenditure decreased by 23.8 trillion won (-2.0%).
By sector, the general government (central government, local governments, and social security funds) recorded total revenue of 827.3 trillion won last year, down 32.8 trillion won (-3.8%) from the previous year. Although social burden income such as National Pension increased by 15.9 trillion won, tax revenue including corporate tax and income tax decreased by 57.3 trillion won.
Total expenditure of the general government was 844.3 trillion won, down 16 trillion won (-1.9%) from a year earlier. Final consumption expenditure centered on goods and services increased by 13.3 trillion won, but other current transfers significantly decreased by 40.4 trillion won due to the reduction and termination of COVID-19 related support. The general government balance (total revenue - total expenditure) recorded a deficit of 17 trillion won, widening from 200 billion won the previous year.
Park Chang-gon, head of the Expenditure and National Income Team at the Bank of Korea's Economic Statistics Bureau, explained, "The main reason for the public sector recording deficits over the past four years is the increase in general government total expenditure due to COVID-19 related responses. Additionally, following the Russia-Ukraine war, rising energy prices also increased total expenditure of public enterprises."
He added, "In the case of last year, the biggest factor for the continued public sector deficit was the decrease in tax revenue caused by poor corporate performance and a sluggish real estate market amid worsening domestic and international economic conditions."
The total revenue of non-financial public enterprises such as Korea Electric Power Corporation and Korea Land & Housing Corporation reached 225 trillion won, increasing by 3.9 trillion won (1.8%) compared to the previous year, mainly due to increased sales in energy public enterprises.
On the other hand, total expenditure was 265 trillion won, down 22.5 trillion won (-7.8%) from the previous year. Energy public enterprises saw a decrease due to falling raw material prices such as crude oil and natural gas, and real estate development public enterprises experienced a decline due to sluggish development projects amid a weakened real estate market. As a result, the non-financial public enterprises' balance recorded a deficit of 40 trillion won, narrowing from 66.4 trillion won the previous year.
During the same period, financial public enterprises such as KDB Industrial Bank and Korea Housing Finance Corporation recorded total revenue of 63.5 trillion won, an increase of 15.9 trillion won (33.4%) from a year earlier, and total expenditure of 53 trillion won, up 13.2 trillion won (33.1%). The financial public enterprises' balance recorded a surplus of 10.5 trillion won, expanding from 7.8 trillion won the previous year.
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