Longest Deficit Period Since the Financial Crisis
Corporate Tax Revenue Drops Due to Weaker Business Performance
Last year, the public sector-including the government and public enterprises-recorded a deficit of nearly 49 trillion won, marking the fifth consecutive year of deficits. With corporate earnings underperforming, tax revenues such as corporate tax declined, resulting in the longest period of deficits since the financial crisis.
According to the "2024 Public Sector Accounts (Provisional)" report released by the Bank of Korea on September 23, the public sector balance (total revenue minus total expenditure) recorded a deficit of 48.9 trillion won last year. Although the deficit narrowed slightly compared to the previous year (49.1 trillion won), the public sector has remained in deficit for five consecutive years. The previous longest period of deficits was six years, from 2008 to 2013, during the global financial crisis.
Total public sector revenue last year was 1,150 trillion won, an increase of 30.8 trillion won (2.8%) from the previous year's 1,119.2 trillion won. Specifically, tax revenues such as corporate and income taxes decreased by 7.6 trillion won compared to the previous year, while social security contributions (up 10.9 trillion won) and property income receipts (up 20.3 trillion won) increased. Property income receipts refer to interest or dividend income earned by the public sector from lending real or financial assets. Social security contributions are premiums collected for social insurance programs such as the National Pension and National Health Insurance.
Total public sector expenditure reached 1,198.9 trillion won, up 30.6 trillion won (2.6%) from the previous year's 1,168.3 trillion won. The increase was largely driven by higher final consumption expenditure (up 18.9 trillion won) and greater social benefits such as basic pension and National Pension payments (up 12.7 trillion won).
Lee Hyunyoung, head of the Expenditure National Income Team at the Economic Statistics Department 2 of the Bank of Korea, explained, "Last year's public sector deficit was mainly due to a decrease in corporate tax revenue. As Korea is an export-oriented country, domestic companies are heavily affected by global industry trends. In 2023, the global semiconductor market performed poorly, which led to a decline in corporate tax payments by Korean companies last year." She also noted that the reduction in the corporate tax rate had a partial impact.
Regarding the five consecutive years of deficits, she said, "From 2020 to 2022, the main reason was increased government spending to respond to COVID-19. The deficits from 2023 onward are attributable to the decline in corporate tax revenue. Compared to other countries, Korea's deficit due to COVID-19 response was relatively moderate, and the country managed the situation well. Since corporate tax revenue can fluctuate depending on corporate performance, it is difficult to view this as a structural problem."
By sector, the general government (central government, local governments, and social security funds) recorded total revenue of 858.8 trillion won last year, up 22.1 trillion won (2.6%) from the previous year. Total expenditure was 896.3 trillion won, an increase of 38.8 trillion won over the same period. The general government balance, calculated as total revenue minus total expenditure, posted a deficit of 37.5 trillion won, with the deficit widening compared to the previous year.
Specifically, the central government saw a decrease in total revenue, mainly due to lower current taxes, while total expenditure increased, resulting in a deficit of 76.5 trillion won-an expansion from the previous year. Local governments recorded a deficit of 11 trillion won, as total expenditure, including social benefits, grew more than total revenue, also widening the deficit. In contrast, the social security funds posted a surplus of 50.1 trillion won, as total revenue, including social security contributions, exceeded total expenditure, including social benefits. This is the largest surplus since statistics were first compiled in 2007.
Non-financial public enterprises such as Korea Electric Power Corporation and Korea Land & Housing Corporation (LH) recorded a deficit of 16.2 trillion won; however, the deficit narrowed compared to the previous year's 35.5 trillion won. Total revenue increased by 4.4 trillion won (1.9%) year-on-year to 231.6 trillion won, while total expenditure decreased by 14.9 trillion won (5.7%) to 247.8 trillion won. The Bank of Korea explained that the increase in total revenue was driven by higher electricity rates, which boosted sales for related public enterprises, while the decrease in total expenditure was due to lower intermediate consumption by energy public enterprises as raw material prices such as crude oil and natural gas fell.
Financial public enterprises such as Korea Development Bank and Korea Housing Finance Corporation posted a surplus of 4.8 trillion won. Total revenue (69.3 trillion won) increased by 5.5 trillion won from the previous year, mainly due to higher property income receipts such as interest and dividends, while total expenditure (64.5 trillion won) increased by 7.9 trillion won over the same period, as current transfer expenditures and property income payments rose.
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