Government ought to prepare for epidemic's impact on economy
The government's tax revenue fell short of budget spending for the first time in five years in 2019. According to the Ministry of Economy and Finance, Monday, the administration collected 293.5 trillion won ($247.2 billion) in taxes last year, 1.3 trillion won less than the budget expenditure of 294.8 trillion won. The main reason was the fall of about 7 trillion won in corporate income tax reflecting sluggish business performances, bringing an end to four years of robust receipts.
From 2016 to 2018 in particular, revenue exceeded spending by 10-25 trillion won a year, easing the government's burden from increased spending. Officials can no longer expect such booming years, as the revenue is likely to drop even steeper this year, making it difficult for the government to increase spending and forcing officials to deal with rising welfare demand.
The government has set its growth target at 2.4 percent for 2020 but the outbreak of the new coronavirus has resulted in a pessimistic forecast that the nation may not be able to attain even 2 percent as it did last year. Already, economic think tanks at home and abroad have lowered their growth projections for the Korean economy to between 1.5 percent and 2.2 percent. Low growth means slumping tax receipts. Government officials, too, estimate this year's revenue could fall 0.9 percent from last year.
Experts call for the administration to formulate an extra budget to cope with business setbacks resulting from the coronavirus. The increase in government spending is somewhat inevitable to stem an economic freefall, but the reckless issuance of state bonds is irresponsible as it shifts the burden to future generations. Nor is extreme belt-tightening desirable amid an extreme contraction in private investment and consumption.
The answer lies in how the government can reinvigorate the private sector. A set of bold measures are needed to innovate industry by reform regulations to bolster productivity. A tax increase may be one solution but it should be a last resort. Maximizing growth momentum, expanding the revenue base and enhancing fiscal efficiency should be top priorities.
The government's tax revenue fell short of budget spending for the first time in five years in 2019. According to the Ministry of Economy and Finance, Monday, the administration collected 293.5 trillion won ($247.2 billion) in taxes last year, 1.3 trillion won less than the budget expenditure of 294.8 trillion won. The main reason was the fall of about 7 trillion won in corporate income tax reflecting sluggish business performances, bringing an end to four years of robust receipts.
From 2016 to 2018 in particular, revenue exceeded spending by 10-25 trillion won a year, easing the government's burden from increased spending. Officials can no longer expect such booming years, as the revenue is likely to drop even steeper this year, making it difficult for the government to increase spending and forcing officials to deal with rising welfare demand.
The government has set its growth target at 2.4 percent for 2020 but the outbreak of the new coronavirus has resulted in a pessimistic forecast that the nation may not be able to attain even 2 percent as it did last year. Already, economic think tanks at home and abroad have lowered their growth projections for the Korean economy to between 1.5 percent and 2.2 percent. Low growth means slumping tax receipts. Government officials, too, estimate this year's revenue could fall 0.9 percent from last year.
Experts call for the administration to formulate an extra budget to cope with business setbacks resulting from the coronavirus. The increase in government spending is somewhat inevitable to stem an economic freefall, but the reckless issuance of state bonds is irresponsible as it shifts the burden to future generations. Nor is extreme belt-tightening desirable amid an extreme contraction in private investment and consumption.
The answer lies in how the government can reinvigorate the private sector. A set of bold measures are needed to innovate industry by reform regulations to bolster productivity. A tax increase may be one solution but it should be a last resort. Maximizing growth momentum, expanding the revenue base and enhancing fiscal efficiency should be top priorities.
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