Summary of the 2017 Revenue Proposal Analyses
October 31, 2016
Economic Analysis Office
The administration has submitted revenue and expenditure proposals to the National Assembly each year. Upon each submission, NABO has analyzed these proposals and released its Economic Outlook and Fiscal Analysis Series of
five reports on the revenue bill, including reports on economic outlook and gross revenue outlook, and analysis of the tax revision bill, mid-term aggregate finance, and overall revenue, as well as its Budget Bill Analysis Series of 13 reports on the proposal for expenditures. NABO has also striven to publish a summary report in one volume to promote better use as a reference during the National Assembly’s review.
This report summarizes the Economic Outlook and Fiscal Analysis Series to further efficiency of the National Assembly’s review of the 2017 Revenue Proposal.
In order to formulate the revenue proposal, the scale of tax and non-tax revenue and the main sources of fiscal revenue need to be estimated based on the economic outlook. In addition, revenue estimates are determined based on tax policy, including tax expenditures and tax law amendment. Therefore, correctly forecasting the economy, which is a precondition to developing the revenue proposal, and calculating gross revenue through analysis of the Tax Revision and Tax Expenditure proposals submitted by the government is key to the process of deliberating revenue in the government’s budget bill.
The potential economic growth rate of Korea is estimated to be an annual average of 2.9% for the next five years, slightly down from the 3.0% over the last five, while expenditures are forecast to reach KRW 448.5 trillion by 2020, increasing an average of 3.0% annually.
Fiscal soundness is expected to improve for this and next year on the back of strong revenue growth, but it is concerning that mid-term fiscal soundness will deteriorate more than the administration plan estimates.
Therefore, now is the right time to discuss fundamental fiscal policy and tax reform to handle mid- to long-term changes in the economic and financial environment. However, the tax revision proposal submitted by the government remains a passive overhaul of tax schemes, rather than a structural reform, with a minimal effect on revenue, and its expansionary approach to tax expenditures runs counter to the government’s overall directions towards reducing tax exemptions and reductions.