Total Revenue Settlement Analysis of Fiscal Year 2015
Published July, 2016
Total revenue of FY 2015 reached KRW 371.8 trillion, increasing by KRW 15.4 trillion (4.3%) YOY, which was short of the revised supplementary budget of KRW 377.7 trillion by KRW 5.8 trillion (－1.6%). Driven by the booming asset market, national tax revenue recorded KRW 217.9 trillion, increasing from the KRW 205.5 trillion of the previous year by KRW 12.4 trillion (6.0%) and surpassing the revised supplementary budget of KRW 215.7 trillion by KRW 2.2 trillion (1.0%). At the same time, due to decreases in interest rates, non-national tax revenue stood at KRW 153.9 trillion, growing from the KRW 150.9 trillion of the previous year by a mere KRW 3 trillion (2.0%), which was less than the revised supplementary budget of KRW 161.9 trillion by KRW 8 trillion (－5.0%).
The main drivers behind the increased national tax revenue include the booming asset market, the effects of taxation law amendments such as a hike in cigarette prices, and toughened taxation enforcement. On the back of the booming property and securities markets, revenue from capital gains tax and securities transaction tax recorded a high growth rate of 47.3% (KRW 3.9 trillion) and 49.6% (KRW 1.5 trillion) YOY, respectively. Increases in global income tax, influenced by the amendment of the income tax law in 2014, and cigarette prices also contributed to the higher national tax revenue by KRW 1 trillion and KRW 2.2 trillion, respectively. The toughened taxation enforcement of the National Tax Service, including informing individuals of upcoming tax filing, also led to the increase in tax revenue. The government needs to consider that the recent improvement in national tax revenue collection may have been a one-time aberration in its future fiscal management. The upward trajectory of national tax income since 2015, amid the weak recovery of the real economy, has been driven by a hike in asset prices. Therefore, a widening fiscal deficit will be inevitable if the temporary revenue upturn is misunderstood as structural growth of fiscal income in the government’s national finance operation. In addition, efforts are needed to maintain fiscal soundness to be better prepared for a possible internal and external shock as uncertainties in Europe and other advanced economies are growing.
At the same time, less non-national tax income was collected than the budget mainly due to low interest rates and setbacks in selling the properties and securities of public agencies. The shortages in property income (－ KRW 2.4 trillion) and operating income of corporation special accounts (－ KRW 1.3 trillion) were attributable to worsening conditions for investment amid the backdrop of low interest rates. The reduced sales proceeds of government-owned properties (－ KRW 1.2 trillion) and borrowing and excess funds (－ KRW 0.4 trillion) were caused by a setback in selling the properties and securities of the government. In addition, social security contributions (－ KRW 2.5 trillion) and fines and confiscations (－ KRW 0.8 trillion) also played a role in collecting less non-national tax income than the budget. When planning the budget of non-national tax revenue in the future, the government needs to reflect the slowdown in the pace of growth of property income and social security contributions fueled by transformations in the economic environment such as a prolonged trend of low interest rates and a low growth rate. Furthermore, the government needs to examine the items that have continued to show poor performance each year in revenue collection and reflect their recent trends and error rates, thus revamping the practice of allocating excessive revenue on such items during budget planning. Further efforts should also be made to promote the transparency and accountability of accounting through expanding the government’s own income and simplifying the transfer between accounts and funds in national finance.