NABO Fiscal Estimates & Tax Issues (No. 27)

Published on June 28, 2024
Published by Estimates and Tax Coordination Division

I. Fiscal Management Performance
 ·(Total Revenues and Trend in Q1 of 2024) Total revenue in the first quarter of 2024 amounted to 147.5 trillion won, reflecting a YoY increase of 2.1 trillion won (1.4%) compared to 145.4 trillion won in the first quarter of 2023. However, the revenue progress rate against the budget was 24.1%, which was a decrease of 1.2 %p YoY based on settlement.
 ·(National Debt and Treasury Bond Issuance Trend in Q1 of 2024) As of March 2024, the national debt (central government) stands at 1,115.5 trillion won. Within this total, the balance of treasury bonds amounts to 1,020.8 trillion won, housing bonds total 81.4 trillion won, and foreign exchange stabilization bonds account for 11.9 trillion won. In 2024, the total issuance plan (cap) for treasury bonds was 158.4 trillion won. Of this amount, the net issuance size was 49.9 trillion won, while the refinancing amount reached 108.5 trillion won.

Ⅱ. Domestic Fiscal Estimates and Tax Trends
 ·(Main Contents of the 2024 Tax Expenditure Basic Plan) According to the "2024 Tax Expenditure Basic Plan”announced on March 26, 2024, there are two subjects undergoing preliminary feasibility assessment for tax special treatment this year, which include expanding integrated employment tax credits for childcare-friendly companies. Additionally, 21 cases are undergoing in-depth assessment, such as tax credits for research and human resource development expenses. Each year, performance evaluations are conducted on newly introduced or expiring special tax treatment items. However, as in-depth evaluation results are pending and exemptions from preliminary feasibility evaluations persist, there is a need for diligent management of tax expenditures.
 ·(Trends of Individual Savings Account (ISA) in Korea and Major Countries, and the Comparison of Their Systems)  In the UK and Japan, Individual Savings Accounts (ISAs) encompass various financial products and enable investment by type, thereby enhancing account usability and fostering long-term investment. Both countries have reformed their systems to facilitate this approach. Similarly, Korea has expanded its ISA system by raising tax exemption limits and permitting investment in domestic listed stocks. However, the subscription rate relative to the total population remains relatively low. To align with the experiences of the UK and Japan, Korea should consider reforming the ISA system to promote long-term asset accumulation across the lifecycle rather than solely focusing on short-term subscription rates.
 ·(Legislative Trends and Fiscal Estimation Trends Related to Foreigner Policy in the 21st National Assembly)  Among the bills related to foreigner policy proposed in the 21st National Assembly, a total of 25 bills are anticipated to have fiscal demands. Notable cases include: The extension of the sunset period for special taxation, resulting in a reduction of 461 billion won in income tax revenues over 7 years due to a single tax rate of 19% on earned income for foreign workers; The bill supporting improvement projects for foreign workers' living environments, which is projected to increase expenditures by 76 billion won over 5 years; The establishment of a dedicated organization for foreigner policy, expected to lead to an annual spending increase ranging from 18.8 billion won to 20.9 billion won.

 
Ⅲ. Overseas Fiscal Estimates and Tax Trends
 ·(European Union's Long-Term Fiscal Outlook for Pensions, Health, Long-Term Care, and Education: Insights from the 2024 Ageing Report) According to the “2024 Ageing Report”published by the EC, EU member countries are projected to experience increased pension expenditure levels by 2070, alongside rising health spending relative to GDP due to the increase in the elderly dependency ratio anddemographic shifts. The report also forecasts a continued rise in long-term care spending relative to GDP until 2070. Conversely, the EU's long-term care spending relative to GDP is projected to continue increasing until 2070. In contrast, education spending relative to GDP is expected to decrease as the number of students declines over time.
 ·(Tax Reform Trends in Major Countries in 2023 - Consumption Tax System, Property Tax System)  In 2023, countries implemented various reforms in their consumption tax systems to address rising prices. Measures included temporary tax burden reductions on energy and food products. Additionally, some nations introduced tax incentives to promote a low-carbon economy. Regarding property tax system reforms, many countries focused on strengthening these systems to boost tax revenue, address housing price issues, and enhance equity. Conversely, some countries relaxed their property tax frameworks to stimulate real estate transactions.

Ⅳ. Fiscal Estimates & Tax Issues and Analysis
 ·(Results of Examining the Fiscal Needs of the Laws Passed in 2023)  Upon examining the fiscal needs of 185 passed and promulgated laws estimated by NABO, import laws demonstrate characteristics such as a decrease in tax revenue due to the extended tax expenditure application period, countered by an increase in revenue from the extended validity period of the special tax for rural areas. Regarding expenditure laws, a significant portion is attributed to extending the validity period of government support for National Health Insurance. Additionally, they exhibit features that contribute to the expansion of social overhead capital, such as the construction of new airports.
 ·(Tax Policy Implementation and Main Contents in the 21st National Assembly)  In the 21stNational Assembly, a total of 1,638 Tax Revision Bills related to national tax were proposed, with 876 bills, or 53.5%, successfully passing. The primary policy goals of these passed laws prioritize: ① Resolving disparities, ② Promoting economic growth, and ③ Ensuring stability in people's lives. These laws notably target low-income families and small and medium-sized enterprises, reflecting a high proportion of policies aimed at supporting these groups.
 ·(Analysis of the Conversion of Individual Businesses to Corporations and Its Implications)  Based on analysis using Statistics Korea's recently released Statistical Business Register (SBR), it was found that 61,000 individual business owners converted to corporations between 2012 and 2022. The analysis indicates that as the tax rate gap widens, there is an increasing trend in businesses converting from individual status to corporations. Therefore, there is a pressing need for more thoughtful policy design that carefully considers the interplay between personal income tax and corporate tax rates when determining their levels.
 ·(Estimating Fiscal Requirements Following the Conversion of the Special Health Checkup Project for Female Farmers to a Main Project)  If the Ministry of Agriculture, Food and Rural Affairs' pilot project, the 'Female Farmers Special Health Checkup Project,' transitions to a main project, the estimated total project cost is projected to range from 187 billion won to 270.4 billion won, depending on the checkup rate scenario. Following the project's conversion to a main project, an increase in the mandatory spending (uncontrollable expenditure)budget is anticipated due to the expanded number of beneficiaries. Therefore, careful consideration of key variables is essential to accurately reflect the appropriate budgetary adjustments.