NABO Fiscal Estimates & Tax Issues (No. 26)

Published on March 29, 2024
Published by Estimates and Tax Coordination Division

I. Fiscal Management Performance
 ·(Closure of Total Revenues and Total Expenditures in Fiscal Year 2023)) Upon the conclusion of the total revenues and expenditures for fiscal year 2023, total revenues were confirmed at KRW 497.0 trillion, while total expenditures stood at KRW 490.4 trillion. Consequently, the surplus in the settlement, representing the variance between total expenditures and revenues, amounted to KRW 6.5 trillion. Notably, this surplus comprises a global surplus, adjusted for a carryover amount of KRW 3.9 trillion, resulting in a net surplus of KRW 2.7 trillion.
 ·(National Tax Revenue Performance in Fiscal Year 2023) In 2023, national tax revenue amounted to KRW 344.1 trillion, reflecting a decrease of KRW 51.9 trillion (△13.1%) compared to the previous year's figure of KRW 395.9 trillion. This decline can be attributed to deteriorating corporate performance and a sluggish asset market. Additionally, national tax revenue fell short of the budget by KRW 56.4 trillion (△14.1%).
 ·(National Debt and Government Bond Issuance Trends in the Fourth Quarter of 2023) As of November 2023, the national debt (central government) stands at KRW 1,109.5 trillion. This includes a balance of government bonds totaling KRW 1,016.1 trillion, housing bonds amounting to KRW 80.6 trillion, and foreign exchange bonds totaling KRW 11.4 trillion. The total issuance plan for government bonds in 2023 amounts to KRW 167.8 trillion. This comprises a net increase of KRW 61.5 trillion to preserve the general accounting deficit and KRW 106.3 trillion for refinancing purposes.
 ·(Social Insurance Fund Operation Performance in 2023) In 2023, among the six social insurance funds, the National Pension/Teachers’ Pension Fund and the Industrial Accident/Employment Insurance Fund recorded a fiscal surplus, while the Public Officials Pension/Military Pension Fund recorded a fiscal deficit. Examining the distribution of operating assets in the financial sector over the past five years (2019-2023), it is observed that while the National Pension and Teachers’ Pension Fund have been increasing or maintaining a high proportion of allocations to stocks, the other four social insurance funds have been allocating the majority of their assets to bonds.

Ⅱ. Domestic Fiscal Estimates and Tax Trends
 ·(Main Contents and Future Tasks of the 2nd National Health Insurance Comprehensive Plan) The 2nd National Health Insurance Comprehensive Plan (`24~`28), announced by the Ministry of Health and Welfare on February 4, 2024, encompasses four key areas: ①Reform of the National Health Insurance payment system; ②Improvement of the medical service support system; ③Efficient management of insurance finances; and ④Support for medical innovation. This plan outlines the policy direction for mid- to long-term National Health Insurance, and given its significance, it is imperative to develop specific implementation plans and forecasts for health insurance fiscal demand in the future.

 
Ⅲ. Overseas Fiscal Estimates and Tax Trends
 ·(Tax System Reform Trends in Major Countries in 2023 - Income Tax System, Corporate Tax System) Regarding the income tax system reform trends in major countries in 2023, many nations expanded tax support to address the challenges posed by high oil prices and inflation following the COVID-19 pandemic. Additionally, some countries increased the income tax burden on high-income earners as part of efforts to enhance progressivity. In terms of corporate tax reform trends in major countries in 2023, most nations maintained their existing tax rate structures. However, they implemented tax reforms in response to various changes in the tax environment, including disruptions in the energy supply chain, escalating global technological competition, and the introduction of digital taxes.
 ·(Status of Operation of Overseas Systems Related to Stock Capital Gains Tax) Major OECD countries that tax stock transfer income typically employ a system where capital gains from stocks and other financial assets are subject to separate taxation, distinct from aggregate income. Moreover, in most of these countries, taxpayers are entitled to various deductions, including basic deductions and profit and loss deductions (loss carryover deductions).
 ·(Status of the Empty Homes Tax (EHT) Implementation in Major Countries)  The adoption of the Empty Homes Tax (EHT) as a policy measure to incentivize the voluntary maintenance of vacant properties and generate additional financial resources is observed in several major countries, including the United States, Canada, and Japan. These countries have implemented and currently operate taxation systems targeting empty homes. The tax can take various forms, including standalone taxation as the Empty Homes Tax (EHT) or as a significant component within the property tax system, often involving heavy taxation for vacant properties.

Ⅳ. Fiscal Estimates & Tax Issues and Analysis
 ·(Tax System Changes Introduced in 2024)  The revised tax law, passed during the plenary session of the National Assembly in December 2023 and set to take effect in 2024, encompasses several changes. These changes include: Increasing the tax-exempt limit for maternity and childcare allowances (income tax system); Expanding tax credits for video content production costs (corporate tax system); Abolishing price indexation for beer and hard liquor tax rates (consumption tax system); Introducing deductions for gifted property through marriage and childbirth (asset tax system); and Establishing exemptions for home acquisition for childbirth and childcare (local tax system). According to projections by the National Assembly Budget Office, these changes are anticipated to result in a decrease in tax revenues by KRW 4.8587 trillion (cumulative method) over the period spanning from 2024 to 2028.
 ·(Fiscal Demand Analysis Based on System Improvements Related to Childcare Leave in 2024)  In 2024, the Ministry of Employment and Labor plans to implement measures that expand fiscal support for extending the childcare leave period, and reducing working hours during the childcare period for dual-income parents who meet specific requirements. As a result of estimating the additional fiscal demand for five years (2025-2029), a total of KRW 1.6671 trillion (annual average of KRW 333.4 billion) for the reform of the childcare leave system, and a total of KRW 570.1 billion (annual average of KRW 114.0 billion) for the reform of the system to reduce working hours during the childcare period are projected.
 ·(Analysis of Fuel Tax Burden and Effect of Fuel Tax Reduction According to Household Income Level)  An analysis of the fuel tax burden and the impact of recent fuel tax reductions reveals that the amount of fuel tax reduction by household income quintile is proportional to income level. However, the ratio of the fuel tax reduction to total income, which serves as an indicator of consumption capacity, exhibits an inverted U-shaped trend. Specifically, this ratio increases from the low to the middle household income quintile and subsequently decreases at the high quintile.