NABO Estimates & Tax Issues (Issue 11)
Published on May 29, 2020
Published by Estimates and Tax Coordination Division, Estimates and Tax Analysis Office
I. Estimation & Tax Trends
·Of the 386 legislative bills approved in the first quarter of 2020, 108 (28.0%) are subject to fiscal enforcement that will affect national and local government finances. Implementation of these bills is expected to result in an annual revenue decline of 635.6 billion won and an annual expenditure increase of 2.7693 trillion won on average over the next five years (2020~2024), respectively.
·National tax revenue in the first quarter of 2020 was 69.5 trillion won, down 8.5 trillion won (△ 10.8%) from the same period last year (78.0 trillion won).
Ⅱ. Estimation & Tax Analysis
·A tax policy response phase analysis framework, created by the OECD (2020), was used to analyze measures taken by tax authorities in Korea, the U.S., Europe, China and Japan. The taxpayer support measures related to COVID-19 in major countries so far are deemed to have been designed to address “crisis outbreak (1st phase)” and “lockdown & alleviation (2nd phase).”
·Housing prices officially disclosed in 2020 indicate that they have undergone the highest increase (5.89%) over the last five years. In 2020, real estate holdings taxation is estimated to increase by 6.59 trillion won in tax revenue, and as for the Comprehensive Real Estate Holding Tax, a contributing proportion made from an increase in the officially disclosed housing prices is estimated to be 0.38 trillion won (80.9%) of the increase in holding tax (0.47 trillion won).
·Implementation of the amendments in the Law on Road Traffic (Min-sik, Tae-ho, Yu-chan Laws) is estimated to create an additional fiscal demand of 181 billion won due to the installation of unmanned traffic control devices and pedestrian crossing signals, as well as the increased number of those required to take school bus safety training.
·As for the estimation of expenditures, including veteran benefits, etc., in line with the scenario where the unit cost of benefit payout (13 mandatory expenditure items including compensation, medal of honor allowances, and medical consultations sought at the Korea Veterans Hospital) increases annually in conjunction with the annual average growth rate over the past 5 years, is expected to rise from 4.7 trillion won in 2020 to 6.3 trillion won in 2030.
Ⅲ. Latest Estimation & Tax Issues
·According to the CBO, legislative bills (4 cases) subject to fiscal enforcement approved by the U.S. Congress to respond to COVID-19 in March~April of 2020 are estimated to cost $2.4 trillion over the next 10 years.
·Accrued pension liability in 2019 increased by 4.3 trillion won YoY to 944.2 trillion won, indicating a less steep rise compared to the annual average hike of 74.2 trillion won since 2011. This is due to the fact that a lower inflation rate, etc. was applied in the debt appropriation process following actuarial assumptions.
·Due to the decline in national tax revenues in 2019 and 2020, the national tax reduction and exemption rate [national tax reductions and exemptions ÷ (national tax revenue + national tax reductions and exemptions)] is expected to exceed its limit (average of the last three years + 0.5%p). Among the new and imminent sunset items, there have been cases excluded from the tax expenditure performance evaluation even though the annual reduction and exemption amount is more than 30 billion won. There is also an issue that there are too many items among the “proactive management targets” that are permanently run without sunset regulations being applied to.
·This report introduced the 2018 report, “Options for Reducing the Deficit: 2019 to 2028,” as part of the “Policy Options to Reduce the Fiscal Deficit” published by the CBO biannually. In the 2018 report, 121 options were proposed to help reduce the fiscal deficit.
·This report also introduced the “Fiscal Sustainability Report 2020” spanning 75 years (2018-2093) published by the Canadian PBO in February 2020.
Ⅳ. Tax Indicators at a Glance
In this report, tax indicators such as the tax burden rate, the rate of national burden, the tax rate for major tax items, the ratio of tax revenue to nominal GDP, the ratio of local taxes to total taxes, national and local tax reduction and exemption rates, monthly national tax income and progress rate, etc. can be viewed at a glance.