NABO Estimates & Tax Issues (Issue 14)
Published on 26 February 2020
Published by Estimates and Tax Coordination Division of the Estimates and Tax Analysis Office
I. Estimations & Taxation Trends
· Among the 343 legislative bills approved in the fourth quarter of 2020, 127 (37.0%) have an impact on the finances of national and municipal governments. Regarding 52 bills of which an estimation can be made, enforcement of the bills is expected to result in an annual decrease of 1 trillion 338.1 billion Korean won in revenue and an increase of 580.2 billion won in expenditure on average, over the next five years (2021-2025).
·National tax revenues reached 285.5 trillion won in FY2020, declining for the second consecutive year since 2019 due to deteriorated domestic demand and the economic slowdown caused by COVID-19.
Ⅱ. Estimations & Taxation Analyses
·(Spillover effects of the Plan on the Publicly Announced Value of Real Estate Prices) The increase in real estate prices according to the Plan on the Publicly Announced Value of Real Estate Prices, published in November 2020 is expected to elevate the assessed value of real estate assets. As a result, in terms of welfare, changes are expected to be made on the eligible beneficiaries of welfare policies along with an increase in health insurance contribution rates; in terms of contribution funds, preservation contributions for farmland and development-restricted zones are expected to increase to a limited extent; and in terms of real estate assessment, the amount of compensation provided in exchange for land purchases is expected to increase. Taking into consideration the potential spillover effects of the Plan on the Publicly Announced Value of Real Estate Price on these three areas, response measures should be pursued by each relevant institution, if necessary.
·(Current status of the simplified tax standard and analysis of international comparison) The simplified tax standard is a special value-added tax scheme applicable to small business owners. In Korea, this standard is applied only to individual businesses, whereas businesses classified as corporations that meet the requisite criteria in terms of revenues and type of business are also eligible for the simplified tax standard in countries such as the UK, Germany, Canada, Japan and Belgium. Also, the UK and Germany have designated more specific sectors subject to the simplified tax standard compared to those designated by Korea and Japan.
·(Comparative analysis of public social expenditures in major OECD economies) The OECD keeps a social expenditure database (SOCX) as a basic statistical measurement for identifying and comparing the social welfare status of its member states, a report on which is published biennially. The scale of Korea‘s public social expenditure has been witnessing a sudden increase, and as the social insurance system matures, the social welfare contribution rate as well as the size of public social welfare expenditure-to-GDP within the public’s burden ratio appeared to increase at the same time.
Ⅲ. Estimations & Current Tax Issues
·(The tax policy forecast of the US Biden administration) According to forecasts made by major think tanks in the US, tax revenues to be raised according to the Biden camp‘s tax pledge are expected to reach approximately 3.7 to 4.0 trillion dollars over the next 10 years (2021-2030). While a large-scale stimulus package is also under discussion and an official tax act amendment is yet to be drafted, American tax policy is expected to move away from the Trump administration‘s policy of tax cuts. However, there may be policy adjustments according to the level of response against COVID-19 and the congressional review process.
·(Changes in mandatory welfare expenditures in 2021) As a result of the 2021 budget confirmation process at the National Assembly, the eligible beneficiaries and unit prices in 13 mandatory expenditure programs were adjusted in the welfare sector. This part discusses the need to secure financial sustainability for funds following the expanded eligibility of the employment insurance scheme.
·(Recent amendment trends regarding national tax laws) This section examines the main content of each amendment made on the subordinate statutes of the tax acts revised in 2020 as announced by the government in January 2021 as well as the submitted proposals on a tax act revision required to pursue measures announced under the 2020 Economic Policy Direction and Tailored Damage Support Measures against the Spreading COVID-19 Pandemic.
·(Public pension reform case studies in major countries: Germany) In order to resolve the sustainability issues surrounding Korea‘s public pension system, it is necessary to examine the pension reforms already implemented by advanced economies. In this edition, we study the case of Germany, which has been running a pension system for 130 years since Bismarck created a pension insurance scheme in 1889, and has expanded its muli-layered senior income guarantee system via fiscal support from the government.
·(Introduction of the US Congressional Budget Office‘s cost estimations) The cost estimation system of the US Congressional Budget Office (CBO) is the main tool for controlling fiscal deficits. Estimations are made on bills that affect federal fiscal expenditures or revenues passed by the standing committee and tabled to the plenary meeting. The effects of the legislative bills on federal finances are highlighted in terms of budget data (revenues, expenditures and fiscal balance). This issue examines an actual case of cost estimates introduced by the CBO.
Ⅳ. Tax and Fiscal Indicators at a Glance
This section consists of charts and tables visualizing tax and fiscal indicators including total expenditures and total revenues, timeline of fiscal balance, national tax records, non-tax revenue records, the public’s burden ratio, tax burden ratio, income tax ratio, corporate tax ratio, as well as value-added tax ratio.