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Government should reduce non-essential spending
The government's collection of income from taxes has turned sluggish this year. Revenue in the first five months of 2019 stood at 139.5 trillion won ($118.2 billion), down 1.2 trillion won from a year ago. The national tax income increased in January year-on-year but decreased over the next four months. Despite the dwindling revenue, budget spending has increased sharply, widening the fiscal deficit.
Tax revenue was brisk from 2016 to 2018. The National Tax Service collected 68.2 trillion won more than it initially targeted during those years, resulting in an annual revenue surplus of more than 22 trillion won on average.
The situation changed suddenly this year. Expecting sluggish tax collection, officials set their target at only 0.4 percent higher than 2018, but are unlikely to hit even that modest goal. The revenue collection rate over the January to May period remained at 47.3 percent, down 5.1 percentage points from a year earlier. As things stand now, the government is estimated to sustain a revenue shortfall of 3 trillion won to 5 trillion won by the end of the year.
The biggest reason is slowing business activity. Among the three major taxes, revenue from income tax and value-added tax fell from last year while corporate tax barely edged up. The outlook for the remaining months is gloomier still.
The government revised its growth forecast for this year down by 0.2 percentage points recently. The U.S.-China trade war and semiconductor slump are likely to be prolonged. What makes matters worse, Japan is taking retaliatory economic moves against Korea.
When income falls, spending should also drop. The Moon Jae-in administration, however, is expanding its budget expenditure. The government increased its spending by 29.6 trillion won over the cited period, recording a budget deficit of 36.5 trillion won in the first five months, the biggest red ink number since the government began to compile related data in 2011.
True, the nation's fiscal foundation is relatively healthy among advanced economies. But that doesn't mean it can recklessly increase welfare spending and widen the deficit in the short period. Policymakers should always remember that once it falls into a budget deficit, the nation may be unable to pull itself out of the swamp.
