🚨 ₩728 Trillion Super Budget Expansion Signal
Today Korean Economic News for Beginners | 2025.10.23
0️⃣ Parliament Starts Tax Revenue Recalculation, Growing Possibility of Expansionary Fiscal Policy
📌 Recalculation Decision After 3 Years of Tax Errors... Budget Size May Grow if Economic Recovery is Reflected
💬 The government has decided to recalculate revenue forecasts ahead of reviewing next year's ₩728 trillion budget. The Ministry of Economy and Finance plans to submit the tax revenue recalculation results before the November parliamentary budget review. While this is a measure to improve accuracy after three consecutive years of major tax forecast errors, discussions on expansionary fiscal policy are expected to gain more support if revenue capacity increases as economic recovery is confirmed. After tax shortfalls of ₩59 trillion in 2023 and about ₩30 trillion in 2024, this year is showing signs of higher-than-expected corporate and value-added tax revenues. With the ruling party holding a parliamentary majority, the possibility of budget increases based on recalculation results is drawing attention.
1️⃣ Easy Explanation
The government planned to spend a record ₩728 trillion next year, but now they're recalculating how much tax money they can actually collect. If they collect more taxes than expected, they can spend more money. If they collect less, they'll need to cut spending or borrow more money.
Let me explain how budgets work. The government budget has two main parts. One is "revenue" - this is the money the government collects from taxes. The other is "spending" - money spent on welfare, defense, education, etc. Ideally, revenue and spending should balance, but in reality, spending is usually higher, so the government issues bonds to cover the gap.
Next year's ₩728 trillion budget is the largest in Korean history. It grew this big because of increased welfare spending and the need to boost the economy. But the problem is that to spend this money, the government needs to collect that much in taxes, and in recent years, the government's tax forecasts have been consistently wrong.
Looking at specifics, in 2023, they collected ₩59 trillion less than expected. This was because property transactions plummeted, drastically reducing capital gains and acquisition taxes. In 2024, there was also a shortfall of about ₩30 trillion. This was mainly due to reduced corporate tax revenue as company performance worsened during the economic slowdown.
When tax forecasts are wrong, several problems arise. Planned projects may need to be reduced or canceled, and if the government issues more bonds to fill the gap, national debt increases. Also, trust in the government's fiscal management ability decreases.
But this year, things are starting to change. As the economy improves better than expected, corporate and value-added taxes are showing signs of increase. This is because the semiconductor industry is recovering and exports are growing, improving company performance.
The government's decision to recalculate taxes is to reflect these changes. If the recalculation shows taxes will be collected more than expected, what happens? The government can do more projects with the additional funds.
For example, they could increase support for youth employment, expand small business subsidies, or raise welfare budgets. This is called "expansionary fiscal policy" - when the government spends more money to boost the economy.
This year is particularly notable because the ruling party holds a majority in parliament, so budget increases could pass relatively easily. If opposition is not strong, the government is likely to increase the budget as desired.
But what if taxes aren't collected as expected? The government would need to cut planned spending or issue more bonds. This means accepting an increase in national debt.
Ultimately, this tax revenue recalculation will be an important turning point in determining the direction of our country's economic policy next year.
2️⃣ Economic Terms
📕 Tax Revenue Recalculation
Tax revenue recalculation means the government recalculates previously estimated tax income to reflect changes in economic conditions.
- Done when revenue forecasts change significantly due to economic fluctuations, tax law revisions, asset market changes, etc.
- Budget size may be adjusted or fiscal management plans revised based on recalculation results.
- Accurate recalculation is essential for improving fiscal soundness and policy credibility.
📕 Expansionary Fiscal Policy
Expansionary fiscal policy is a fiscal management approach where the government increases spending or reduces taxes to boost the economy.
- A policy where the government actively spends money to energize the economy during recessions.
- Implemented through infrastructure investment, welfare spending expansion, business support, etc.
- Has short-term economic stimulus effects but may lead to increased fiscal deficits long-term.
📕 Revenue and Spending
Revenue is the income the government collects through taxes, while spending is the cost the government spends on various projects.
- Main sources of revenue include income tax, corporate tax, value-added tax, customs duties, etc.
- Spending goes to various sectors including welfare, defense, education, infrastructure, etc.
- When revenue is less than spending, a fiscal deficit occurs, covered by issuing government bonds.
📕 Main Budget
The main budget is the regular budget confirmed by parliamentary approval before the start of the fiscal year.
- Every September, the government submits a budget proposal to parliament, which goes through review and approval by December.
- Unlike supplementary budgets, it forms the basic framework for annual fiscal management.
- The size of the main budget is an important indicator of a country's economic scale and government role.
3️⃣ Principles and Economic Outlook
✅ Causes and Effects of Tax Forecast Errors
Let's analyze the structural causes of continued tax forecast errors over the past three years and their ripple effects.
First, asset market volatility has had a bigger impact on tax revenue. In the past, most tax revenue came from stable tax categories like income and corporate taxes. But recently, the proportion of taxes linked to asset markets - such as capital gains tax, securities transaction tax, and comprehensive real estate tax - has increased. When property transactions plummet, capital gains and acquisition taxes drop sharply, and when the stock market stagnates, securities transaction and capital gains taxes decrease. A significant portion of the ₩59 trillion tax shortfall in 2023 was due to reduced property-related taxes. As housing prices fell and transactions froze, the government couldn't collect expected taxes.
Second, company performance volatility also makes tax forecasting difficult. Corporate tax is levied on company profits, which can vary greatly depending on global economic fluctuations and exchange rate changes. Korea is particularly sensitive to global economic conditions due to its high proportion of export-oriented industries like semiconductors, automobiles, and chemicals. One major cause of the 2024 tax shortfall was reduced corporate tax due to deteriorating semiconductor conditions. When major companies like Samsung Electronics and SK Hynix perform poorly, corporate tax revenue drops significantly.
Third, tax forecast errors increase fiscal management uncertainty. When less tax is collected than expected, the government must reduce planned projects or create a supplementary budget. Supplementary budgets often raise funds by issuing bonds, increasing national debt. Also, repeated tax shortfalls reduce trust in the government's fiscal plans, and international credit rating agencies may evaluate negatively. In fact, international credit rating agencies have recently mentioned concerns about Korea's fiscal soundness.
Improving the accuracy of tax forecasts is not just a technical issue but an important task directly connected to fiscal credibility.
✅ Economic Recovery and Tax Revenue Growth Forecast
Let's examine the economic recovery signals appearing this year and their impact on tax revenue.
First, semiconductor industry recovery is leading to increased corporate tax. As memory semiconductor prices bottomed out and turned upward, Samsung Electronics and SK Hynix's performance improved significantly. Especially with surging demand for AI high-performance memory (HBM), SK Hynix recorded its largest-ever performance. Semiconductor industry recovery is contributing not only to corporate tax but also to overall corporate tax revenue increase through improved performance of related suppliers. According to Ministry of Economy and Finance estimates, this year's corporate tax is expected to be collected over ₩5 trillion more than expected.
Second, export growth is increasing value-added tax revenue. As exports reach record levels this year, value-added tax revenue is also increasing. Particularly as exports of main items like semiconductors, automobiles, and batteries show strong performance, related companies' sales have grown, leading to increased value-added tax. Domestic consumption is also recovering moderately, showing better-than-expected domestic value-added tax revenue. This year's value-added tax is expected to be collected about ₩3-4 trillion more than expected.
Third, signs of asset market recovery are also appearing. As the stock market broke through the KOSPI 3500 level, securities transaction tax revenue is increasing. Also, property transactions are gradually reviving, centered on some areas of Seoul. While it's hard to call it a full recovery yet, it's assessed that the worst situation has passed. However, since capital gains tax is paid several months after actual transaction completion, the revenue increase effect is expected to appear more significantly next year.
As economic recovery signals become clear, there is a growing possibility that more revenue than expected will be secured in the tax revenue recalculation results.
✅ Necessity and Risks of Expansionary Fiscal Policy
If tax revenue increases, discussions on expansionary fiscal policy will gain strength. Let's analyze its necessity along with points to be careful about.
First, there are arguments that expansionary fiscal policy is needed to make the economic recovery more certain. Although some indicators are improving, domestic economic conditions remain weak. Consumer sentiment is still low, and small businesses and self-employed people continue to struggle. In this situation, if the government increases welfare spending and expands small business support, it could help domestic economic recovery. Also, more funds are needed for youth job creation and measures against low birth rates. Therefore, if tax revenue capacity emerges, it should be actively invested in these areas.
Second, however, indiscriminate expansionary fiscal policy risks worsening fiscal soundness. Currently, Korea's national debt has exceeded ₩1,200 trillion, with the ratio to GDP approaching 50%. Welfare spending will inevitably continue to increase due to low birth rates and aging, and if fiscal spending is greatly expanded on top of this, it could leave a huge burden on future generations. Especially when interest rates are high, issuing many bonds increases interest burden. This year's bond interest alone is close to ₩60 trillion, which is comparable to defense spending.
Third, improving spending efficiency is more important than expanding size. Rather than simply increasing budgets, how effectively existing budgets are spent may be more important. A "selection and concentration" strategy is needed - eliminating inefficient projects, consolidating duplicate support, and focusing on truly necessary areas. For example, there are criticisms that youth employment support projects are dispersed across multiple departments, reducing effectiveness. Integrating and streamlining these could produce greater effects with the same budget.
While expansionary fiscal policy helps boost the economy, a careful approach considering fiscal soundness and spending efficiency together is needed.
✅ Future Outlook and Policy Direction
Let's comprehensively forecast the direction of future fiscal policy based on tax revenue recalculation results and its economic impact.
First, if tax revenue increases from recalculation, selective expansionary fiscal policy is likely. Rather than spreading money across all areas, the government is expected to focus on high-priority areas like youth support, low birth rate measures, and small business support. Also, it will likely focus on investments that can solve structural problems rather than one-time cash payments. For example, expanding youth housing support, investing in childcare infrastructure, and supporting small business digital transformation.
Second, if tax revenue doesn't increase as expected, spending restructuring will be unavoidable. In this case, the government must find and cut inefficient projects and readjust project priorities. Also, the possibility of supplementary budget formulation decreases, and fiscal austerity may be strengthened. However, while protecting welfare and essential sector spending, budgets are likely to be adjusted in areas like large-scale civil engineering projects.
Third, in the medium to long term, both revenue base expansion and spending efficiency must be pursued simultaneously. Rather than being swayed by short-term tax revenue fluctuations, fundamental reform is needed to create a stable revenue structure and improve spending quality. For example, revenue base can be expanded through formalization of the underground economy, organizing tax exemptions and reductions, and strengthening digital tax administration. At the same time, a system is needed that introduces zero-based budgeting to periodically check all project effectiveness and boldly eliminate low-performing projects.
Tax revenue recalculation should not be just about short-term budget adjustments but become an opportunity to create a sustainable fiscal structure.
4️⃣ In Conclusion
The government's decision to recalculate tax revenue is not just a technical adjustment but an important turning point in determining next year's fiscal policy direction. It is interpreted as a will to correct continued tax forecast errors over the past three years and accurately reflect changed economic conditions.
As economic recovery signals have become clear this year, the possibility of tax revenue increasing more than expected is growing. Semiconductor industry recovery, export growth, and asset market stabilization are leading to increased corporate and value-added taxes. If the recalculation results confirm this trend, the government will have room to implement expansionary fiscal policy with additionally secured funds.
However, expansionary fiscal policy is not necessarily all good. While it has short-term economic stimulus effects, it can lead to increased national debt and worsening fiscal soundness in the long term. Especially in a situation where welfare spending will inevitably continue to increase due to low birth rates and aging, careful judgment is needed on how to allocate fiscal capacity.
More importantly, improving spending efficiency is better than increasing budget size. Selection and concentration are needed - eliminating inefficient projects, consolidating duplicate support, and focusing investment on truly necessary areas. It is desirable to prioritize solving structural problems like youth support, low birth rate measures, and small business support.
Also, efforts to improve the tax forecast system itself are necessary. Prediction models that can more accurately reflect asset market volatility and company performance changes must be developed, and systems that more broadly gather expert opinions must be created. If tax forecasts continue to be wrong, trust in fiscal policy decreases, which ultimately affects national credit ratings.
Ultimately, this tax revenue recalculation should become an opportunity to create a sustainable fiscal structure beyond short-term budget adjustments. A balanced approach is needed that supports economic recovery while maintaining fiscal soundness.
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