Two Years of Massive Tax Revenue Punctures, What's the Government's Response? / 2024.09.26
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Two years of massive tax revenue punctures, what's the government's response?
Recently, the Ministry of Strategy and Finance released the results of its 2024 tax revenue re-estimates, predicting a tax revenue shortfall of KRW 30 trillion this year, meaning a massive ‘tax revenue funk’ for the second year in a row.
What is a face wash funk?
A tax revenue funk is when the government's projected tax revenue is significantly less than what it actually collects. The main reason for this shortfall was the economic downturn and a decline in corporate and transfer taxes. According to the Ministry of Strategy and Finance, corporate taxes accounted for a whopping 14.5 trillion won ($14.5 billion) less than forecast, accounting for about half of the revenue shortfall.
Background on tax revenue shortfalls
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Slower economic growth: Global economic uncertainty and recession in export markets have negatively impacted the domestic economy. "In 2023, tax revenues are declining because the global economic situation is still not favorable," said Jeong Jeong-hoon, head of the Taxation Division at the Ministry of Strategy and Finance.
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Deteriorating corporate performance: The global economic slowdown has led to a decline in corporate operating profits, which has directly impacted corporate tax revenues.
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Sluggish real estate market: Prolonged high interest rates have led to fewer real estate transactions, and lower transfer tax revenues are also contributing to the tax revenue shortfall.
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How governments are responding
The Ministry of Planning and Finance has stated that it will utilize its spare resources to fill the shortfall, but raising funds to cover the revenue shortfall is unlikely to be easy, especially as it will likely be blamed for the failure of revenue forecasts over the past two years.
The Ministry of Planning and Finance said it would "review its internal systems to improve the accuracy of tax revenue estimates," but did not offer any specific alternatives.
Conclusion
A second consecutive year of large-scale tax revenue punctures could have a negative impact on the economy as a whole, with austerity measures likely to become inevitable in areas such as local government and social care. The government will urgently need to come up with proactive measures and practical responses to stimulate the economy.
Three-line summary
- For the second year in a row, the South Korean government is facing a massive tax revenue hole, with a projected shortfall of 30 trillion won this year.
- The plunge in corporate and capital gains taxes is the main culprit, along with the slowdown in export markets.
- The government plans to respond with available resources, but no concrete alternatives have been proposed, raising concerns.
Image Prompt:
Create an image representing the theme of fiscal responsibility with a broken piggy bank and financial data charts.
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