1. Recent Developments in Economic Conditions & Revised Outlook for 2015
❑ In 2015, the Korean economy is expected to grow 3.5%, 0.2%p higher than 2014 (3.3%).
◦ The fall in international raw material prices such as oil is expected to support a robust recovery of the US and other advanced economies while the expansionary fiscal policy of the Korean government is likely to boost domestic demand and export.
◦ The Korean economy would have a very gradual recovery due to the factors like the US federal rate increase, a weak yen, the economic slowdown of China (qualitative growth policy), the problem of household debt, and the weakening competitiveness of our export products. 

❑ Consumer price index (CPI) for 2015 is expected to go up 1.7% year on year,  although the number itself is a little higher than 1.3% of 2013, the low inflation trend will continue into 2015.
◦ Declines in international prices for crude oil and other raw materials would drive import prices down and the demand-side pressure (minus GDP gap = real GDP - potential GDP) would not be that high as well. 
◦ Due to the low inflation, the GDP deflator would rise 0.7% and the nominal GDP would grow by 4.2% only.
❑ The current account surplus is forecast to expand to USD 108.72 bn (vs. 89.79 bn in 2014) thanks to the falling raw material prices.
◦ Exports and imports subject to customs clearance are expected to increase 2.9% (vs. 2.7% in 2014) and 0.1% (vs. 1.5% in 2014), respectively.
❑ The recent forecast for Korea’s economic growth in 2015 (3.5%) is 0.3%p lower than the previous projection (3.8%) released in October.
◦ The 2014 growth forecast was also revised down by 0.3%p from 3.6% to 3.3%.
◦ The revision reflects the financial uncertainties and potential economic slowdown of some oil producing countries and those with poor foreign currency liquidity, caused by the sluggish outlook for global growth (IMF changed its forecast from 3.9% in July to 3.8% in Oct), the weak yen (the average yen/dollar exchange rate for 2015 was initially estimated at 110 yens, but later revised to 122 yens) and the falling oil prices (the price of Dubai crude oil for 2015 was initially estimated at USD 95 per barrel, but later revised to USD 75).
◦ The headline inflation forecast was lowered to 1.7%, 0.6%p down from the initial forecast of 2.3%.

2. Results of Deliberation on the National Budget Plan by the National Assembly

❑ As a result of its deliberation on the bills appended to the national budget plan submitted by the Government, the National Assembly has suggested the following key changes to the original proposal: maintain the current requirements for the inheritance-of-a-family-business deduction; change the individual consumption tax on tobacco from ad-valorem tax to per unit tax while introduction a fire safety tax; reduce tax deductions for large corporations; and grant tax deductions, instead of income deductions, for monthly rent payments, while providing the benefits to a wider population.
❑ The gross revenue budget for 2015, incorporating the changes mentioned above, is estimated at KRW 382.4 trn, or KRW 0.4 trn down from the initially budgeted KRW 382.7 trn.
◦ Tax Revenues Down by KRW 380.1 bn: no change to the inheritance-of-a-family-business deduction & the change of tobacco tax to a per unit tax (△57.5 bn); tax deduction for monthly rent payments and the expansion of eligible people (△130.0 bn); withdrawal of a cut in the deemed input tax deduction rate for used cars (△57.3 bn); and the ratification of Korea-Australia and Korea-Canada free trade agreements (△126.6 bn).
◦ Non-Tax Revenues Up by KRW 4.3 bn: inclusion of the so-called “school supporting fee” in the tuition of Korea National University of Arts (+13.0 bn); the proposed abolition of golf course surcharges now called off (+39.7 bn); and interest rate cuts on trust funds (+4.3 bn).
◦ KRW 89.8 bn Natural Change in Total Expenditure Resulting from Changes in Total Revenue: fire safety tax (+314.1 bn); local subsidy (△109.2 bn); and local education subsidy (△115.1 bn).    

❑ When adjusted for the total revenue and total expenditure figures above, the fiscal balance and the national debt would improve by KRW 0.2 trn each: the former from a deficit of KRW 33.6 trn to 33.4 trn and the latter from KRW 570.1 trn to 569.9 trn.
◦ Compared to the original budget plan, total revenue and total expenditure are lowered by KRW 0.4 trn and KRW 0.6 trn, respectively, hence a KRW 0.2 trn gain in fiscal balance.

3. Review on the Tax Environment & Jan-Oct 2014 Collection Performance
❑ Tax revenue for Jan-Oct 2014 totaled KWR 177.6 bn and the collection rate was 82.1%.
◦ Compared to the same period last year, the revenue itself was up by KRW 1.3 bn but the collection rate was down by 5.3%p. The collection gap has been widening at an accelerated rate since Q1, when the gap was △0.8%p.

❑ The annual tax revenue for 2014 may underachieve our previous forecast (Oct 2014), considering the sluggish collection performance observed in Q3 and the economic conditions in the second half of this year
◦ The negative gap against budget for 2014 is expected to be bigger than our previous forecast published in Oct 2014 by KRW 1 or 2 trn.

4. Suggestions for Timely Disclosure of Information on Tax Revenue
❑ Tax revenue information is critical to assess the state of public finances and forecast the future tax revenues.
◦ Information on tax revenue serves not just as the basis to assess the tax environment and forecast tax revenues, but also plays an indispensable role when the taxpayers evaluate the tax administration
◦ An accurate assessment of the current tax environment and implementation of appropriate measures are needed more than ever before to address the growing public interest in public finance and tax performance amid the recent economic slowdown and a series of budget deficits.
◦ Although the National Assembly and the Government has consistently implemented measures to better disclose the information on tax revenue, there is still room for improvement to make the information more useful.

❑ Figures are announced long after the reference period, compromising usefulness of the information.
◦ The monthly tax revenues can be disclosed in after two months from the end of the reference month.
◦ The November budget deliberation can only refer to the tax revenues from the first seven or eight months of the year.

❑ Out of 33 OECD members, Korea is one of the eight countries which take more than one month to disclose fiscal statistics.
◦ The US discloses fiscal figures on the eighth working day from the end of the reference month while the UK, Germany and Japan release their tax revenues no later than thirty days from the end of the reference period.
◦ The IMF Special Data Dissemination Standard recommends that the central government should disclose its fiscal results every month within thirty days from the end of the reference month.

❑ The Government needs to ensure more timely disclosure of information on tax revenue and fiscal statistics.
◦ Need to explore ways to reduce the disclosure time lag to less than one month, by utilizing the system enhancement project which is currently underway 
◦ Need to enhance transparency of fiscal operations by improving accessibility to the fiscal information

5. Job Polarization: Issues & Implications
❑ The job divide in Korea continues to widen by employment type, class and industry.
◦ The labor markets in Korea are polarizing by occupation and by employment status due to the gaps between the manufacturing and service industries and between small and large corporations.
◦ The wage gap has also been growing until recently, depending on the employment status and the size of business.
❑ A comparison of job growth before and after the financial crisis, which is designed to assess the possibility of further job polarization, shows that the jobs more than doubled at the bottom and the top income brackets post-crisis but shrank in the upper-middle, the middle and the lower-middle income classes.
❑ Job polarization refers to a structural change where middle class jobs disappear faster than others, which in turn results in the shrinking of the middle class itself. This phenomenon is attributable to the following reasons:
◦ From a demand-side perspective, the backbone industry of Korea has changed from the manufacturing to the service industry, bringing about structural changes in the job market. 
◦ Demographic changes resulted in a greater supply of female and youth labor suitable for low-income jobs while retiring baby boomers also provided more supply of low-income labor.
◦ Those who failed to brace technological and industrial changes moved down to the low-income service industry.
❑ Inaction by policy makers would only aggravate the job divide and drive more people out of the labor markets. It would also lead to a growing number of households living just above the poverty line and a smaller household income, ultimately compromising private consumption and protracting the sluggish domestic demand. 
◦ It should be noted that the steady decline in private consumption as % of real GDP since 2000 coincided with the continued deterioration of the average poverty gap and other poverty indices.