NABO Fiscal Estimates & Tax Issues (Issue. 18)

Published on February 28, 2022
Published by Estimates and Tax Coordination Division

I. Estimations & Tax Trends
 ·(Review of fiscal demand for legislative bills approved in Q4 of 2021) Of the 270 legislative bills approved in the Q4 of 2021, 100 (37.0%) are subject to fiscal enforcement by state and local governments, thus their fiscal standing will be affected afterwards. Implementation of 51 bills, to which an estimation can be made, is expected to result in an annual revenue decline of 6, 828.3 trillion won and an annual expenditure increase of 3,309.7 trillion won on average over the next 5 years(2022~2026), respectively.
 ·(National tax revenue in 2021) National tax revenue in 2021 was 344.1 trillion won, up 58.5 (20.5) trillion won compared to the year before in 2020 (285.5 trillion won), which is mainly attributable to an increase in income and consumption-related tax revenues affected by the brisk economic recovery, and favorable trends in tax revenue on assets following an increase in asset prices.

Ⅱ. Estimations & Tax Analysis
 ·(Estimation of fiscal demand for major welfare projects to be changed in 2022) The budget for the welfare sector (health, welfare, employment) of the 2022 budget and fund management plan, which was deliberated and approved by the National Assembly on December 3, 2021, totaled 217.7 trillion won, which is 9.0% higher than the previous year's main budget. Major fiscal projects in the welfare sector, which will be revised in 2022, focus on increasing spending to address social and economic issues including low birth rates and new polarization. Considering that welfare demand is likely to expand due to changes in social and demographic structures, the scale of welfare spending is expected to continue to go up in the future. Therefore, more careful fiscal management needs to take place by taking into account mid- to long-term welfare spending trends.
 ·(Tax system to be changed in 2022)The tax reform bill for 2021 consists of measures for institutional reorganization by providing a taxpayer-friendly environment, such as strengthening the foundation to promote inclusiveness, mutual growth, and fairness in support of low-income and the vulnerable classes; tax support to transform into a leading economic structure in the post-COVID era, and enhancing taxpayer benefits. Should internal and external shocks, such as shifts in global financial and monetary policies toward austerity lead to asset price adjustments, etc., mid- to long-term increases in tax revenue will likely slow down, which is one of the reasons why efforts to maintain fiscal soundness should continue in preparation for uncertainties.
 ·(Analysis of the causes of differences in national tax revenue budget and settlement) In 2021, national tax revenue was 344.1 trillion won, exceeding the supplementary budget by 29.8 trillion won (9.5%). The gap between the budget and settlement is mainly due to favorable trends in tax revenue, a better-than-expected economic recovery, and improvement in earnings performance, etc.
 ·(Estimation of fiscal demand reflecting the rate of increase in compensation for persons of national merit, etc.) Since there is a continued discussion on setting objective standards for the increased rate of compensation for persons of national merit, the estimation was made based on the following three scenarios: 1) the average increase rate for the past 5 years, 2) 5% per annum, and 3) applying the inflation rate. Considering the fact that the 21st National Assembly proposed a related bill that suggests the inflation rate as a basis, which is an objective indicator, to calculate the rate of increase in the unit price of compensation, putting in place objective and reliable standards is needed.

 
Ⅲ. Estimations & Tax Issues
 ·(Discussion trend on tax policy post COVID-19) During the COVID-19 pandemic, tax policies in OECD countries were divided into the following: tax support such as payment deferrals, economic stimulus such as deduction on investment taxation, and taxation expansion for high-income earners. The OECD presented the goals of inclusive growth, fairness, and a sustainable environment as the direction for tax policies in consideration of the post-COVID-19 circumstances encompassing slowing growth rates, deepening inequality, digitalization, aging population, and climate change.
 ·(Trends of taxation and financial support for environmentally-friendly automobiles to achieve carbon neutrality) In promoting carbon neutrality, countries around the world are using tax benefits and fiscal support for purchases made, and support for the expansion of electric charging infrastructure as major policy measures to improve the penetration of environmentally-friendly vehicles. At the same time, the governments are promoting regulatory policies such as imposing a quota on mandatory EV sales, as well. For further penetration of environmentally-friendly vehicles, the Korean government needs to gradually change the target of policy support, while discovering an alternative tax source that can make up for the decrease in fuel tax revenue.
 ·(Example of public pension reform in major countries: UK) The UK, which introduced a public pension scheme in 1908, carried out pension reforms such as invigoration of private pensions and integration of public pensions. Pension credits and the new national pension scheme correspond to public pensions, and the British government implemented pension reforms aimed at strengthening the income guarantee feature of public pensions for the low-income elderly while revitalizing private pensions. The UK case illustrates that it is possible to reduce the burden on the government and guarantee an appropriate level of old-age income by designing the public and private pension systems in line with their respective roles to play.

Ⅳ. Tax and Fiscal Indicators at a Glance
  In this report, tax and fiscal indicators such as total revenue/total expenditures, fiscal balance trends, national tax performance, non-tax income performance, the rate of national burden, tax burden rate, income tax rate, corporate tax rate, and value-added tax rate can be viewed in a chart at a glance.