Pursing fiscal balance in 2013 based on the fiscal management plan between 2011 and 2015 may be impossible to achieve its target because of exaggerated revenue projection by optimistic growth outlook and unreasonably low expenditure plan.
In budget proposal for 2012, total expenditure growth rate was 3.9 percent point lower than total revenue growth rate. These kinds of fiscal management can bring about two phenomena. Firstly, expenditure is increased in accordance with rising revenue in the boom years. However, when economy goes through a phase of slowdown, expenditure is dropped by decreasing revenue. This mechanism can deteriorate built-in-stabilizer of public finance, eventually worsen the impulse caused by business fluctuation. The National Assembly Budget Office (NABO) suggests that total expenditure should be increased in 2012, with the aim of maintaining government debt to GDP ratio as similar level of last year. It is also desirable to impose belt-tightening measure after 2013 when economic growth rate precede potential growth rate.
According to NABO’s revenue estimate between 2011 and 2015, 8.5 trillion won will be decreased by declining tax revenue, which is larger than rising tax revenue. Decrease in revenue is caused by extending sunset on tax exemption or reduction, on the other hand, increase in revenue come from abolishing income tax or corporate tax. This decline resulted from extension of tax exemption or reduction without sincerely considering sufficient evaluation despite of its changing policy environment. In order to overcome such problems, in case of current tax deduction for job creation, it has to be restructured by decreasing basic deduction rate but increasing additional deduction rate for creating more job openings.
In budget proposal for 2012, total expenditure growth rate was 3.9 percent point lower than total revenue growth rate. These kinds of fiscal management can bring about two phenomena. Firstly, expenditure is increased in accordance with rising revenue in the boom years. However, when economy goes through a phase of slowdown, expenditure is dropped by decreasing revenue. This mechanism can deteriorate built-in-stabilizer of public finance, eventually worsen the impulse caused by business fluctuation. The National Assembly Budget Office (NABO) suggests that total expenditure should be increased in 2012, with the aim of maintaining government debt to GDP ratio as similar level of last year. It is also desirable to impose belt-tightening measure after 2013 when economic growth rate precede potential growth rate.
According to NABO’s revenue estimate between 2011 and 2015, 8.5 trillion won will be decreased by declining tax revenue, which is larger than rising tax revenue. Decrease in revenue is caused by extending sunset on tax exemption or reduction, on the other hand, increase in revenue come from abolishing income tax or corporate tax. This decline resulted from extension of tax exemption or reduction without sincerely considering sufficient evaluation despite of its changing policy environment. In order to overcome such problems, in case of current tax deduction for job creation, it has to be restructured by decreasing basic deduction rate but increasing additional deduction rate for creating more job openings.