NABO Medium-Term Fiscal Projection: 2023-2032

Published on Oct., 31, 2023
Published by Estimates and Tax Coordination Division

   The National Assembly Budget Office (NABO) has forecasted fiscal aggregates for the next 10 years, taking into account major policy changes in the “2024 Budget Bill” and the “2023-2027 National Fiscal Management Plan.” The forecast results, which incorporate the government's Tax Revision Bill aimed at reducing tax revenue and policy changes causing an increase in mandatory expenditures, indicate that total revenues are expected to decrease by 5.1 trillion won over the next 10 years, while total expenditures are projected to increase by 29.5 trillion won.
   Taking into account the government's Tax Revision Bill and other relevant factors, total revenues are expected to grow at an average rate of 5.0% per annum, increasing from 571.2 trillion won in 2023 to 886.8 trillion won by 2032. Simultaneously, as a result of policy changes leading to an escalation in mandatory expenditures, total expenditures are projected to climb from 607.6 trillion won in 2023 to 921.4 trillion won by 2032, with an average growth rate of 4.7% per annum. Regarding the fiscal balance forecast based on these revenue and expenditure projections, the ratio of the consolidated fiscal balance, excluding social security funds, to GDP is expected to rise by △3.9% in 2023, △4.3% in 2024, and △1.8% in 2032. In 2023, the deficit in the consolidated fiscal balance, excluding social security funds, is expected to increase relative to the main budget due to shortfalls in tax revenue. The government's targeted ratio for the consolidated fiscal balance, excluding social security funds (increasing by less than △3%), is expected to be achieved after 2027. According to the fiscal balance outlook, the ratio of national debt to GDP is projected to increase from 51.1% in 2023 to 59.4% in 2032.
   When comparing NABO's Medium-Term Fiscal Projection with the government's National Fiscal Management Plan, NABO's projected deficit in the consolidated fiscal balance, excluding social security funds, over the next five years, is 76.5 trillion won larger than the government's, with the national debt ratio expected to be 2.2%p higher in 2027. In the case of total revenues, NABO's figures fall short by 88.3 trillion won when considering the five-year total from 2023 to 2027, whereas total expenditures exceed the government's estimates by 4.9 trillion won. Furthermore, accounting for the tax revenue re-estimate in 2023, NABO's total revenues are projected to be 29.3 trillion won smaller than the government's figures over the five-year period, while mandatory expenditures are projected to be 24.0 trillion won larger. The discrepancy in total revenues can be attributed to variations in economic indicator forecasts between NABO and the government, and the gap in mandatory expenditures primarily results from the government's relatively conservative estimates, despite recent increases in mandatory expenditures in the welfare sector and policy changes set for 2024.
   In summary, the government aims for a △3% increase in the consolidated fiscal balance excluding social security funds starting in 2025. However, NABO's projections suggest that the increase in this balance will be less than △3% from 2027. As a result, additional measures may be needed to improve fiscal soundness to comply with the government's fiscal rules (tentative).