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Budget deficit in first half increased 1,000%

Aug 08,2019
The Korean government ran a budget deficit of 38.5 trillion won ($31.7 billion) in the first half of this year, the largest since data started compiling in its current form in 1999.

The deficit was 1,000 percent larger than the 3.5 trillion won deficit of a year earlier.

The news came as spending is expecting to rise to deal with intensifying trade friction with the Japanese government and fallout from the deepening trade war between the United States and China.

According to the Ministry of Economy and Finance on Wednesday, the deficit was largely the result of increased spending, although tax collections also fell.

In the first six months, the Korean government collected 156.2 trillion won in taxes, which was 1 trillion won less than the same period a year ago, 0.64 percent drop.

Income and corporate taxes saw slight increases.

The government collected 44.5 trillion won in income tax in the first half, which was 200 billion won or 0.45 percent more than a year earlier.

Corporate taxes rose 2.2 trillion won to reach 42.8 trillion won, a 5.4 percent increase.

But value-added tax collections were 34.5 trillion won, 300 billion won or 0.86 percent less than a year earlier, while the government collected 1.5 trillion won less in transportation tax, a 19 percent decline.

Customs taxes also shrunk 500 billion won or 10.8 percent to 4.1 trillion won.

During the same period, government spending increased. In the first six months, the government spent 284.5 trillion won, 37.2 trillion won or 15 percent more than a year ago.

The operational budget balance, which excludes social security funds, suffered a 59.5 trillion won deficit. That was a 34 trillion won increase in the deficit, or 133 percent.

The government said the increase in spending was largely due to its aggressive frontloading of the budget in an attempt to stimulate the economy.

In the first half, the government frontloaded 60.6 percent of the 428.8 trillion won budget. That’s 3.4 percentage points more than the spending in the first half of 2018.

The spending included jobs created for senior citizens, which helped improve the government’s job statistics.

“Although it will be difficult to collect an amount of taxes that exceeds our estimates as we did last year, by the end of this year, we project the amount of taxes collected to meet our goal,” said Kim Byung-kyu, head of the Finance Ministry’s tax office.

The government is targeting 294.8 trillion won in tax collections, which is a 0.4 percent increase compared to 2018’s 293.6 trillion won.

But with a slowed economy, it’s not certain the government will meet its target, which would be the first time in five years.

Since 2015, the government has exceeded its targets each year.

The deficit is likely to continue to grow with the government increasing spending to counter trade restrictions by the Japanese government.

The Korea Institute for International Economic Policy estimated that Korea’s GDP could dip 0.27 to 0.44 percentage points due to the restrictions by the Japanese government on exports of key materials for semiconductors and displays. Even more restrictions were announced last week.

Some project the Korean economy shrinking 0.8 percentage points this year because of the intensifying conflict with Japan would cut into growth.

The Korean government last month lowered its growth forecast for this year from 2.6 and 2.7 percent to 2.4 and 2.5 percent.

With economic growth weakening, consumers could spend less, which translate into less value-added tax and smaller corporate profits and taxes.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]