The National Assembly Budget Office (Chief: Kim Junki) has published the “2016 Revenue Bill Analysis and Medium-Term Outlook on Total Revenue” to support the National Assembly’s review on the FY2016 Budget Plan submitted by the administration.
 
   Total revenue in 2015 is expected to reach KRW 376.2 trillion, up KRW 19.9 trillion (5.6%) YOY fueled by the booming property market in spite of the slower economic recovery. After having suffered a prolonged setback, the figure this year is projected to be somewhat higher than the nominal growth rate of 4.3% owing to the increase in national tax revenue by 5.9%, driven by the housing market boom and the cigarette price hike. Total revenue will be lower than the supplementary budget of KRW 377.7 trillion in 2015 by KRW 1.4 trillion (△0.4%) due to the decrease in non-tax revenue. However, excluding the change that the tuition fees of national universities are directly credited to the accounts of these universities (△KRW 1.5 trillion), the total revenue in 2015 would exceed the supplementary budget by KRW 0.1 trillion.
 
   Total revenue in 2016 is forecast to increase KRW 14.9 trillion to KRW 391.2 trillion, while its growth rate will decrease slightly to 4.0% from 5.6% in the previous year. The lower growth rate is mainly attributable to the somewhat(삭제) weak increase in national tax revenue (5.9%→3.0%) to KRW 224.2 trillion, which will be affected by the sluggish recovery of the property market, the poor improvement in business performance, and the reduced effect of the revised tax law in collecting taxes. Non-national tax revenue will be KRW 166.9 trillion, increasing 5.3% from the 5.1% growth in the previous. This mild increase in the growth rate is due to the higher surplus of the Bank of Korea, the increased dividends of government-owned companies, and an increase in social security contributions.
 
   NABO’s total revenue forecast in 2016 is KRW 391.2 trillion, lower than the administration’s budget proposal by KRW 0.3 trillion (△0.1%), with its national tax revenue forecast higher by KRW 1.1 trillion and non-national tax revenue forecast lower by KRW 1.4 trillion than those of the administration. In detail, NABO estimates that national tax revenue in 2016 will stand at KRW 224.2 trillion, KRW 1.1 trillion higher than the administration’s proposal (KRW 223.1 trillion), as it forecasts that the income tax will continue to rise and the value-added tax revenue will nudge up thanks to the upward trend in domestic consumption. NABO’s projection of non-national tax revenue is KRW 166.9 trillion, lower than the budget plan of the administration by KRW 1.4 trillion, which is mainly attributed to differences in estimating social security contributions (△KRW 1.1 trillion).

   NABO’s outlook on the total revenue growth rate during 2015~2019 is 4.4%, lagging behind the nominal growth rate of 4.6%, driven by the decrease in the elasticity of tax revenue. The projected growth rate is similar to that of the administration (4.3%).
 
   The revenue plan of the administration is relatively conservative compared to previous years. This is assessed as an attempt to deal with the uncertainties in fiscal operation and the undermined confidence in governmental policies, which has resulted from the optimistic revenue forecasts over recent years. The administration’s plan projects that next year’s national tax revenue will grow 3.4% from the supplementary budget in 2015, lower than the average growth rate of 6.2% over the past five years. National tax revenue has slightly increased since 2014, but this is hard to interpret as a fundamental improvement in the revenue environment. Meanwhile, the cigarette price increase has also contributed to revenue growth. Although national tax revenue has increased by a small margin on account of the booming real estate market and the toughened taxation policies recently, its structural vulnerability has yet to be resolved.

   As an expansionary fiscal policy has been implemented for the past several years without a concrete financing plan to ensure mid- to long-term fiscal soundness, fiscal health has worsened. Future fiscal policy needs to be focused on restoring fiscal soundness, which has been damaged during the period of expansionary fiscal management, and laying a stable financial foundation. Indeed, while the rapid national debt increase has posed a threat to mid-term fiscal health, the national fiscal management plan during 2015~2019 is repeating the practice of presenting a blueprint with weak feasibility. The government needs to enhance the feasibility of its economic and financial outlook, treat the fiscal situation more transparently, and come up with a concrete strategy to secure fiscal soundness.