NABO Fiscal Estimates & Tax Issues (Issue. 22)

Published on March 14, 2023
Published by Estimates and Tax Coordination Division

I. Fiscal Estimation & Tax Trends
 ·(Review of fiscal demand for legislative bills approved in Q4 of 2022) Of the 203 legislative bills approved in Q4 of 2022, 78 (38.4%) are subject to fiscal enforcement by state and local governments, thus their fiscal standing will be affected afterwards. Implementation of 52 bills, to which a cost estimation has been made, is expected to result in an annual revenue decline of 17.6 trillion won and an annual expenditure increase of 7,761 trillion won on average over the next 5 years (2023~2027).
 ·(Estimation of fiscal demand due to major welfare programs to be implemented in 2023) The total amount of fiscal demand to incur over the next five years (2024-2028) was calculated for fiscal programs in the areas of welfare/veterans/employment, where major institutional changes such as an increase in both unit price and a number of beneficiaries are expected in 2023, and an additional fiscal demand from these changes was presented accordingly.
 ·(Present status and future projection of medical support for veterans) Following the 21st National Assembly's decision to expand veterans' medical support, related medical expenses are estimated to rise from 711.8 billion won in 2024 to 773.2 billion won in 2050. However, the actual increase is expected to gradually slow down due to a sharp decrease in the number of recipients of veterans' medical support.
 ·(Current status and issues of the retirement pension scheme) The retirement pension scheme is a complementary means to public pension-based income security. However, due to issues such as its low subscription and pension conversion rate, a rate of return that needs an improvement, and imposition of fees and their appropriate level, measures need to be devised to invigorate the retirement pension scheme and for it to take root successfully.

Ⅱ. Fiscal Estimation & Tax Analysis
 ·(National tax revenue performance for fiscal year 2022) In 2022, national tax revenue stood at 395.9 trillion won, up 51.9 trillion won (15.1%) YoY thanks to strong corporate performance and domestic demand and job market recovery. Income taxes, corporate taxes, and value-added taxes, which are major tax items, increased YoY due to earnings improvement and consumption recovery, while transportation/energy/environmental taxes and securities transaction taxes saw a dip YoY due to oil tax cuts and sluggish stock trading.
 ·(The tax system to be changed in 2023) The result of the tax revenue effect estimation of the revised tax act, which reflects the tax revision bills passed by the National Assembly in 2022, indicates that an estimated 64.4 trillion won in tax revenue will decrease between 2023 and 2027. This is mainly attributable to corporate tax rate cuts, adjustments made to the income tax bracket‘s standard tax base and earned income tax credits, and securities transaction tax rate cuts.
 ·(The causes and implications of the recent increase in earned income tax) The analysis of the causes behind the increased earned income tax revenue in the last 10 years (2012-2021) and the uptrend in the earned income tax in 2021 indicates that temporary causes, including the hike in the wage growth rate following economic recovery and the increased special bonus in relation to improved corporate earnings, combined with structural causes such as widening wage gaps between industries, were found to have affected the change in earned income tax revenue.
 ·(Contents and implications of the Hometown Love Donation System) The Hometown Love Donation System, which was implemented on January 1 this year, was designed based on 10 years of experiential data from Japan's Hometown Tax Payment system. Its introduction is expected to contribute to supplementing local government finances and revitalizing the local economy; however, there are limitations such as the flowing back of donations to urban areas and restrictions on the use of donated resources.