The National Assembly Budget Office (NABO, Chief Cook Kyung-bok) issues this “Analysis of the 2014 Revenue Budget Proposal and Outlook for Total Mid-term Revenue” in order to assist the National Assembly’s deliberation of the 2014 budget proposed by the administration.
   
    The revenue for 2014 is forecasted to total KRW 365.4 trillion, which is KRW 5.3 trillion less than the administration’s budget proposal(KRW 370.7 trillion). The figure represents a growth of 4.1% compared to NABO's 2013 estimate, and it is likely to slightly improve from the 2.7% increase of the previous year, with modest economic recovery expected.
   
    National tax revenue is estimated to reach KRW 213.9 trillion, which is KRW 4.6 trillion less than that of the administration’s budget proposal(KRW 218.5 trillion) due to the gaps in growth forecasts, etc. Growth forecasts for 2014 are 3.5%/5.9% (real/nominal) by NABO, while those by the administration are 3.9%/6.5%. Considering the recent trend in which tax revenue fluctuation comes increasingly after economic performance, the economic recession in 2013, including the worsened corporate performance, will contribute to modest growth in national tax revenue in 2014. Revenues excluding national taxes will be KRW 151.5 trillion, which is KRW 0.7 trillion less than the administration’s budget proposal.
   
    Total revenue from 2013 to 2017 is predicted to grow at an annualized rate of 5.2%, which is slightly lower than that of the administration’s mid-term total revenue plan (5.5%) because of the differences in growth forecasts, etc. National tax revenue is expected to rise 6.8%, which is a little higher than the average nominal growth rate per year (6.2%), and contributions to social security plans and non-tax revenues are likely to grow only 2.9% amid maturing public pensions and low interest rates, etc. The accumulated difference from the administration’s mid-term total revenue plan is forecasted to reach KRW 29.2 trillion over the five years. This is due to the differences between NABO and the administration with respect to growth forecasts, tax revenue estimation methods, and the feasibility of efforts for raising tax revenues, including a reduction in the size of the shadow economy, etc.
   
    The recent deficit in tax revenue comes not only from economic recession, but partly from structural factors such as the drop in effective corporate tax rates, structural sluggishness in the assets market, and the lower effective customs duty rates amid trade liberalization. Such a tax revenue slump will likely be hard to resolve in the short term, as the weak economic recovery adds to the structural factors.
   
    A number of projects of the new administration require expenditures on such areas as welfare and can lead to structural budgetary deficits without effective measures for their financing. Hence, the government should prepare to lay a solid foundation for sound mid- and long-term fiscal health.
   
    The government needs to compensate for shrinking tax revenues from the structural factors by reducing tax expenditures more aggressively and to actively work on measures for expanding taxable income to stably meet the growing financial needs in the future. In addition, there should be a fundamental revamp in the fiscal structure, as the ongoing annual expenditure restructuring will have limitations in securing the financial resources necessary for implementing the public commitments made by the administration.