[Editorial] Don’t fund populism with taxes

Most of all, the government must not think of issuing more debts to cover up for the tax revenue shortage to finance populist policies.

South Korea may report a shortage in tax revenue this year. According to the Ministry of Economy and Finance, tax revenue fell 15.7 trillion won ($11.9 billion) in January and February. Even if the government collects taxes as predicted in March, 20 trillion won could be short of the amount set for this year’s budgeting. If that happens, the country would experience the first annual shortage in tax revenue since 2014. Choo Kyung-ho, deputy prime minister for economic affairs and finance minister, admitted that tax revenue may fall below the original estimation.

The fall in tax revenue underscores the alarming state of the economy. Taxes cannot be collected when the economy is running slow. Due to the sharp deterioration of performance by large companies, corporate taxes that contribute to a quarter of national taxes have been shaken. Samsung Electronics reported a 96 percent plunge in its first-quarter operating profit to 600 billion won. Many companies are expected to deliver “earnings shocks” for the first quarter.

The lethargic stock and property market also bodes ill for tax revenue. Income tax from property transactions fell by 4.1 trillion won in the first two months and the tax from securities trade 800 billion won. The sole rise was 6.5 percent in tax from liquor sales.

Worse is yet to come. The slump in the chip industry — the pillar of the Korean economy — is panning out longer than expected. Exports have been in contraction for six straight months. Foreign investment banks project Korea’s economic growth to stop at 1.1 percent this year, lower than the government estimate of 1.6 percent. When the economy performs poorer, tax income will be that smaller. Contribution from the housing market also will be small, as the conservative government is out to ease the multiple taxes on properties.

The government has once again erred in revenue estimation. The government that announced an extra tax collection of 119 trillion won from 2021 to 2022 a few days earlier estimates that tax revenue this year will fall below expectations. The government will lose confidence in its public finance management at this rate. The government aims to secure fiscal integrity and prop up the economy at the same time.

Given the circumstances, however, such a goal looks far-fetched. It must re-examine expenditures and set priorities clearly. It must cease any wasteful spending while keeping the promises to boost industrial competitiveness and support the economically disadvantaged. It must reconsider cuts in fuel tax and others by ruling out political interests. Most of all, the government must not think of issuing more debts to cover up for the tax revenue shortage to finance populist policies.