Korea’s fiscal deficit widened to a record high in the first half of this year due to frontloaded spending and decreased tax revenue amid the economic slowdown, the Ministry of Strategy and Finance said Friday.
The central government’s fiscal account, excluding social security funds such as pension and employment insurance, posted a deficit of 46.2 trillion won ($41.7 billion) in the first half of 2013, the worst on record.
It had a deficit of about 30 trillion won a year ago, and 19.2 trillion won in 2011, according to the Finance Ministry.
Its consolidated fiscal account, measuring the difference between state revenue and spending, recorded a deficit of 28.6 trillion won in the same period, up 17 trillion won from a year earlier.
Ministry officials cited a tax revenue shortfall of 10 trillion won and increased spending as its main reasons for the widened deficit.
It was only able to collect about 47 percent of taxes in the first half, well below the average of nearly 55 percent between 2008 and 2012.
This is due to the slow economic growth that led to reduced private sector earnings and spending, thus reduced tax payments such as corporate tax and consumption tax.
The government’s frontloaded spending from its main budget and supplementary budget to revive the economy also contributed to the worsened fiscal health.
It spent more than 60 percent of its main budget in the first half, but this frontloading helped the Korean economy to overcome the low-growth trap in the second quarter of this year.
Korea’s economy grew 1.1 percent in the second quarter compared with the first quarter, thanks to government spending and increased construction investment, the Bank of Korea reported.
The Finance Ministry said that it expects its fiscal deficit to be reduced in the second half of this year as various policies aimed at reviving private investment will lower the tax shortfall.
