[Editorial] Tax revenue shortfall

The Park Geun-hye administration has acknowledged that it will have sustained a huge shortfall in its 2013 tax revenue. But the news has come as no surprise, given that a shortfall was anticipated from the outset of this year. What is surprising, though, is that the administration is belatedly studying what action it should take.

In his testimony before the National Assembly’s budget and settlement committee on Friday, Hyun Oh-seok, deputy prime minister for economic affairs, said, “An exceptionally large shortfall in the tax revenue, such as this year’s, makes a budgetary readjustment unavoidable.”

Hyun did not present any specific figure as the estimated shortfall, which private think tanks said would hover around 15 trillion won. Nor did he say what the estimated budget deficit would be. But he said the administration was checking for spending items that can be canceled and big-ticket projects whose launches can be postponed.

Mostly held accountable for the tax revenue shortfall is the previous Lee Myung-bak administration, which overestimated this year’s economic growth when it submitted the 2013 budget to the National Assembly in October last year. The Bank of Korea estimates this year’s growth to be at 2.9 percent, well below the previous administration’s forecast of 4 percent.

During his confirmation hearing in March, Kim Duk-joong, commissioner of the National Tax Service, said that the tax revenues would fall far short of the target. His prediction was fulfilled when the tax revenue fell 10 trillion won short of the target during the first half of this year.

The administration should have started to cut spending, raise tax rates, or do both at this time, if not at the outset of this year, because there was little likelihood that the economy would make a quick turnaround. But it didn’t. Instead, it committed itself to making good on Park’s welfare election promises.

Now that the year is coming to an end, the administration is saying that it is checking where to cut spending. When the savings are not large enough to cover the anticipated budget deficit, the administration will have no other option than to borrow.

It will have no one but itself to blame if it is accused of being fiscally irresponsible. If it wishes to avoid a similar folly next year, it will have to exercise self-restraint in welfare spending and seriously consider raising tax rates, especially on the rich.