Tax collection falls due to high interest rates US fiscal deficit doubles, Korea follows suit
The New York Times reported on the 5th that as high interest rates continue for a long time and tax collections fall, the U.S. federal budget deficit will “double.”
In Korea, too, national tax revenue has decreased by 43 trillion won as of July due to the prolonged high interest rate, the fiscal deficit is 68 trillion won, and the national debt is close to 1,100 trillion won per year, so the U.S. approach in which the expansion of the fiscal deficit puts pressure on the economy is being transferred to Korea.
Korea's national tax revenue as of July was 217.6 trillion won, down 43.4 trillion won (16.6%) from a year ago (261 trillion won).
The NYT said, “If borrowing costs rise further or simply stay that way for an extended period of time, the government will accumulate debt at a much faster rate than officials expected just a few months ago,” adding, “The total U.S. national debt will fall to $33 trillion.” “It exceeds the total annual output of the U.S. economy, and debt is expected to continue to grow both in dollar terms and as a share of the economy.”
The U.S. Federal Reserve initially raised interest rates early last year to control inflation, but at the Fed meeting last month, it predicted that interest rates could remain high for the next few years, and traders, including the Korean government, predicted that interest rates would fall noticeably next year. As a result of betting on 'something', I fell into a black hole with high interest rates.
NYT said, “What is clear is that if interest rates continue to rise, the federal government will have to pay more interest to investors to finance borrowings,” and “Since 2000, the United States has recorded annual fiscal deficits, and has lost more than what it receives in taxes and other revenues.” “We spent more and borrowed money to make up the gap,” he said.
“From a fiscal perspective, the story is very simple: If you borrow too much, you become increasingly vulnerable to higher interest rates,” Maya MacGuineas, chairwoman of the bipartisan Committee for a Responsible Federal Budget, told the NYT.
“How big of a problem the deficit is depends very much on interest rates,” said Jason Furman, a Harvard economics professor and former economic official during the Obama administration. “We assumed that cost increases would be sustainable for a while, but now that interest rates have risen so much, the calculus has changed,” he told the NYT.
As of July, Korea's tax revenue decline was led by corporate tax, down 17.1 trillion won (26.1%) from a year ago (65.6 trillion won).
In particular, due to the impact of deteriorating corporate performance, corporate tax returns decreased by KRW 19.1 trillion (36.3%) compared to a year ago (KRW 55.4 trillion). Capital gains tax as of July this year decreased by KRW 11.1 trillion compared to the previous year (KRW 20.7 trillion). It decreased by 100 billion won, down 53.6%.
The decrease in tax revenue from just the two tax categories of corporate tax and capital gains tax amounted to 30.2 trillion won, accounting for 70% of the total tax loss.
Korea's fiscal deficit was 38.2 trillion won in February, 23.1 trillion won in March (management fiscal deficit), and a surplus of 7.3 trillion won in January, resulting in a fiscal deficit of 54 trillion won in the first quarter.
Last year's fiscal deficit was 117 trillion won for the year, up from 101.9 trillion won in June.