The government said on the 31st it will draw up a so-called "war supplementary budget" of 25 trillion won to respond to the Middle East crisis and, at the same time, pursue a package policy to repay 1 trillion won of Government Bonds. With the semiconductor boom boosting corporate tax receipts beyond expectations, fiscal room has opened to do a "debt-paying supplementary budget."
The government said it will submit the 2026 supplementary budget bill to the National Assembly to overcome the Middle East war crisis. The supplementary budget totals 26.2 trillion won. Of that, fiscal expenditure is 25.2 trillion won and Government Bonds repayment is 1 trillion won. It is the first "debt-paying supplementary budget" in five years since 2021. At that time, the government drew up a 34.9 trillion won COVID-19 supplementary budget and repaid 2 trillion won of Government Bonds.
◇ Funding comes from higher corporate and security transaction tax receipts
The funding for the supplementary budget and Government Bonds repayment is corporate tax and the security transaction tax, which came in higher than expected. Alongside the supplementary budget, the government made a correction to raise this year's revenue to 415.4 trillion won, up 25.2 trillion won from the main budget (390.2 trillion won). The government forecasts next year's tax revenue in advance when drafting the budget, and if actual revenue exceeds or falls short of the forecast, it makes a correction.
The government said this year's corporate tax revenue will be 101.3 trillion won, 14.3 trillion won more than initially expected. It projected the security transaction tax will come in at 10.6 trillion won, 5.1 trillion won more. It also expected The Special Tax for Rural Development, which is levied at a set ratio on the security transaction tax, acquisition tax, and the comprehensive real estate holding tax, to reach 13.6 trillion won, 5.1 trillion won more than expected.
◇ 40% of the supplementary budget to local governments
Of the 25.2 trillion won, the government will send about 38% (9.7 trillion won) to local governments. The priority allocation of the grant-in-aid (non-earmarked tax) and the grant-in-aid (earmarked tax) for educational finance follows the Local Education Tax Act and the Act on Grants for Local Educational Finance. Under these laws, a set ratio (about 40%) of national tax must be sent to localities without conditions.
Of the remaining 15.5 trillion won, 5 trillion won—one-third—will be used to shore up the revenue of refiners that have incurred losses under the oil price cap that took effect on the 13th. Another 4.8 trillion won will be paid as high oil price relief payments of 100,000 to 600,000 won per person to the bottom 70% by income. In addition, 1.1 trillion won will be invested to support export corporations struggling due to the Middle East situation.
◇ Fiscal expenditure growth rate returns to double digits
With this supplementary budget, the fiscal expenditure growth rate based on this year's main budget rose to 11.8% from 8.1% compared with last year's main budget. The fiscal expenditure growth rate expanded to 21.8% in 2022 under the Yoon Suk-yeol administration when a 62 trillion won COVID-19 supplementary budget was drawn up, then stayed in the single digits from 2023 to 2025 before returning to double digits.
Despite higher fiscal expenditure, Government Bonds repayment will reduce government debt by 1 trillion won from the main budget to 1,412.8 trillion won. The government debt-to-gross domestic product (GDP) ratio will fall from 51.6% to 50.6%. The "consolidated fiscal balance without social security fund," which is total revenue minus total expenditure excluding surpluses in social security funds such as the National Pension, will show a deficit of 107.6 trillion won. Based on this year's main budget it was 107.8 trillion won, so the deficit will narrow by 200 billion won.
Meanwhile, this is the second supplementary budget since the Lee Jae-myung administration took office. The first supplementary budget, totaling 31.8 trillion won, passed the National Assembly in Jul. last year. Nearly half of the amount, 13.9 trillion won, went to providing consumption coupons averaging 150,000 won per person to the public to revive livelihoods. Over the 10 months since the Lee Jae-myung administration took office, the two supplementary budgets total 58 trillion won.