As taxes began to come in far more than expected this year due to a semiconductor boom, the government called this "excess tax revenues." It can be described as a shortened term for "excess taxes revenues" in the basic national budget law, the National Finance Act.
Recently, however, the government has begun using the term "additional tax revenues" instead of "excess tax revenues." President Lee Jae-myung said at a Cabinet meeting on the 23rd of last month, "Among the considerations on how to use the additional tax revenues, improving the startup environment to secure growth potential is also a big part." Since then, Cheong Wa Dae and a government official have continued to say "additional tax revenues," not "excess tax revenues." What difference is there that led to the change in terminology?
◇ Cheong Wa Dae: "If it's more than the one-year outlook, it's excess tax revenues; if it's larger than the long-term trend, it's additional tax revenues"
A Cheong Wa Dae official sent a text message to the press corps on the 6th explaining the difference between the two terms. It said, "Excess tax revenues refers to the amount exceeding the projected revenue for a single fiscal year, while additional tax revenues can be defined as the amount exceeding the long-term revenue trend." The official added, "Because tax revenues are expected to increase over the next few years due to the semiconductor boom and other factors, additional tax revenues is the more accurate term."
The Ministry of Planning and Budget, which is in charge of national finances, is offering a similar explanation. The newly used term "additional tax revenues" means taxes that exceed the average revenue growth rate of the past several years. However, a Ministry of Planning and Budget official said, "We are internally reviewing how to specifically set the long-term trend line." This can be taken to mean there is still no clear standard for what the long-term trend of taxes is, or by how much it must be exceeded to be called additional tax revenues.
◇ "Isn't this an attempt to avoid the excess tax revenues concept, which restricts expenditure targets and order?"
Experts note that Cheong Wa Dae and the government may have coined the new term "additional tax revenues" to avoid restrictions on expenditure targets and order for "excess tax revenues" as defined in the National Finance Act.
According to the National Finance Act, if budget surpluses occur due to "excess tax revenues expected that year," they must be used in the following order: ▲ settlement of grant-in-aid (non-earmarked tax) and grant-in-aid (earmarked tax) for educational finance ▲ repayment of public funds ▲ repayment of Government Bonds. The expenditure targets and order are strictly prescribed.
If the higher-than-expected taxes from this year's semiconductor boom are defined as "additional tax revenues" rather than "excess tax revenues," there is room to argue that the restrictions on expenditure targets and order under the National Finance Act can be avoided. In fact, Cheong Wa Dae plans to invest the "additional tax revenues" in ▲ support for the three mega projects ▲ response to K-shaped polarization ▲ housing, startups and jobs for the 2030 generation.
Also, excess tax revenues conceptually suggests that next year's taxes revenues were misforecast during the budgeting process. By using the different term additional tax revenues, the government has room to avoid criticism that it mispredicted taxes revenues.
Kim Woo-cheol, a professor in the Department of Taxation at the University of Seoul, said, "The term excess tax revenues does not mean 'the government has money to spare,' but rather that 'the government mispredicted and more taxes came in,'" adding, "I hope the concept of additional tax revenues will also be clearly defined and used." He added, "Only when export conglomerates in Korea such as Samsung and SK bring a tax revenue boom for more than three years can we discuss how to use either excess tax revenues or additional tax revenues."