As this year's semiconductor boom led to tax collection far exceeding expectations, the government called it "excess tax revenues." It can be described as a shortened term for "excess taxes revenue" in the National Finance Act, the basic law for the national budget.
Recently, however, the government began 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 that "improving the startup environment to secure growth potential is a major part of the discussion on how to use additional tax revenues." Since then, the Blue House and a government official have been saying "additional tax revenues," not "excess tax revenues." What is the difference that led to the change in terminology?
◇ Blue House: "If it exceeds the one-year outlook, it's excess tax revenues; if it's larger than the long-term trend, it's additional tax revenues"
A Blue House official on the 6th sent a text message to the press corps explaining the difference between the two terms. It said, " 'Excess tax revenues' refers to the amount exceeding the projected revenue in a single fiscal year's budget, 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 several years due to the semiconductor boom and other factors, 'additional tax revenues' is the more accurate term."
The Ministry of Planning and Budget, which oversees national finances, is offering a similar explanation. The newly used term "additional tax revenues" means taxes in an amount that exceeds the average revenue growth rate over the past several years. However, a Ministry of Planning and Budget official said, "We are internally reviewing exactly how to establish 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 and how far above it revenues must be to be called additional tax revenues.
◇ "Isn't this an attempt to avoid the concept of excess tax revenues, which restricts expenditure targets and order?"
Experts note that the Blue House 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 stipulated in the National Finance Act.
Under the National Finance Act, if a surplus arises from "excess tax revenues expected for that year," it 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 defined.
If the taxes collected above expectations due to this year's semiconductor boom are defined as "additional tax revenues" rather than "excess tax revenues," there could be room to argue that the restrictions on expenditure targets and order under the National Finance Act do not apply. In fact, the Blue House plans to invest the "additional tax revenues" in ▲ supporting three mega projects ▲ responding to K-shaped polarization ▲ housing, startups, and jobs for those in their 20s and 30s.
Also, excess tax revenues by concept imply that next year's taxes were misestimated during the budget process. By using a different term, additional tax revenues, the Ministry of Planning and Budget could have room to avoid criticism that it misprojected tax 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 that 'the government misestimated revenues and collected more taxes,' " adding, "I hope the concept of additional tax revenues is also clearly defined and used." He added, "Only if export conglomerates such as Samsung and SK bring a tax windfall for more than three years in Korea can we discuss how to use either excess tax revenues or additional tax revenues."