[Inside Chodong] Excess Tax Revenue Solutions: Lessons from the Yoon Administration

Semiconductor-Driven Tax Optimism Underpins Fiscal Expansion Plan
Excess Tax Revenue Is Not an Achievement of the Lee Administration... Should Be Used for Structural Reform

In the first year of the Yoon Suk Yeol administration in 2022, there was an excess tax revenue of over 50 trillion won. This was due to the simultaneous occurrence of a pandemic-driven semiconductor boom and an abundance of liquidity, which led to a boom in the economy and asset markets. Following the final year of the Moon Jae-in administration (with 61.4 trillion won in excess tax revenue), the government collected a massive amount of tax revenue, exceeding its initial estimate by 52.5 trillion won. Over the two years of 2021 and 2022, the additional tax revenue reached the 110 trillion won range.

The Yoon administration used this excess tax revenue to fund a record supplementary budget of 62 trillion won, which was prepared just two days after the government’s inauguration. Although this was a substantial sum that could have significantly covered the fiscal deficit of over 90 trillion won at the time, it was used for cash-based expenditures such as compensation for small business owners, which was a key campaign pledge by President Yoon. When the excess tax revenue generated at the end of the Moon administration was used as the financial ammunition for the new administration’s supplementary budget immediately after the Yoon administration’s launch, criticism arose that “the fiscal authorities rang the golden bell for the new administration by manipulating tax revenue estimates.”

This year, the second year of the Lee Jaemyung administration, another historic tax revenue boom is expected due to the semiconductor supercycle. In the first quarter of this year, “Samjeonnix” posted a combined operating profit of 95 trillion won, and the securities industry consensus is that its annual operating profit will reach the 500 trillion won level. It is said that corporate tax revenue from these companies alone will be in the 120 trillion won range this year. When adding the increase in earned income tax due to expanded performance bonuses paid by these companies, as well as securities transaction tax and special rural development tax resulting from the semiconductor stock rally, the scale of excess tax revenue is expected to grow even larger. Since the government did not anticipate this level of boom when preparing this year’s budget last August, some project that the total excess tax revenue could reach as much as 70 trillion won, including the 25.2 trillion won injected into the wartime supplementary budget.

Behind President Lee Jaemyung and fiscal authorities' repeated emphasis on “expanding fiscal spending to boost growth” is the optimism that tax revenues will increase significantly thanks to the global boom enjoyed by Samjeonnix, resulting in a reduction of the national debt-to-GDP ratio—a major vulnerability for this administration—by at least 3 percentage points. If, as President Lee has mentioned, a nominal growth rate of around 10% is achieved due to the semiconductor boom, there is speculation that the government debt-to-GDP ratio (on a D2 basis) may not exceed 60% during this administration’s term.

Officials in government circles believe that the tax revenue boom led by Samjeonnix will continue at least until next year. While there are expectations that the semiconductor supercycle will be prolonged, the nature of the industry makes it difficult to guarantee the same conditions beyond next year. Just a year ago, who could have imagined that the AI craze would bring such windfalls to the top two domestic memory semiconductor companies? The semiconductor industry can change rapidly at any time, and tax revenues have always fluctuated wildly depending on the semiconductor market.

The Yoon administration, under the optimistic expectation of a prolonged boom, spent the excess tax revenue without clear principles. Subsequently, the government’s aggressive tax cut policy, which relied on continued excess tax revenues, and its failure to respond to the economic slowdown, resulted in a record tax revenue shortfall for two consecutive years from 2023, throwing the administration into complete turmoil. In effect, the Yoon administration squandered the opportunity provided by the initial tax revenue boom in its first year.

KDI, a state-run research institute, advised that “the economy is currently in an expansion phase” and that “artificial stimulus is unnecessary.” This means that the current administration has more room for maneuver in fiscal policy than the Yoon administration did. The current excess tax revenue is merely an accounting figure that occurred because the government’s tax estimates were off. The tax revenue boom brought about by Samjeonnix should not be mistaken as a macroeconomic achievement of the current administration. The more temporary such excess tax revenue is, the more it should be used first for structural reform, strengthening the foundations for growth, and paying down debt in our economy.

This content was produced with the assistance of AI translation services.