Updated March. 30, 2013 01:09
Senior Presidential Secretary for Economic Affairs Cho Won-dong warned of Korea facing its own fiscal cliff in this years second half if the shortfall in tax revenue remains unaddressed.
Cho told reporters Friday, To prevent the economy from contracting, the government will implement 60 percent of this years budget in the first half, and if taxes are not collected, we cannot implement it. The situation will increasingly deteriorate into the second half of the year.
A fiscal cliff refers to a shock that the economy suffers due to a sudden decline or halt of government spending. If expenditures decline 10 trillion won (9 billion U.S. dollars) this year, economic growth could fall 0.17 percentage point this year and 0.2 percentage point next year, according to Cho.
The secretary went so far as to using the term Korean-style fiscal cliff because tax revenue is expected to plunge 12 trillion won (10.8 billion dollars) from the original target this year alone. He is the first government official to specify the rate of decline in tax revenue. I think it`s inevitable to issue Treasury bonds to make up for the shortfall in tax revenue, Cho said. The governments fiscal deficit will unavoidably increase, and national debt will also likely expand.
With economic conditions worsening more than expected, doubt is rising over President Park Geun-hyes plan to "raise funds to implement her election pledges without increasing tax."