South Korea's fiscal deficit narrows to W84.4tr in first half as tax revenue surges

South Korea's managed fiscal balance — the government's preferred gauge of its actual financial position — posted a deficit of 84.4 trillion won ($59.6 billion) in the first half of this year, narrowing by 9.9 trillion won from the same period last year on the back of stronger tax revenue. National debt, however, climbed more than 70 trillion won from the end of last year, keeping pressure on fiscal sustainability.

The Ministry of Planning and Budget's monthly fiscal trends report for August, released Thursday, showed cumulative total revenue for January through June reached 381.9 trillion won, up 61.3 trillion won from a year earlier. National tax revenue rose 33 trillion won year-on-year to 223 trillion won, while non-tax revenue increased 9 trillion won to 28.4 trillion won. Fund revenue grew 19.3 trillion won to 130.6 trillion won. Total revenue reached 54.5 percent of the supplementary budget target.

Income tax, the securities transaction tax and value-added tax were the main drivers of the revenue increase. Income tax rose 10.4 trillion won to 75.7 trillion won, lifted by higher wage and salary tax receipts tied to increased performance bonuses and a rise in capital gains tax from a pickup in real estate transactions.

The securities transaction tax climbed 5.2 trillion won to 6.8 trillion won, reflecting higher trading volumes and a rate restoration. Value-added tax rose 4.9 trillion won to 44.8 trillion won, driven by higher imports and a decline in refunds. Corporate tax revenue also increased 4.3 trillion won to 49.3 trillion won, supported by improved corporate earnings.

Total spending in the first half reached 425.8 trillion won, up 36.6 trillion won from a year earlier, representing 56.5 percent of the supplementary budget target. Budget expenditure rose 30.4 trillion won to 307.6 trillion won, while fund expenditure increased 6.3 trillion won to 118.2 trillion won.

The consolidated fiscal balance — total revenue minus total spending — posted a deficit of 43.9 trillion won, a 24.7 trillion won improvement from the 68.6 trillion won deficit in the first half of last year.

Excluding the 40.5 trillion won surplus from social security funds such as the national pension, the managed fiscal balance showed a deficit of 84.4 trillion won, an improvement of 9.9 trillion won from the 94.3 trillion won deficit in the first half of last year.

"As of June, both the consolidated fiscal balance and the managed fiscal balance are at their lowest deficit levels since 2019, when the consolidated deficit was 38.5 trillion won, and since 2023, when the managed deficit was 83 trillion won, respectively," a ministry official said.

Central government debt stood at 1,338.5 trillion won at the end of June, down 6.8 trillion won from the previous month but up 70.3 trillion won from 1,268.1 trillion won at the end of last year. Treasury bond balances rose 68.3 trillion won and foreign exchange stabilization bond balances increased 4.3 trillion won, while national housing bond balances fell 2.3 trillion won.

Meanwhile, the government issued 17 trillion won in treasury bonds in July, bringing cumulative issuance for January through July to 141.1 trillion won, or 63.1 percent of the annual issuance ceiling. The average funding rate in July rose to 4.07 percent from 4.02 percent the previous month.