Yoon government's tax forecast errors averaged W51tr a year, audit finds

The gap between projected and actual tax revenue averaged 51.5 trillion won ($38.9 billion) per year over the four years from 2021 to 2024, the Board of Audit and Inspection said Monday. The bulk of the discrepancy stemmed not from failures to anticipate economic cycles but from flaws in the forecasting models themselves.

The errors widened the gap between budgeted spending and actual fiscal operations, triggering side effects including project cutbacks and delayed disbursements as the government scrambled to plug revenue shortfalls. The process also undermined the National Assembly's role in reviewing and overseeing the budget.

The board released the findings Monday as part of an audit into the management of fiscal revenue.

Based on the results, the board notified Finance Minister Lee Hyeong-il of the Ministry of Economy and Finance and Planning and Budget Minister Park Hong-keun of 11 corrective measures, including improving tax estimation models and increasing transparency in procedures for responding to revenue shortfalls.

The audit, conducted from November last year through January this year, found that annual tax forecast errors during the 2021–2024 period — which spans the Yoon Suk Yeol administration — averaged 51.5 trillion won. By tax category, corporate tax accounted for the largest share of the error at 21.7 trillion won, followed by capital gains tax at 11.9 trillion won.

Of the total forecasting error, only 19 percent was attributable to inaccurate economic cycle projections, while 81 percent came from errors in the estimation models themselves.

Model errors refer to predictive uncertainty arising during the tax forecasting process, caused by a range of factors including inherent flaws in the models, inaccurate variable projections, and imprecision in reflecting tax code changes.

In the case of corporate tax, auditors found that forecasters applied historical average pre-tax net profit margins without adjustment even though the Russia-Ukraine war and other factors had raised the possibility of a decline in corporate earnings at the time of the 2023 projection.

Capital gains tax projections also had problems: the model incorrectly set the relationship between real estate prices and transaction volumes and their effect on tax revenue, diverging from actual data. When the board corrected the correlation model for real estate prices and transaction volumes, the capital gains tax forecasting error shrank from 7 trillion won to 3.1 trillion won — a 55 percent reduction — for 2023, and from 4 trillion won to 1.6 trillion won, a 60 percent reduction, for 2024.

The audit also flagged how the government bypassed National Assembly oversight and shifted burdens onto local finances when covering the revenue shortfalls.

Facing a legislature where the opposition held a majority and finding it difficult to secure additional funds through supplementary budget bills, the government opted for indirect measures — tapping surplus reserves in various funds and cutting local allocation tax transfers — rather than going through the Assembly's formal budget review process.

When revenue shortfalls reached 56.4 trillion won in 2023 and 30.8 trillion won in 2024, the former Ministry of Economy and Finance responded by routing money from various funds through the Public Capital Management Fund into the general account and by reducing local allocation tax transfers.

The problem was that National Assembly review and reporting procedures were not adequately followed in the process. Under the National Finance Act, changes to a fund's expenditure plan that increase loans to other funds by more than 20 percent of the originally planned amount require Assembly approval.

The government, however, exploited a gap in the law: no separate Assembly oversight requirement existed for changes to revenue plans that deferred the repayment of money already lent from the funds.

Using that regulatory gap, the former ministry transferred 17.3 trillion won from the Foreign Exchange Equalization Fund in 2023 and 15 trillion won from 10 funds — including the Housing and Urban Fund — in 2024 into the Public Capital Management Fund, covering approximately 32 trillion won ($24.2 billion) in general account revenue shortfalls.

Local governments also bore the burden. Without consulting local authorities, the former ministry made early settlements and reduced local allocation tax transfers by 8.2 trillion won in 2023 and 2.2 trillion won in 2024.

"We conducted the audit to examine the state of fiscal revenue management and explore ways to upgrade the management and operating framework," the board said. It issued a caution to the ministers of the Ministry of Economy and Finance and the Ministry of Planning and Budget, calling on them to ensure that changes to the operating plans of individual funds — including the Public Capital Management Fund — made to help cover revenue shortfalls are reported to the National Assembly in full, and that future general account fiscal operations are not burdened as a result.