SEOUL, March 29 (Yonhap) -- South Korea could face a "fiscal cliff" unless it takes steps to address the widely expected shortfalls in tax revenues amid a prolonged economic slump, a top economic official said Friday.
Senior presidential economic secretary Cho Won-dong issued the warning, saying the country could be short as much as 12 trillion won (US$10.77 billion) in tax revenues due to the economy's slower-than-expected recovery.
"In a situation where the prolonged low growth trend continues and foundation for recovery is weak, sharp reduction in fiscal spending could lead to a rapid downturn of the economy," Cho said in a press briefing.
"Unless something is done about the all-too-apparent deficits in tax revenues, it is our judgment that the so-called Korean version of the (U.S.) 'fiscal cliff' could happen in the second half," he said, adding that the government plans to front-load more than 60 percent of its existing fiscal spending plans during the first half.
"Fiscal cliff" refers to a combination of tax increases and government spending cuts that the U.S. government grappled with late last year and early this year amid concern that the combination could deal a blow to its shaky economic recovery.
Government officials have said the economy is in a worse situation than expected, with its gross domestic product growing less than 1 percent on-quarter for the seventh straight quarter, and exports, investment and consumption all remaining weak.
On Thursday, the government lowered its economic growth outlook for this year to 2.3 percent from the previous 3 percent forecast due to toughened market conditions at home and abroad. It also plans to unveil an extra budget next month in order to stimulate the economy.
The economy's slower than expected recovery is expected to lead to the government bringing in much lower tax revenues than previously estimated at a time when the new government is struggling to raise money to finance Park's campaign projects.
Another possible reason for the drop in tax revenues is the government's changed stance on selling its stakes in state-run banks.
Earlier, the finance ministry said that it will not push to sell its stake in KDB Financial Group. The ministry is also seeking to sell a reduced portion of its stake in the Industrial Bank of Korea (IBK) to remain majority shareholder.
Proceeds from the sales of stakes in the two state-run banks were counted as tax revenues in the 2013 budget plan submitted last year.
A senior ministry official said that the government will push for an additional budget that could go beyond making up for the expected revenue shortfall, hinting that the amount will be more than 12 trillion won.
Cho said the government plans to hold a meeting in late April or early March to discuss ways to raise financial resources for campaign projects, adding that it appears to be unavoidable for the government to issue state bonds to make up for the shortfall in tax revenues.
"In that case, the size of the government's fiscal deficits cannot help but grow," he said.
The official also said that there is an apparent need for the government to formulate a supplementary budget, though its amount is still unclear.
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