Last year, the public sector, including central and local governments and public enterprises, recorded a deficit exceeding 83 trillion won. Increased government private transfer expenditures, such as consumer recovery coupons, and investments in housing by public enterprises led to a significant rise in total expenditures, resulting in a deficit for the sixth consecutive year.
According to the Bank of Korea's '2025 Public Sector Accounts (Provisional)' report released on September 18, the public sector's balance was recorded at a deficit of 83.1 trillion won last year, an increase of 14 trillion won from the previous year's deficit of 69.1 trillion won. The public sector includes general government (central government, local government, social security funds) and public enterprises (non-financial and financial public enterprises).
Total public sector revenue was 1,192.1 trillion won, up 52 trillion won (4.7%) from the previous year, driven by increases in tax revenue (corporate tax, income tax) and social contributions. In contrast, total expenditures rose to 1,275.2 trillion won, an increase of 62 trillion won (5.5%), influenced by higher current transfers and final consumption expenditures by the general government.
The increase in corporate tax revenue last year was largely due to improved corporate operating profits in 2024, as corporate tax reflects the previous year's performance. Income tax also rose by over 10 trillion won, influenced by nominal wage increases. The total wage growth rate for regular workers was 2.9%, while the special benefits growth rate was 4.3%.
Lee Hyun-young, head of the Bank of Korea's Expenditure and National Income Team, stated, "The expansion of the public sector deficit last year was primarily due to the government's private transfer expenditures and housing-related investments by public enterprises. With GDP growth at only 1.1% and a slowdown in growth due to poor construction performance, the government increased direct and indirect expenditures to stimulate the economy."
By sector, the general government recorded a deficit of 60.1 trillion won, widening by 2.6 trillion won from the previous year's deficit of 57.5 trillion won.
The general government's total revenue was 903.2 trillion won, an increase of 54.6 trillion won (6.4%) from the previous year, due to increases in property income and tax revenue. However, total expenditures rose to 963.3 trillion won, an increase of 57.3 trillion won, worsening the balance.
Notably, final consumption expenditures, including health insurance benefits, and other current transfers increased significantly. The increase in other current transfers was approximately 24.2 trillion won, of which 13.5 trillion won was allocated for consumer recovery coupons. This also included additional budget expenditures for livelihood stability, such as support for small businesses.
While the central government saw an increase in total revenue, the larger increase in total expenditures led to a deficit of 90.1 trillion won, up from 83.8 trillion won the previous year. The local government significantly reduced its deficit from 15.5 trillion won to 2 trillion won.
Social security funds, including the National Pension, Civil Servants Pension, and National Health Insurance, recorded a surplus of 32 trillion won, although this was a decrease of 9.8 trillion won from the previous year. This was due to a larger increase in social benefits compared to contributions and health insurance premiums.
The public sector has recorded deficits for six consecutive years since the COVID-19 pandemic, marking the third instance of six consecutive years of deficits, following a similar trend from 2008 to 2013.
The general government deficit ratio to GDP was recorded at -2.2%. Excluding social security funds, the ratio was -3.4%, which is lower than the OECD average (-4.4%) and the Eurozone average (-2.9%).
Looking ahead, there are indications that the public sector balance may improve. The semiconductor industry is experiencing a boom this year, and the increase in insurance premium rates for the National Pension and health insurance is expected to positively impact the public sector balance by slowing the decline in social security fund surpluses.
Lee added, "With the semiconductor boom expected to significantly increase corporate and income tax revenues starting this year, we anticipate a reduction in the deficit by 2026 and a potential turnaround to a surplus in 2027."
* This article has been translated by AI.
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