Gov't Policy Goals Signal Inevitable Tax Increase | Be Korea-savvy

Gov’t Policy Goals Signal Inevitable Tax Increase

(image: KobizMedia/ Korea Bizwire)

(image: KobizMedia/ Korea Bizwire)

SEOUL, Jul. 21 (Korea Bizwire)The new policy objectives and tasks of the new government with a clear focus on welfare and economic equality, if not justice, will inevitably lead to a tax hike, officials noted Friday.

Setting the five key policy objectives and 100 tasks for the new government Wednesday, the State Affairs Planning Advisory Committee said the policy tasks will require an additional 178 trillion won (US$158.8 billion) over a five-year period from 2018.

The policy tasks include creating 810,000 new government paid jobs, a key election pledge of President Moon Jae-in.

The committee, de facto transition team of Moon, insisted up to 95.4 trillion won could be set aside from annual spending over the next five years by rearranging and reducing government expenditures.

The remaining 82.6 trillion won will have to come from a net increase in tax revenues, it said.

An official from the presidential office, who spoke on condition of anonymity, claimed most of the additional 82.6 trillion won needed will likely come from what he called a “natural” rise in tax revenues afforded by the natural growth in the country’s economy and an increase in people’s income, meaning they will pay more taxes.

Moon, a strong advocate of what he calls people and income-oriented growth, seeks to increase the minimum wage to 10,000 won per hour by 2020, up an astonishing 54.6 percent from the current 6,470 won per hour.

Apparently reflecting the new administration’s policy aim, the tripartite commission of labor, management and government that sets the new minimum wage has agreed to set the lower ceiling at 7,530 won per hour for next year, marking a 16.4 percent spike from the current level.

The problem is the steep rise in income, or costs for employers, may force many businesses, especially the small ones, to simply reduce their jobs, which in turn may keep the sum of income tax at or around the current level, Son Seung-pyo, an economics professor from Dongguk University, noted.

Also, the income tax accounts for less than 30 percent of overall tax revenues, he added.

Though he may face losing some of his popular support, the president acknowledged a need for a tax increase even before his May 9 election.

Already, the government announced plans to adjust tax brackets to have the rich pay more dues.

Where the rest will come from will likely be decided in the near future, Cheong Wa Dae officials said.

The president was set to hold the second and last day of a meeting with some 220 financial officials and experts Friday to discuss ways to fund his 100 policy tasks.

“There has been a blind belief in a small government, but in order to overcome the structural limits of low growth and polarization and create an actual change in the quality of life for citizens, (the government’s finances) must play a more active role,” Moon told the meeting Thursday, according to his office.

Cheong Wa Dae officials said the Finance Ministry and the National Tax Service will likely take the lead in financing the new government policies, and that they will soon show ways to do so.


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