[EDITORIALS]Pass corporate tax cutDespite opposition by the ruling Millennium Democratic Party, a bill calling for a 2 percentage-point cut in corporate income tax rates has been endorsed by the Finance and Economy Committee of the National Assembly, winning approval from committee members from the Grand National Party and the United Liberal Democrats. The proposal, if passed by the Assembly during a plenary session, would take effect next year.
We think a corporate tax cut, which would be the first in six years, would be a good prescription for the economy, which is suffering from its worst slump since the 1997-1998 financial crisis. Given the size of the cut, the effect on state coffers would be modest, around 1.5 trillion won ($1.2 billion) a year in reduced tax revenues, and the desired effect on the economy would take long to appear. This bill is not a magic formula that would give an instant boost to the sagging economy. But it would improve the nation's weak economic health and change the business atmosphere.
The administration is unconvincing in its negative assessment on a corporate tax cut. Immediately after the bill passed the Finance and Economy Committee, the government released a statement in which it expresses concerns about lower tax revenue and a possible fiscal deficit. It stressed that lower tax income would force the government to issue debt to cover the difference, thus undermining the government's promise to accomplish a balanced budget by 2003.
Still, it seems to us that the government, which has more than 110 trillion won in its annual budget, is exaggerating the threat of a possible fiscal deficit due to a modest decline in tax revenue. More efficient management of state finances or a tighter budget would easily offset the reduction. Also making the government's argument less convincing is the fact that this year's second supplementary budget of 1.6 trillion won came from unused government revenue. The government and Corporate Korea should take advantage of a long-needed corporate tax cut to rekindle the nation's economic vigor.