[EDITORIALS]Underwhelming tax policyThe tax amendments that the government proposed Wednesday for 2003 are narrower in scope than any recent proposals. The government itself described the proposal as the "minimum amendment." In particular, the policy calls for broadening the tax base by reducing tax breaks and exemptions. Over the past four years, the government had focused its tax policy on reducing tax burdens.
Government finances are forecast to be tighter from next year. Funds must be raised for repaying, over 25 years, 49 trillion won ($40.8 billion) in public money used to bail out bankrupt financial institutions after the 1997 economic crisis. Taxpayers' money must shore up the deficit-stricken balance sheet of the National Health Insurance Corp. It seems thus inevitable that the government decided to freeze, instead of reduce, the income tax rate for salaried workers for the first time in three years, and to scrap or reduce tax exemptions. It cannot allow more tax exemptions and tax cuts without regard for its fiscal plan or the need to broaden the tax base.
But whether those who will have to pay more taxes were well chosen is worthy of study. The government wants to increase tax revenues by 830 billion won through reducing tax breaks and exemptions. The cuts are concentrated on the tax deductions of companies' investments in facilities and research and development. The government seems to have made a dangerous decision without full consideration of the possible impact on Korea's economic growth.
The amendments also lack measures to favor wage earners. The government said it would abolish tax-free savings accounts for salaried workers at the end of this year. It should rather consider extending the tax break in order to support the middle class and encourage people to save. The resulting reduction in tax revenue can be fully offset by revamping the inheritance and transfer taxes or value-added taxes.
The government's latest tax overhaul shows a lack of determination to use the tax system to prevent speculative real-estate investment. It relies only on tax investigations to cool down the real-estate market. The "minimum amendment" cannot be used as an excuse for the not-so-satisfactory overhaul of the taxation system, which has a direct impact upon people's lives.