[VIEWPOINT]Creating a realistic tax policy

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[VIEWPOINT]Creating a realistic tax policy

Although it cannot collect much in taxes due to the recession, the government has increased its expenditures on welfare and large-scale national projects. In addition, it has increased its spending by creating more organizations and raising the number of government employees. If the government increases its spending even when its revenue from taxes is decreasing, the state must issue deficit bonds to fill in the gap. The national debt will rise in the long run. If this abnormal operation of national finance continues, not only family and corporate finances but also national finances will shrink greatly. Now is the time for the government to change its way of thinking on the operation of national finance.
First, the government should make an exact estimate of its revenue from taxes and reduce the amount of deficit bonds it issues. The government made an estimate of the revenue based on an unexplained optimistic growth rate for the economy this year and next year of 5 percent. But as this year’s actual growth rate is expected to remain at 3.8 percent, the government released a forecast that there will be a shortage in revenue, at 4.6 trillion won ($4.4 billion) this year and 7.8 trillion won next year. Accordingly, the amount of deficit bonds that the government issues largely to fill the shortage in revenue, is estimated to be worth 9.8 trillion won this year and 9.0 trillion won next year. This is a steep rise compared to the annual deficit bonds of about 2 trillion won from 2000 to 2004. The national debt for this year is forecast to increase to about 250 trillion won ― around 30 percent of the gross domestic product, for the first time in history. The national debt should eventually be paid back with the people’s taxes. This is to say that innocent people will end up carrying the burden arising from the government’s mistake of optimistically inflating its revenue goal from taxes.
Second, the government should not squeeze taxes from workers and the common people just to fill the shortage in revenue through the expedient revision of tax laws after inflating its own goal, or cope with the problem by gearing up for tax investigations. The long-term recession left workers and the common people nearly depleted of their capacity to shoulder a tax burden. This is clearly proven by the facts that actual gross national income for the second quarter of this year fell to zero percent, the lowest level since the foreign exchange crisis of 1997, and that household debts reached a record 532 trillion won. The reality is that the common people’s income has dropped and they are heavily burdened with debt.
The revenue that is collected through tax investigation is about 5 percent at most, and the remaining 95 percent is paid voluntarily by the taxpayers. A tax investigation can result in greatly shrinking private economic activity while having an insignificant effect on increasing the revenue. The original purpose of tax investigations was to achieve fair taxation by investigating conglomerates’ transfers of wealth without paying taxes, or illegal windfall income.
Third, the government should reduce the “political” or wasteful budget on its own accord. Taxes are what households and businesses have brought to the government for its use. In the process of collecting and spending taxes, it is bound to incur expenses. Also, it is highly likely that taxes can be used inefficiently or wasted based on political logic. If the government wastes the precious taxes paid by the people, this will make it more difficult to revive the shriveled private economy. I hope the National Assembly strengthens its budget deliberation functions by turning its Budget Settlement Committee into a standing committee and carefully examining whether there is any waste in the allocation and execution of the budget.
Historically, there have been few cases in which the government was successful when it collected taxes excessively and controlled the private economy unnecessarily. Isn’t the fall of socialist countries, including the former Soviet Union, a plain example? Although Japan poured a huge amount of money into finance to overcome its economic recession in the 1990s, it failed to recover its economy and wasted the last 10 years. At present, our country is following a similar path. Since the foreign exchange crisis, the government has consistently expanded its financial spending, but the Korean economy has not recovered and its latent growth rate has dropped. Also, the number of jobs has decreased and the national income has remained the same for eight consecutive years.
Now the government needs to change its way of thinking in such a manner that it restrains non-urgent spending in its financial operation, and carry out a tax-reduction policy to boost domestic spending and promote investment.
The government should also allow as much vitality as possible in business activity by easing regulations, including the investment ceiling on cross-affiliate shareholdings and the restriction on the total size of manufacturing facilities in the Seoul metropolitan area. This is the path to reviving the economy and reasonably securing revenue from taxes.

* The writer is a professor at Myongji College and accountant. Translation by the JoongAng Daily staff.


by Park Sang-keun
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