Leave VAT aloneLeave VAT alone
It is good news that both the ruling and opposition parties have agreed to approve the government’s guarantee on banks’ foreign loans.
At this point it is difficult to stabilize the current confusion in the foreign exchange market without an emergency package.
When the U.S. House of Representatives first rejected the $700 billion bailout package in Washington, it had a major negative impact. Suffering grew while more money and time were wasted due to political infighting.
International credit evaluation institutions are moving to raise the credit ratings of local banks. It is good that the political parties in return requested the government to provide stringent measures to prevent moral hazard.
It is also the right direction for supporting small- and medium-sized companies that are in difficult situations.
The problem is that several conditions were traded in the process of reaching agreement among the political parties.
The Grand National Party’s policy committee chairman said the party has agreed to discuss the lowering of value-added tax as demanded by the Democratic Party along the lines of other tax cuts. Instead of demanding the replacement of the Kang Man-soo economic team, the opposition party asked that value-added tax be lowered 30 percent.
The value-added tax is a sensitive issue that should not be changed without a great deal of consideration.
The tax could be lowered easily if the political parties agree, but it would be impossible to raise it back.
Many administrations have collapsed after changing the value-added tax without the right preparation.
Additionally, if the value-added tax is lowered 30 percent, we lose 12 trillion won ($9.10 billion) in tax revenue. To fill the void the government would have to issue a large amount of government bonds every year.
It is appropriate to either change the economic team or lower other taxes in accordance with the economic situation.
It is possible that the global economic crisis will be prolonged. It is a crisis where the government, and possibly on frequent occasions, when both the ruling and opposition parties have to move together quickly.
At a time like this, the opposition party must avoid the temptation to push its own political interests using the economic crisis.
The ruling party that is responsible for the nation’s fate should act responsibly.