Economic justice, with a softer touchThe money flow these days shows alarmingly ominous signs - possibly in response to government plans to clamp down on corporations for tax revenue and bring the underground economy into the mainstream. Bank accounts yield practically no returns as the one-year deposit rate hovers at 1.9 percent, which is virtually zero considering the profit tax and inflation rate. Yet money remains stubbornly tucked away, finding deeper places to hide from authorities. The government’s plan to uncover the shadow economy to raise tax revenues could deepen and expand the unreported market.
Spending by department stores’ top 20 percent of clients in April fell from the previous month. These big spenders helped overall revenue of department stores last year despite the economic slowdown with spending growing 4.2 percent year-on-year. But last month, their spending fell 0.9 percent. The high-income bracket which hitherto sustained domestic consumption has grown careful with their wallets. Instead, department stores have seen surging demand for large safes and gold bars.
Saenuri Party executive council member Lee Hye-hoon raised concerns about money circulation, noting that sales of specially made safes that can store up to 1.5 billion won ($1.38 million) in 50,000 won notes have surged 20 percent. The Bank of Korea last year printed 26 percent more 50,000 won notes than the previous year to account for 64 percent of printed bills. Yet banks are running short of 50,000 won notes. With tax authorities determined to expand levies on financial income, dig up false accounts and tax cheats to make up for tax shortages from the economic slowdown, the cash-rich instead have safes at home to hide their money from scrutiny. The all-out campaign by tax and antitrust authorities and prosecutors to enforce greater economic justice and legitimize the underground economy are in fact causing negative repercussions.
Side effects and resistance are inevitable in any clampdown and policy execution. But authorities need to exercise some balance and restraint in policies to minimize damage, especially at a time of sluggish domestic consumption. The economy can turn dysfunctional if capital flow remains hidden or active in unreported sectors. No matter how good the intentions, policies sometimes need to be adjusted in timing and scale according to market conditions. If the economy is killed, what is the use of economic justice?
The government must be more subtle and delicate in making policy. Regulations and crackdowns fan insecurity. None of the economic problems will go away simply by painting the wealthy as morally corrupt. Private consumption is the key to sustain the economy due to slow movements in exports and capital investment. The government should clearly define the direction and targets of its economic justice and underground economy policies so as not to cause excess anxiety.