Backpedaling on ‘no new taxes’The government is preparing to hike local taxes to help local governments finance social welfare programs. The Ministry of Security and Public Administration announced revised tax codes to increase levies incrementally on residents, cars and local utilities from next year. Some will double. Exceptions from local tax levies will be lowered to bring the ratio down from 23 percent to 14 percent - the same as the exemption rate in national taxes. This will help local governments raise an additional 1.4 trillion won ($1.35 billion) in tax revenue. The hike follows the Ministry of Health and Welfare’s decision to raise the tobacco sales tax and other levies to increase tax revenue by 2.8 trillion won.
President Park Geun-hye and her government promised not to raise taxes to finance ambitious social welfare programs. The government may argue it isn’t backing out on its word because rates on national tax items such as corporate and individual income remain untouched. New levies on tobacco and automobiles may not strictly be hikes on a national level, the government explains. But taxes are taxes for taxpayers, regardless of where they end up. Whatever clever ways the government comes up with to tax its citizens likely won’t last long.
The government discovered it could not fund its welfare plans without increasing taxes from the start. It announced plans to dig up underground economic activities and adjust deduction and exemption cases to increase tax revenues through rationalization. But by the end of 2013, it was 15 trillion won short of its 270 trillion won revenue target. It expects to be more than 10 trillion won short on the target this year as well. Universal day care subsidies have been handed out since last year, and basic allowances for low-income senior citizens also began this year. Local governments threw in the towel and threatened to suspend basic pension programs because they have run out of money. Local tax increases seem designed to appease local governments as the fund will go into their coffers.
The authorities may be safe for now, but extra taxes won’t be able to cover the rapid growth in welfare spending. What is more imperative is a fundamental re-examination of welfare programs and future funding plans. The government must calculate the cost of welfare programs and where funding should come from. It must be honest with the people about how much money is needed in return for specific benefits and ask if they are willing to share the burden. It cannot go on making up excuses to collect more taxes. It must reopen a debate on social welfare issues and reach public consensus on a future agenda.
JoongAng Ilbo, Sept. 15, Page 30