Welfare means raising taxesPresident Park Geun-hye and Choi Kyung-hwan, deputy prime minister for the economy, may be the lone idealists who still believe that various new welfare programs are fundable without increasing taxes. In a poll by Gallup Korea, 65 percent were skeptical that social welfare could be increased without a tax hike. Just 29 percent said it was possible. The perception that Korea’s welfare standards fall below our economic level reached 54 percent, underscoring anticipation for a better system. The pros and cons of a tax hike to finance welfare spending were surprisingly balanced at 45 percent to 47 percent. Welfare demand, even at the risk of higher taxes, has been gathering ground.
President Park and her government have been confident that they can afford new welfare programs by easing tax deductions and exemptions, and digging up unregistered taxes. That has been wishful thinking. The government recently announced that it will raise tobacco, residential and automobile taxes while idly arguing that the moves were not tax hikes. Next year’s budget was appropriated to stimulate the economy. Lofty payouts for a new universal basic pension for senior citizens and child care allowances already left huge holes in the budget. At the current spending rate, our fiscal state could be in a serious mess.
We don’t know what other plans the government has in mind to increase tax revenue. It must remember the backlash from last year’s proposal to review the tax code. The government was criticized by the middle class when it attempted to tweak the income tax while leaving other categories intact.
Public welfare spending takes up 10 percent of gross domestic product, just half of the 21 percent average among members of the Organization for Economic Cooperation and Development (OECD). The more advanced our country becomes, the greater the welfare cost will be. The tax rate is equal to 20 percent of the GDP, lower than the OECD average of 25 percent. Tax hikes are inevitable, and the public is well aware of this. Politicians just don’t want to get their hands dirty. The president might as well admit that her campaign promise was naive, or she should give up her promise to keep the fiscal debt level to 20 percent of the GDP.
The realistic choice is to be honest with the public and seek their understanding. Tweaking taxes here and there is cowardly and dishonest. The government will only distort the tax system. There is no other way than to revise the rates of national taxes - income, corporate and sales. The process, however, must be orderly and incremental. What, when and how should be sufficiently coordinated with the public through debates.
JoongAng Ilbo, Sept. 27, Page 30