Reform is all about ‘how’

I am not sure if it’s okay to share company information like this. The research institute where I work settled employees’ year-end income taxes differently. It took out more from monthly pay than recommended by the National Tax Service. It knew year-end taxes would amount to more under the new tax code and upset employees greatly. So by withholding more taxes from our salaries each month, the institute lessen the year-end burden for its employees.

My workplace is filled with people - including myself - who have doctorate degrees in economics. I don’t know how much tax I pay every month, and I don’t care as long as my bank account figures don’t differ greatly from last year or last month.

But the feeling is different at the end of the year. We have gotten used to getting extra cash in January from tax refunds. We feel ripped off if we receive a pitifully small refund amount or, even worse, are asked to pay more.

If the government used its head more cleverly, it could have escaped such a strong backlash from taxpayers over year-end tax bills. If tax increases were spread out throughout the year, the year-end tax payment would have been smaller. Taxpayers might not have been so enraged. In theory, people would be paying the same amount either way. But strictly speaking, it would be better to pay less than more on a monthly basis. The difference, if saved in a bank, would collect interest. The government also was right to change the deduction method in the tax code. It had been designed to levy more tax on the rich.

Criticism about scrapping the benefit for taxpayers with more than one child, however, is justified.

But overall, the changes in the tax code were correct. Yet no matter how good a policy is, the way it is implemented can determine its success, which hinges on public response. How a policy is carried out is as important as its goal and design. In sports, a defeat can be applauded if the player has done his or her best. But a reform, even when justified and well designed, could end up a mess. The public might have responded differently if the changes in the tax code and payments were incrementally carried out.

Reforms are easier said than done, because how they are implemented matters as much as what they are. Reforms aim to redesign laws and systems to change beliefs, behaviors and practices. They are intended to create a new playing field and set of rules. People familiar with the current rules who are doing well in the game naturally would protest. So before changes are made, they must be thoroughly explained to both the players and audience, who need to be persuaded why the changes are necessary and how they will be beneficial. Why reforms are needed and precisely what they would do to improve the lives of the people should have been communicated in advance. This is not all. Authorities need to use some tricks or perform an act, to some extent, so people feel they have nothing to lose.

The keystone of labor reform is easing rigidity in the labor market. Workers will naturally resist changes that could undermine job security. They cannot take any risk with the livelihood of their families. They would hardly pay heed to the explanations on just and necessary causes for labor reform for the good of the country. Authorities should have cut a deal first. They should have offered to extend the retirement age as workers have been demanding to draw their support to relax regulations on lifetime job security. Talks on reform then could have proceeded more easily.

The ruling Saenuri Party’s proposal to scale down welfare plans is another example. It is right to suggest a revision of the plans and seek a tax increase for funding later. But once people have become used to welfare benefits, they won’t easily give them up. The government cannot do it. Needless to say, politicians whose jobs rely on voters cannot ask for it. Before making any promises, the party should draw up a plan on how to persuade the people and how it will push ahead with the changes. In short, good planning is the key to any reform.

Translation by the Korea JoongAng Daily staff.

JoongAng Ilbo, Feb. 5, Page 28

*The author, a former editorial writer for the JoongAng Ilbo, is an adviser at the Korea Institute of Finance.

by Kim Yeong-ook