Political arena split on tax increase, welfare

Lawmakers and the government have initiated a new debate to determine whether the country should aim for higher welfare benefits accompanied by higher taxes or less welfare with lower taxes.

And so far the road to compromise appears far-reaching.

During the presidential campaign, ruling party candidate Park Geun-hye promised wider welfare benefits without a tax hike. Yet, earlier this year, higher income tax bills for 2014 fueled public outrage, prompting the government as well as the ruling and opposition parties to address the issue.

On Friday, President Park touted her original position, which would see funds continue to go toward welfare benefits, particularly the free child care program. At the same time, she also made clear her opposition to a tax hike to fund those programs - a call that has grown louder in the political arena recently.

“I hear talk about a tax hike, but our goal was to revitalize the economy, create more jobs and increase revenue to cover [welfare expenses] without placing the burden on taxpayers,” Park said during a meeting with the Presidential Committee on an Aging Society and Population Policy.

“Child care programs must cater to various needs, and the government must more aggressively approach the child care issue from the perspective that it is an investment,” she added, reaffirming her support for providing free child care programs.

But while Park adamantly pushed her original views on the tax and welfare bills, her top financial policymaker showed more flexibility.

Regarding a tax increase, Choi Kyung-hwan, the deputy prime minister for the economy and finance minister, said on Wednesday that raising taxes to cover ballooning welfare expenses should only come as a last resort after the legislature agrees on the level of welfare the country needs.

His remark was interpreted as passing responsibility off to the National Assembly to decide whether a tax hike was necessary for Korea’s fast-aging population.

Politicians, however, think differently. Saenuri Party Chairman Kim Moo-sung said on Tuesday that offering wider welfare benefits without a tax hike was impossible, adding that politicians cannot “deceive the public.”

Later, he slightly modified the tone of his commentary. “The government and the Saenuri Party have no difference in opinion that a tax hike is the last resort,” Kim said Friday during a party meeting.

The newly elected floor leader of the ruling party, Yoo Seong-min, also spoke critically of the Park government’s approach. “We must not make the people twice as furious by lying to them that there will be no tax hike,” he said in an interview with the JoongAng Ilbo on Wednesday.

Leaders of the main opposition New Politics Alliance for Democracy (NPAD) supported the idea of tax hike for the wealthy, however.

“If we will increase taxes, more should be levied [on the rich],” NPAD floor leader Woo Yoon-keun said on Wednesday.

Still, the government and the ruling and opposition parties appear to have reached an understanding that a corporate tax increase is inevitable.

Choi said on Wednesday that Korea should follow the global trend and lower corporate tax, though he changed his position the next day, stating that “the Park government does not treat corporate tax as sacred ground.”

While Saenuri floor leader Yoo said he was open to a corporate tax hike on Wednesday, Saenuri Chairman Kim was more conservative. On Thursday, he said it was the last task.

Woo, the NPAD floor leader, was significantly more assertive on a corporate tax increase. In his speech before the National Assembly on Wednesday, he said the corporate tax rate should be restored to the level before the major cut during the Lee Myung-bak government.

The 25-percent tax rate for companies with taxable incomes exceeding 20 billion won ($18 million) was slashed to 22 percent by the business-friendly administration.

But finding the proper scope for welfare benefits has also proven tricky.

While Finance Minister Choi asked the ruling and opposition parties to find a middle ground, Saenuri Chairman Kim said he was supportive of shrinking welfare. “If we want European-style benefits, we have to increase taxes,” he said. “We have to create a welfare system that fits our reality.”

Woo, on the other hand, said that maintaining current welfare benefits, particularly free child care and free school lunches, was necessary because they are supported by the Constitution as basic guaranteed rights.

Saenuri Chairman Kim has been the most vocal on this issue, arguing that welfare should be concentrated on the lower 70 percent of income earners.

BY SER MYO-JA [myoja@joongang.co.kr]