A matter of integrity
The author is an editorial writer of the JoongAng Ilbo.
The late President Roh Moo-hyun while hiking with the presidential press corps in October 2005 suddenly popped a question to reporters. He asked: Who do you think had the most conviction among three prime ministers of Canada: Brian Mulroney (1984-1993), Jean Chretian (1993-2003), and Paul Martin (2003-2006)?
Mulroney, leader of the Progressive Conservative Party, implemented a series of unpopular platforms such as the introduction in 1991 of the goods and services tax, or value-added tax (VAT) on the federal level, to address mounting fiscal deficit. The highly controversial move during an economic recession delivered an overwhelming defeat to the conservative party in the 1993 election, where its seats shrank to two from 169. Despite his campaign promise to kill the VAT, Prime Minister Chretian kept it. Public finance eventually reversed to a surplus. His finance minister Paul Martin succeeded him as the subsequent leader after winning the following election. “Mulroney has brought doom to his party, but safeguarded Canada’s fiscal integrity,” Roh noted.
Roh’s pop quiz reflected his concerns about the country’s future. But he was hardly in a position to talk about fiscal integrity, with his approval rating at the bottom. His idea would sound too idealistic — like his sudden offer of governance in bipartisanship — to lessen the regional divide.
The rivaling parties are now contesting fiscal spending after the stunning win of the ruling Democratic Party through its aggressive spending plan to fight coronavirus and economic fallouts. Even the conservative opposition party is proposing universal basic income. The spending plans have been dizzily laid out with three rounds of record supplementary budgets and a five-year multi-billion-dollar New Deal project. Few question how and when national coffers can be refilled.
The shortfall can be covered by issuing debts for the time being. But in the longer run, tax hikes should be considered to normalize the fiscal balance. We don’t have to remind ourselves of the famous adage by Benjamin Franklin that “Nothing can be said to be certain, except death and taxes.”
Tax hikes are unavoidable, given the spending spree. Yet the word is taboo. The ruling party and state think tanks raise the need. But the Blue House maintains that this is no time to speak of such hikes. Those who criticized the conservative front’s offer of “increased welfare benefits without raising taxes” being a hoax also keep their silence.
Output without input is only possible with magic. The argument that spending today will be covered once the economy recovers is wishful thinking. The easiest tax increase is raising taxes on the rich. It is also a politically safe strategy. President Moon Jae-in employed selective increases. His government created a new super-rich category to raise more tax on them. However, current fiscal problems can hardly be solved through higher levies on the superrich. Also, the risk is too high, given the exodus of the rich after socialist president Francois Hollande imposed a 75 percent supertax on the wealthy.
A universal hike is the only solution to finance universal welfare programs. Korea’s deduction rate on income taxpayers is about 40 percent — more than doubling the levels in Japan, Canada, and Australia. If the Moon administration does not have the courage to collect taxes from them, its promise of social welfare is a lie or fantasy.
Without making the least effort, it cannot persuade the rich to pay more. The people can confidently demand better welfare when they actually pay for it. But no government has been able to sell such campaigns.
Tax cannot be increased for the moment. But it must be discussed and readied. Expanding fiscal input cannot be stopped for the time being. A tax hike is a tricky and tough procedure. It would face strong social resistance. If society does not start discussing it, it will never be able to survive the turmoil.
Instead of using the force of a supermajority with 177 seats in the legislature, the Democratic Party must show that it has the courage to do what is necessary to safeguard Korea’s fiscal integrity in the long term.