Budget stalemate continues over tax cut plan differences

Economy

Published: 15 Dec. 2022, 18:27 Updated: 22 Dec. 2022, 17:33

Budget stalemate continues over tax cut plan differences

From left, Democratic Party floor leader Park Hong-keun, National Assembly Speaker Kim Jin-pyo and People Power Party floor leader Joo Ho-young at the speaker's office on Thursday. [YONHAP]

The budget vote, a weeks beyond the deadline already, is still in doubt as the two sides remain far apart and continue to bicker.

On Thursday, Speaker Kim Jin-pyo suggested a 1 percentage point cut in the maximum corporate tax rate, to 24 percent, as a compromise, and the Democratic Party (DP) agreed.

The People Power Party (PPP) wants 3 percentage points and rejected the offer.

“The DP, after much thought, has decided to accept the mediation by the National Assembly speaker,” DP chief Lee Jae-myung said Thursday. “While the proposal does not coincide with DP’s will, we have made our decision considering the difficult economic situation.

“We hope to end budget negotiations today and to complete the budget agreement no later than tomorrow,” Lee added.

PPP floor leader Joo Ho-young said the cut was too little.

The corporate tax cut is the major sticking point in the budget negotiations.

Next year’s budget, which is close to 640 trillion won, was supposed to be put to a vote on Thursday. As of 6 p.m., the session on the budget had not been opened.

The budget discussions passed the legal deadline, which was on Dec. 2.

The DP earlier on Thursday repeated the threat made the day before to push ahead with a significantly reduced budget and forcing it through with its majority.

“If the PPP continues to remain stubborn on their position, we will have no other choice but to initiate our own adjusted proposal,” said Park Hong-keun, DP floor leader, before the meeting with his PPP counterpart and the National Assembly speaker.

The DP had been trying to cut a minimum 5 trillion won from the proposed budget. The government and the PPP argued that the cut demanded by the DP was too severe considering that the Yoon Suk-yeol’s government first proposed budget was already slimmed down significantly from the last budget of the previous government.

Finance Minister Choo on Friday argued during a press conference that such major adjustments of the final budget were possible under the Moon government because of the aggressive expansionary fiscal policy.

Choo said the previous administration on average increased the initial budget 8.5 percent, which allowed more room for cuts.

The Yoon government's proposal increases the budget at the slowest pace since 2017, at 5.2 percent. When accounting for the supplementary budgets earlier this year, next year’s budget proposal is actually a 6 percent reduction, the first fall in 13 years.

The government and the PPP are willing to cut the budget 2.5 trillion won, and could go as high as 3 trillion won. If it's more, the government can't function, the Finance Ministry said.

The DP has refused to accept the corporate tax cut, as it labels it as a benefit for major companies and the wealthy.

The government and the PPP demanded that the maximum corporate tax be lowered from 25 percent to 22 percent to help competitiveness in the global market.

Choo stressed that Korea was the only country among OECD member states to increase corporate taxes in recent years and that the previous government was the first since the Kim Dae-jung administration in the 1990s to have increased corporate taxes.

Profits by large companies are "not only is invested in increasing its competitiveness but also connected to improving payments to employees, shareholders and subcontractors,” Choo said.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]