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(EDITORIAL from Korea Herald on July 7)

All News 09:58 July 07, 2018

Coordination missing
Panel suggests tax hike, but government effectively rejects it the following day

The Ministry of Strategy and Finance, which is in charge of making a tax code revision, essentially dismissed tax hike suggestions by a special presidential commission on fiscal reform a day after the panel had announced them. And the presidential office effectively confirmed the ministry’s position.

It is absurd and irresponsible for the commission to have announced policy proposals that were not properly coordinated with the relevant authorities.

The panel Tuesday suggested simultaneously increasing “taxes on the rich”-- combined financial income tax and housing rent tax.

The ministry effectively dismissed the suggestions Wednesday, calling them problematic. Normally the government reflects policy advice by expert panels in regulations it seeks to revise.

On the proposal to raise the combined financial income tax, the ministry made it clear that it would exclude the issue from consideration, citing the lack of public debate and lack of understanding of the policy’s impact on the economy.

Deputy Prime Minister and Minister of Strategy and Finance Kim Dong-yeon said, “Expanding taxation on combined financial income is too early to tell. We need review the issue sufficiently.”

His remarks indicate that the idea of increasing financial income tax, proposed by the commission under Cheong Wa Dae, was not properly coordinated within the government.

There is reportedly opposition even within the ruling party. Cheong Wa Dae, the ministry and the party speak different language.

When it comes to increasing the tax burden on the public, a procedure to gather public opinion is essential. If this stage is skipped, tax protests will likely happen.

Regarding the suggestion to reduce housing rent tax exemptions for small homes, the ministry said the chance was low that it would consider the suggestion in seeking to revise the tax code.

The authorities noted the plan could hurt middle-class retirees living off monthly rents or those who run small-scale housing lease business.

The presidential commission is an advisory organ, not a government agency, and yet it is nothing to sneeze at. A senior tax official of the ministry sat on the commission. Naturally, its suggestions jolted markets. Banks were reportedly flooded with phone calls asking about the potential tax hikes when they were announced.

With backlash mounting, Cheong Wa Dae and the commission backed off, slighting them as “nothing more than suggestions.”

However, few would think lightly of suggestions made by a presidential commission.

The policy proposals themselves were not without problems. They could lead to a tax bomb for the middle class or retirees and accelerate business downswings, as the ministry indicated.

The ministry reportedly had conveyed these concerns to the commission, which disregarded them. Some panel members raised issues about the side effects of increasing the tax burden, but those members who came from a liberal civic group close to the ruling camp reportedly pushed hard with their ideas.

It is one thing for the suggestions to be problematic in content, but more concerning is that the panel passed over the authorities’ concerns and announced its proposals without working to narrow their differences. It is irresponsible, and amounts to treating people as subjects of a policy experiment.
This is not an isolated case of disharmony.

Even after the 52-hour ceiling on workweek went into force from this month, the Prime Minister and the Employment and Labor Minister used different language to speak about some issues. The Employment and Labor Ministry ran counter to the Ministry of Trade, Industry and Energy over whether to disclose information on domestic semiconductor factories. The Ministry of Justice announced it would close cryptocurrency exchanges but Cheong Wa Dae nullified the announcement several hours later amid rising criticisms.

Of course, differences may happen within the government, but they should be tuned up before being announced to the people. Only then, they can avoid trouble such as being effectively withdrawn the following day.

The government must coordinate policy plans better to ensure unnecessary confusion does not happen again.

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