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(EDITORIAL from Korea Times on Nov. 10)

All News 07:09 November 10, 2022

Focus on fiscal health
It's not time to increase budget recklessly

The ruling and opposition parties have vowed to increase next year's government budget to help improve the people's livelihoods amid prolonged economic difficulties. But they have yet to narrow their differences over budgetary issues. Of greater concern is that they seem to be more focused on wooing voters based on populism rather than enhancing people's living standards.

The governing People Power Party (PPP) has proposed to provide an additional 1 million won (US$732) in tax credit for credit card use. Currently, salaried workers are entitled to 2 million won to 3 million won in tax credit depending on their annual payments. The PPP's plan calls for the expansion of the tax credit ceiling to between 3 million won and 4 million won.

The proposal appears to be good enough to help workers with a reduction in income tax. However, it draws criticism for benefiting high income earners more than poor workers. In other words, the plan could be seen as a tax cut for the rich. The PPP is also under attack for seeking to reduce the maximum corporate tax rate from the present 25 percent to 22 percent. Such a cut is aimed at easing the tax burden on companies and stimulating their business activities. However, the main opposition Democratic Party of Korea (DPK) is against the proposed reduction which it said could only benefit large corporations.

The PPP has also proposed raising the minimum taxable ceiling on capital gains from stock transactions. Under the revised tax code, which is to take effect Jan. 1, the ceiling is set at 1 billion won. Now the PPP is trying to raise the cap to 10 billion won. Furthermore, the party has suggested a cut in comprehensive real estate holding tax for owners of multiple homes, especially for those with more than two homes.

The liberal DPK has also taken flak for trying to increase the government's 2023 budget. It has stressed the need for more outlays to stimulate economic activity in provincial areas and create more jobs for the elderly. However, many of their proposals appear to be politically motivated to get more votes in future elections.

The rival parties should refrain from increasing the amount of next year's government budget plan which is estimated at 639 trillion won ($468 billion), up 5.2 percent from this year. This is not the time for fiscal expansion, but for austerity. The Bank of Korea is expected to raise its key interest rate further amid the U.S.-led aggressive global monetary tightening to tame inflation.

Fiscal tightening is required to reduce the government debt, which increased sharply during the previous administration. So the parties should not repeat their bad practice of earmarking state outlays for pork-barrel projects. If they want to increase spending on improving people's lives, they need to curtail redundant outlays and prevent waste of taxpayers' money. They should pay more attention to fiscal soundness.

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