Opposition to Large-Scale Tax Reduction Worrying Aggravation of Financial Situation

The government-run research institute, Korea Institute of Public Finance (KIPF, president Song Dae-Hee) opposed the large-scale tax reduction policy, pointing out the danger of the unstable finance.

The KIPF announced in the research report, `Recent Economic Trend and Policy Tasks on Tax and Finance` that ``as passing through the money crisis, the increases of the financial deficit and the government`s debt have worsened the national finance. Because recently the economic growth rate has become slow, the welfare expenditure has increased following the expansion of the social safety net such as the basic daily life security, the inter-Korean economic cooperation has expanded, and the educational investment has enlarged, the nation`s financial condition will plausibly be worsened in the future.``

And the report pointed out that in a situation in which it is important to establish the sound finance in the future, the large-scale tax reduction is likely to cause the aggravation of the financial condition and the financial functions, and thus urged to reform the national finance through the expenditure curtailment, and to reform the national pension system which might be a burden to the national finance.

A research staff Park Ki-Baek, who wrote the report, explained that ``the debt of the central government increased from 36 trillion 800 billion won in 1996 to 100 trillion 800 billion won last year. Its portion among GDP also rose from 8.8 percent to 19.4 percent.``

Besides, there are 74 trillion 500 billion won which would potentially turn into the government`s debt because in the process of corporations and financial institutions restructuring, the government guaranteed to pay the bonds that the Korea Deposit Insurance Corporation and the Korea Asset Management Corporation issued. If the `accidental debts` including the public funds which was not counted as the government`s debt yet are considered, the ration of the government`s debt to GDP will amount to 37 percent.

Especially, because the repayment of the public funds will begin from 2003 in which the next government enters, the total amount to repay from 2003 to 2006 will reach 95 trillion 400 billion won, the report presented.

yhchoi65@donga.com