[Editorial] Economy Reviving Policy Needed, Not More Taxes

According to the budget plan for 2006 passed by the government on September 26, tax revenues are marked for 172.75 trillion won, which equates to 14.24 million won per household (defined as a family of four). Each household has to bear 920,000 won more than it did this year.

This tax burden, falling mainly on the shoulders of salaried employees and real estate holders, will stunt private consumption and slow the prospects for an economic recovery. The revenues from income tax next year will rise 12.9 percent from this year’s 24.5076 trillion won to 27.6777 trillion won. Out of this, the payroll tax will grow 12.4 percent from 10.7029 trillion to 12.0321 trillion won next year; capital gains tax will jump 21.5 percent from 3.9114 trillion to 4.7529 trillion won; and comprehensive real estate tax will surge 45.7 percent from 700 billion won this year to 1.02 trillion won. Even imposing such heavy taxes, it is still predicted to be insufficient to cover a revenue shortfall of several trillion won next year, repeating the scenario of the current year as well as 2004. National debt, which in the end comes down to burden of the people, is expected to pile up to 20 trillion to 30 trillion won.

The only way to break this vicious circle is to reduce the tax burden on the people and carry out large-scale corporate deregulations, thus revitalizing the private sector, as the fundamental reasons of economic difficulties and financial troubles lie in sluggish investment by businesses.

Whenever the corporate sector had asked for deregulations, the government replied, “Investment is weak not because of the regulations but because companies have not found a new profit model.” The government should bear in mind, however, that only when regulations are eased can we freely search for new profit models. When the current regulations with “government power dictating over market autonomy” are drastically remedied and the labor market becomes more flexible, allowing “freer employment and layoffs,” businesses will not only increase their domestic investment but also hire many more people. This would achieve both growth and distribution simultaneously.

Prime Minister Lee Hsien Loong of Singapore once said, “In order not to be caught in the middle of low cost countries (such as for labor) and technology leader nations, and perish, we must make a leap.” This is why he is actively pursuing lucrative initiatives, bringing in casinos and even cabarets. Right now Korea is in a much more difficult position than Singapore. If we do not address the regulations and the rigidity of our labor market, the people’s pockets for paying taxes will soon be empty.