Government Axes Childbirth Subsidy Tax

“It is not necessary to add new tax items, or to impose a heavier tax for birthrate support and a more secure social safety net for the next four or five years,” said Deputy Prime Minister for Economy Han Duck-soo. He said on October 7 that the government is considering imposing a special purpose tax for enhancing the birthrate.

Rather than raising taxes, the government is seeking other ways to secure funds for childbirth subsidies and improving the social safety net, such as restructuring government spending and cutting off tax exemption benefits, which amount to 18 trillion won, he explained at a regular press conference held in the government building in Gwacheon.

His about-face is thought to be affected by the strong public opinion against the imposition of the special purpose tax.

The Ministry of Finance and Economy estimates it will cost some 23.1 trillion won from 2006 to 2009 to implement measures to raise the birthrate and strengthen the social safety net. Part of the cost is already appropriated in mid-term budget planning, but some 7.8 trillion won is yet to be procured.

The ministry has been considering a variety of revenue raising measures, such as imposing a special purpose tax, reducing tax exemptions, and saving government expenditures.

He also said the same day that it is desirable to abolish the special excise tax (luxury tax) and extend the value-added tax system instead. However, he also signaled the tax will not be nullified anytime soon by saying, “We should carefully review national finances before repealing the tax. It is difficult to reintroduce an abolished tax.”

Joong-Hyun Park sanjuck@donga.com