[Editorial] Time to Cut Taxes

Last year’s budget surplus was 15.34 trillion won. The government seems to have sparingly used taxpayers’ money, but a closer look tells a different story. The big surplus was the result of a miscalculation. The government estimated a budget larger than necessary, then collected more taxes.

The 15 trillion won of surplus contains the grievances of salaried workers who paid monthly income taxes, the anger of the middle class hit by property tax bombs, and the suffering of businesses owners forced to pay corporate taxes way higher than those in other countries. Last year, the comprehensive property tax rose 81.9 percent and income tax revenues grew 7.9 billion won and those of corporate tax rose 6.1 trillion won. A bloated government organization and lax administration by the former Roh Moo-hyun administration have taken a toll on taxpayers.

The Bank of Korea said that had the government reduced taxes as much as the surplus, the economy would have grown one percentage point more, private consumption would have increased 7.7 trillion won, and investment would have risen 3.9 trillion won. As ruling Grand National Party lawmaker Seo Byeong-soo said, if the government had collected the right amount of taxes, spare funds in the private sector would have been channeled into consumption, thus preventing the sluggish domestic demand the country is now suffering from. If last year’s economic growth had reached six percent as the central bank estimated rather than five percent, more jobs would have been created. This is a prime example how severely the tax squeeze affects vitality in the private sector.

In this regard, the tax reduction drive of the incumbent administration and the ruling party is commendable. Value added and income taxes that heavily burden low-income households will be reduced. Seizing the favorable conditions for tax reduction, the government is advised to revamp property taxes to minimize adverse effects on property prices. What is noticeable is the main opposition Democratic Party’s positive attitude on tax cuts for the middle and working classes.

The national ratio of tax to gross domestic product is 22.7 percent, higher than the rates in advanced economies. The Korea Institute of Public Finance says tax cuts are 1.2 to 2.9 times more effective in boosting economic growth than the expansion of government spending. Since this year’s budget surplus is expected to reach 10 trillion won, tax cuts are all the more needed to reinvigorate the economy.