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[Editorial] Politics Blocking Efficient Budgeting

Posted June. 17, 2009 05:56,   


Budget officials are in agony. Government agencies must hand in their budget plans to the Strategy and Finance Ministry by the end of this month and begin negotiating with authorities from next month. Political disputes and legal contradictions, however, are blocking efficient budgeting.

In October last year, the ministry suggested new bills to the National Assembly to abolish object taxes on transportation, education and rural development and turn the three taxes into consumption taxes, or a kind of internal tax. One of the bills was designed to raise the rate of a special consumption tax. The ministry suggested the bills to streamline the complicated tax system and make fiscal operations more flexible. Parliament passed two bills abolishing the transportation tax and raising the rate on the special consumption tax in January.

Due to strong resistance from certain lawmakers, however, the bill to abolish the education tax remains pending in a parliamentary standing committee and that on removing the rural development tax remains in limbo in the parliamentary plenary session. Given the features of the three bills suggested by the ministry, all four of the bills should have been passed simultaneously. Yet only two have been passed while the other two remain pending. The situation is clearly contradictory and yet has remained for five years due to the malfunctioning National Assembly. Lawmakers keep talking about public welfare and economic recovery but seem more interested in pursuing their own political benefits.

Under law, an internal tax of 19.24 percent should go to provincial governments as a subsidy. The combined amount of internal taxes and provincial grants depends on the abolition of the three object taxes. If lawmakers persist in their political bickering, the central government must distribute financial resources with no understanding of expected tax revenue. A finance ministry source said, “We have no choice but to assume several scenarios, calculate the amount of expected internal taxes, and adjust the amount later. That means a state of chaos is inevitable.”

Political disputes even imply legal issues since two of the object taxes remain despite the National Assembly’s decision to raise the special consumption tax rate on the premise that the three object taxes will be abolished. To resolve the legal issues, parliament should either abolish the two remaining taxes or lower the special consumption tax rate. Nevertheless, lawmakers seem not to care about this.

The National Assembly has passed bills to privatize Korea Development Bank and merge the Korea National Housing Corp. with the Korea Land Corp. It did not, however, revise laws on designating or removing public organizations from government ownership. If the laws are not revised, an absurd situation will appear under which the bank will legally remain a state-run organization even when the bank is spun off and KDB Holding Company is launched.

When a nation’s financial soundness is damaged due to larger spending and tax cuts, the role of budgeting grows more important. Nevertheless, the National Assembly has simply heightened anxiety over budgeting instead of reducing such jitters. Both the ruling and opposition parties are responsible for concluding related bills as soon as possible to ensure efficient budgeting and resolve legal contradictions.