NPAD trying to connect pension reform with corporate tax increase

Chairman Kang Ki-jeong of the policy planning committee at the New Politics Alliance for Democracy (NPAD) contended that the reform of public officials’ pension plan should be connected to increasing corporate tax. “The negotiation will further progress without hiccups only when the ruling Saenuri party and its floor leader Yoo Seung-min display good faith with unified view on passing public officials’ pension plan and increasing corporate tax toward floor leader Lee Jong-geol and NPAD,” he said. It is all of a sudden that NPAD brought out the issue of higher corporate tax and 50-percent increase of net replacement rate on the discussion table for reforming public officials pension plan, which is doubtful about their willingness for the reform on public officials’ pension plan.

In fact, countries around the world have competitively decreased their corporate taxes in an effort to induce investment from companies home and abroad, and to increase more job opportunities. The Conservative Party in the U.K. who made a landslide victory with the slogan of “left-leaning populism” at the general elections decreased the corporate tax rate to 21 percent in 2014 from 30 percent in 2006 and plans to further bring it down to 20 percent this year. In China, the rate has continuously fallen from 33 percent in 2006 to 25 percent in 2008. Given various tax benefits to its firms, the actual rate in some regions is around 15 percent. Indian Prime Minister Narendra Modi announced that the current tax rate of 30 percent would fall to 25 percent within the next four years. The U.S. and Japan are also joining in the bandwagon of lower corporate tax.

The NPAD’s contention of higher corporate tax means that the party is not aware of global trend or is a frog in a well that knows nothing about a big ocean. Out of Korea’s tax revenue, corporate tax accounts for 14.9 percent, putting us at the third place among OECD members. It also accounts for some 3.7 percent of GDP, placing us at the fifth place and giving onerous burden on the shoulders of Korean companies.

If Korea increases its corporate tax at a time when countries around the world are making fierce economic competition by bringing it down, the competitiveness of Korean firms would be damaged and investment on Korean companies from home and abroad decreased. It would also urge more domestic firms to go abroad and bring about negative effects on economic growth and national income. Amid already-highest unemployment rate for the youth with 10.2 percent as of April this year, more jobs will disappear and “employment barrier” will grow higher. The higher corporate tax doesn’t mean larger tax revenue as the economic recession worsened by more expensive tax could discourage firms to pay tax as well.

Although Chairman Kim Moo-sung of the ruling Saenuri Party made it clear on April 14 by saying that the party wouldn`t raise corporate tax, its floor leader Yoo Seong-min said that it is time to begin the discussion on increasing corporate tax at the press conference for his 100th day after taking office. In some ways, the floor leader has provided reasons for NPAD to lump the issue of public officials’ pension plan with higher corporate tax. NAPD should not “tie one bill to another” to push ahead with higher corporate tax and the Saenuri Party should not collude with it by passing the bill without any hesitation.