Tax cuts and increased spending are a shortcut to budget deficit
One of the major economic policies of the Yoon Suk-yeol administration is bold tax cuts. For starters, it plans to reduce the top corporate tax rate by 3%, reduce property tax for single homeowners to 2020 levels, and reduce stock market transaction tax by 0, 03%. On the other hand, the government will also expand social welfare programs by, for example, increasing the basic pension for the elderly by 100,000 won ($77) per month. All of this will undoubtedly increase the financial pressure on the government.
Of course, Korea needs to lower the corporate tax rate to reinvigorate its sluggish economy and lower the property taxes that were abnormally increased by the previous government to curb speculation. The tax cuts are also spurring strong business investment to revive the economy, thereby increasing tax revenue in the medium to long term. However, while revenue growth from tax cuts takes a long time to materialize, the resulting revenue declines appear immediately. Tax authorities expect tax revenue this year to fall by more than 10 trillion won due to tax cuts announced so far. Unless they are accompanied by corresponding spending cuts, these are likely to inflate the national debt in the short term.
The Yoon administration inherited a national ledger that was fraying because of its predecessor’s big spending. The national debt exceeded 1 trillion won as of April 30, and the fiscal management balance deficit also exceeded 38 trillion won. President Yoon’s campaign promises will also result in one costly venture after another. Financial requirements for the implementation of national tasks are estimated at 209 trillion won over the next five years.
Economic policymakers pledge to no longer issue government bonds except for this year’s primary budget and the 88 trillion won reflected in the first supplementary budget. However, deficits are set to rise if tax cuts are combined with increased spending. If the government wants to keep its promise not to increase the national debt, it has no choice but to drastically reduce unnecessary and non-essential spending. Instead of pretending to talk about “sound finances”, the government should present solid and specific measures to restructure its spending.
[ED] A worrying national debt – The Korea Times
[ED] A worrying public debt