Growing Tax Burden
Measures Needed to Ease People's Financial Hardship
People's tax burden is predicted to rise next year, raising concerns about financial hardship amid uncertainties over the economy. The Ministry of Finance and Economy said Friday that each South Korean will be required to pay a record high of 4.34 million won ($4,680) in taxes in 2008, 4.8 percent up from this year's 4.14 million won. Salaried workers' average income tax payment will grow 5.9 percent to 2.14 million won ($2,300). Not a few workers are worried that their real income might diminish next year due to a heavier tax burden.
According to the budget plan, national tax revenue is expected to increase 4.6 percent to 165.6 trillion won next year from this year. Including local taxes, the country will collect a total of 210.8 trillion won in taxes. The sum will account for 21.8 percent of the country's gross domestic product (GDP) estimated at 968.9 trillion won. Officials said the tax burden rate will represent a slight decrease from this year's 22.2 percent. Citing the falling percentage, they tried to play down public fears over the higher tax burden.
However, people believe that they will have to pay more taxes even though the tax revenue-GDP ratio declines. Critics claimed that the percentage could drop naturally because the GDP is to rise higher than the tax revenue increase. They said the actual amount of tax people pay would grow despite the decreasing ratio. In particular, they are critical of this year's 22.2 percent ratio, far higher than government's projected 20.6 percent. The jump proves that the government collected more taxes than it had forecast.
Ministry officials just said that individuals' tax burden might look heavier than the actual figures. They added the per capita tax will inevitably increase, albeit not significantly, because of dwindling population growth. However, they must realize that people's tax burden is far higher than that of advanced countries. According to the Organization for Economic Cooperation and Development (OECD), the ratio of tax revenue against GDP stood at 16.5 percent in Japan, 18.8 percent in the United States, and 20.6 percent in Germany in 2004. When indirect taxes _ value-added tax, special excise tax and others _ are included, the tax burden could rise further. Also considering growing non-tax contributions to national health insurance and the pension scheme, people will be forced to shoulder much heavier financial burdens.
The government has turned a deaf ear to mounting public calls for a tax cut since President Roh Moo-hyun took power in February 2003. The Roh administration has been criticized for wasting taxpayer money on expanding the size of the government. It is blamed for recklessly increasing spending on welfare programs and expanding the number of civil servants. Thus, the per capita tax burden has continued to surge. It was estimated at 2.84 million won in 2002. The amount surpassed the 4 million won mark in 2007.
On the heels of the contagion effect of the U.S. subprime mortgage turmoil and soaring crude oil prices, the Korean economy might experience downward growth. In this situation, people are likely to suffer from financial hardship due to an increase in taxes. Policymakers should hammer out proper measures to ease the burden, which could stimulate consumption and thereby help boost the economy.