The government is moving to establish a fund for a post-unified Korea. It reportedly plans to raise about $50 billion over the next 10-15 years. Despite a possible opposition from taxpayers, a reunification tax is necessary to minimize pain for a rainy day.
The government purportedly plans to accumulate $3-5 billion each year for a unification fund. It is equivalent to less than 1.5 percent of the national budget.
The plan came after President Lee Myung-bak stressed the need for the introduction of the tax on Aug. 15 during his Liberation Day speech last year.
The amount is less than 10 percent of the estimated funds necessary to finance the reconstruction of the backward North Korea in a reunified Korea.
Estimates for reunification costs vary depending on research institutes. A consensus view is that South Korea may need at least $500 billion.
The taxation method has not yet been decided. Seoul officials say the government will collect the tax in such a way as not to burden the working people. It means the government will not accumulate the fund through such indirect taxes as value added tax or special excise taxes. A heated debate is likely over the new taxation.
The proposal drew an angry reaction from the North. Pyongyang chided Seoul for collecting a war tax on the assumption that the South will absorb the North. It ruled out such a scenario.
More important than collecting the tax is the minimizing of reunification costs. It must chart a long-term plan to engage the North in a consistent and predictable way.
The consensus-based North Korea policy should be implemented regardless of a change of government in the South. A sudden turnaround from engagement to disengagement or vice versa at the whim of the incumbent president will only raise the reunification cost. Both conservatives and liberals should set aside ideological differences to find a third way of dealing with the North.
It may be naive to expect the North’s denuclearization. Seoul should provide incentives to nudge the North into moving toward the direction of no nuclear weapons.
The North should dismantle its nuclear weapons program completely and irreversibly. The South should make it clear that it has no intention of absorbing the North against its will. Inter-Korean reconciliation will reduce heavy military spending, part of which can be recycled for promoting the welfare of the peoples.
Instead of providing food to the North, the South can provide fertilizer, machines and food processing plants so that it can stand on its own.
As West Germany did ahead of German unification, Seoul can provide knowhow and technology to the North on strict conditionality.
Before introducing the tax, Seoul badly needs a consensus on how it will treat the North; as an enemy or a brother. But it takes two to tango.