By Lee Hyo-sik
Staff Reporter
Restoring the nation's fiscal health back to its pre-crisis level has emerged as one of the nation's top policy priorities, with the government outspending tax revenue by a large margin over the past year to prop up the sagging economy in the aftermath of the worldwide economic downturn.
Policymakers here say it was unavoidable for the government to spend more than it earned to help bolster domestic demand at a time when corporate investment, consumption and other private-sector activities fell into a slump, vowing to boost the state coffers by broadening the tax base and slashing a number of tax deduction programs.
But this will be easier said than done as lawmakers are moving to initiate a host of new tax break schemes, which some view as efforts to gain popularity ahead of the upcoming local elections in June.
In public, lawmakers have been blasting government officials for Korea's deteriorating fiscal soundness, but behind closed doors, they are demanding the government either introduce or extend tax reduction and exemption programs for low-income salaried workers and the self-employed.
According to the Ministry of Strategy and Finance Sunday, nearly 20 bills out of 50 pending at the Assembly's strategy and finance subcommittee, if approved, would result in various degrees of tax cuts worth trillions of won.
For instance, Rep. Cheong Yang-seog of the governing Grand National Party (GNP) has submitted a bill calling for increasing the basic tax deduction for salaried workers from the current one million won to two million won. The change would reduce state tax revenues by more than 2.8 trillion won over the next five years if passed.
However, government officials are pledging to minimize tax cut programs this year and beyond to bolster the state coffers and improve fiscal health.
They said they will keep the tax cuts below 14 percent of the total national tax revenues of 2010. Last year, the government extended tax benefits to individuals and businesses worth 28.4 trillion won, accounting for more than 14.7 percent of the total tax revenue.
Korea's national debt is expected to reach 407.1 trillion won in 2010, up sharply from last year's 365.1 trillion won, accounting for 36.1 percent of the gross domestic product (GDP).
State debt will likely continue to head upward as the nation has to spend more to enhance its social safety net and other welfare-related programs amid the rapidly aging population and falling birthrate.
Samsung Economic Research Institute projected in a recent report that the debt-to-GDP ratio will increase by as much as 91 percent by 2050, suggesting the government eliminate its budget deficit as early as possible, spend taxpayers' money more cost-effectively and broaden the tax base.
However, it remains to be seen whether the government will be able to minimize tax cuts this year, with President Lee Myung-bak and other top policymakers pledging to extend tax breaks to businesses and the unemployed in a bid to improve the sluggish labor market.
The finance ministry recently submitted a bill to the Assembly to allow small enterprises to deduct three million won from their taxable income for each new worker they hire.