President-elect Park Geun-hye’s transition team is poised to rule out tax hikes in the coming administration’s policy to secure funds for social welfare, committee members said Tuesday.
Under Park’s full-fledged welfare project, which will cost the nation more than 90 trillion won ($83.3 billion) over five years, some economists had expected that the high-income bracket and major business groups would ultimately be the main target of tax authorities.
But in contrast to market prediction, a member of the transition team said that most of the promised welfare project will be carried out without directly raising taxes.
“There will be no direct tax hikes. As a substitute, the administration is considering raising funds by restructuring tax expenditures and improving efficiency,” a panel member was quoted as saying.
Rather than targeting the wealthy bracket and conglomerate sector, the coming administration plans to find grounds for broader taxation on the “underground economy,” which refers to practices such as those often found in construction and service sectors where taxes are withheld or not paid as well as illegal activities like drug dealing and prostitution.
Park has been cautious about tax increases, arguing that the nation can raise revenue by revising current rules and raising the rate of value added tax, a consumption tax.
The tax increase has been a hard political sell, especially in an election season.
Liberal parties are criticizing the ruling Saenuri Party’s reluctance to more boldly increase taxes, especially on the wealthiest 10 percent or so of people.
The conservative party’s tax reform plan unveiled in 2012 increases revenue by just 2 trillion won, a fraction of the 80 trillion won in lost revenue incurred by the Lee Myung-bak administration’s tax cuts for large corporations and wealthy individuals over the past five years.
Though some economists stressed that the government should directly target big businesses and wealthy individuals to increase corporate and income tax rates, the idea has already run into fierce opposition from conglomerates’ lobby for discouraging investment amid the economic slump and punishing the rich.
Meanwhile, a transition team member said the country could gradually map out long-term plans to raise taxes, sharing the view that expanded welfare programs require a huge budget.
But he clarified that the tax hikes will not be conducted in the earlier term of the coming administration.
By Kim Yon-se (
kys@heraldcorp.com)
