[Asia Approach] The Recurring Call to "Open the Jaebeol Vaults"

Members of the 'Jaebeol Internal Reserves Recovery Movement Headquarters' are holding a 'Press Conference on the Status of Jaebeol Internal Reserves and the Declaration of the Recovery Movement' in front of the Federation of Korean Industries building in Yeouido, Seoul, in 2017.

[Asia Economy, Lee Kyungho, Head of Editorial Planning Team] "The retained earnings accumulated by the top 30 chaebols amount to 950 trillion won. If the chaebols open their vaults and contribute just about 10% as a 'Disaster Livelihood Income Fund,' many problems in national disaster situations could be resolved."

On March 12, the Ulsan Regional Headquarters of the Korean Confederation of Trade Unions (KCTU) held a press conference, emphasizing that the social responsibility and role of chaebols are more important than ever to overcome the novel coronavirus infection (COVID-19). They stated, "Chaebols, which have grown through various privileges, collusion between politics and business, squeezing workers, unfair transactions between primary and subcontractors, and preferential treatment in orders under the monopolistic economic system, now have an opportunity to reform themselves. Donations such as 5 billion won from Hyundai Motor and 1.2 billion won from Hyundai Heavy Industries are encouraging but far from sufficient." Previously, in 2016, the KCTU Ulsan Headquarters, together with the Metal Workers' Union Ulsan Branch and the Metal Workers' Union Hyundai Motor Branch, held a joint press conference declaring the 'Recovery of Chaebol Retained Earnings and Chaebol Reform Movement.'

KCTU Ulsan Headquarters: "10% of 950 Trillion Won Retained Earnings as Fund"
Labor and Civic Groups Launch 'Chaebol Retained Earnings Recovery Movement'

The retained earnings of the so-called chaebols, the top large corporate groups, have been a recurring topic in politics and labor circles. Whenever the economy is difficult, the national finances are strained, or workers and socially vulnerable groups face hardships, calls for chaebol reform and social responsibility arise. For example, the KCTU, Korean Progressive Alliance, and People Opening Peace and Unification formed the 'Chaebol Retained Earnings Recovery Movement Headquarters' and held a press conference in front of the Federation of Korean Industries building in Yeouido in 2017, urging, "The retained earnings of the top 30 groups have exceeded 800 trillion won. Recover the unfairly accumulated retained earnings." They defined retained earnings as "the survival rights of workers and the public that chaebols have taken away so far and originally do not belong to chaebols."

Views on retained earnings have been sharply divided in politics. The progressive camp has advocated taxation or fund-like contributions on retained earnings, while the conservative camp has opposed such measures. A notable figure in the retained earnings debate is current Minister of Justice Choo Mi-ae. As a lawmaker in 2012, she initiated a policy forum titled 'How to Use Excessive Chaebol Retained Earnings? Introduction of a Social Responsibility Reserve System,' advocating taxation and utilization of retained earnings. In 2016, while serving as the leader of the Democratic Party, she said, "The retained earnings accumulated by the top 10 companies exceed 550 trillion won, and the economy cannot survive on trickle-down effects alone." President Moon Jae-in, during his tenure as party leader (New Politics Alliance for Democracy) in 2015, stated, "If large corporations reduce just 1% of their 710 trillion won retained earnings, 300,000 major jobs can be newly created."

In October 2015, during the 19th National Assembly, Minister Choo proposed a bill (amendment to the Corporate Tax Act) to utilize part of retained earnings as a social responsibility reserve. The amendment stipulated that "if a domestic corporation sets aside a 'social responsibility reserve' to cover funds necessary for creating youth jobs, converting non-regular workers to regular positions, and supporting subcontractors for coexistence, a certain amount can be included as deductible expenses when calculating taxable income for the relevant fiscal year." The bill co-sponsored by Minister Choo also included current Democratic Party floor leader Lee In-young, who had introduced a similar bill on retained earnings taxation in 2013. However, these bills failed to pass the plenary session of the National Assembly and were automatically discarded.

Taxation on Retained Earnings Abolished During DJ Government Due to Side Effects
Progressives Continue to Advocate Taxation and Contributions Amid Retained Earnings Surge

Taxation on retained earnings is known as 'excess retained income tax.' Introduced in 1991, it was amended in 1993, 1994, and 1998, and abolished in 2001. It imposed an additional 15% corporate tax on excess retained income for unlisted corporations with total equity capital of 10 billion won or more and unlisted corporations belonging to large corporate groups. It was introduced to address tax inequity between shareholders of unlisted corporations who avoided dividend taxation through retained earnings and shareholders of listed corporations who were taxed normally on dividends. However, during implementation, issues arose regarding government intervention in corporate dividend policies, and it had little effect on promoting dividends. In August 2001, the ruling party and government (Democratic Party-Kim Dae-jung administration) decided to abolish it, judging it as a tax disadvantage for large corporate groups. The International Monetary Fund (IMF) also recommended abolition to secure corporate financial soundness.

While progressives view retained earnings as vaults where chaebols hoard funds to avoid other investments, conservatives argue this concept is inaccurate. The official definition of retained earnings is the sum of capital surplus and earned surplus or calculated solely by earned surplus. According to accounting definitions, surplus includes investments such as buildings, land, and equipment. Even with increased investments, retained earnings on the balance sheet may remain unchanged or increase. According to the Korea Economic Research Institute under the Federation of Korean Industries, retained earnings are surplus funds remaining within the company without being distributed externally through taxes or dividends. Thus, the increase in retained earnings does not exclusively indicate avoidance of investment activities.

Cash Hoarded by Chaebols? ... Includes Investments in Buildings, Land, and Equipment
While Countries Inject Money, Cut Taxes, and Maintain Zero Interest Rates, Proposals to Levy Quasi-Taxes on Chaebols Persist

For this reason, the business community and conservatives argue that taxation on retained earnings ultimately means an increase in corporate tax rates, which could worsen the business environment and increase the possibility of corporations relocating overseas. They particularly contend that "it is unreasonable to reintroduce a system abolished due to theoretical limitations and problems revealed during implementation without theoretical grounds or empirical analysis, under unrelated intentions."

If the claims of civic groups are accepted as is, retained earnings have explosively increased from just 26 trillion won in 1990 to about 900 trillion won today. The so-called chaebol vaults holding 900 trillion won exceed this year's national budget (512 trillion won). If 10% is contributed as a fund, it would amount to about 80 to 90 trillion won, which is eight times the recent supplementary budget (11.7 trillion won). Depending on perspective, this is an 'attractive sum' needed to revive the economy and support workers in difficult situations. However, given that the entire world is already implementing zero interest rates, tax cuts, and comprehensive economic stimulus measures to defend the economy, the recurring demand from labor circles to "chaebols, open your vaults" feels unreasonable. Rather, there would be more sympathy for urging companies to "use the cash reserves accumulated so far to minimize restructuring measures such as voluntary retirement and layoffs during difficult times."

This content was produced with the assistance of AI translation services.