'Wag the Dog?' Ruling and Opposition Clash Over 4 Trillion Won Reduction in Tax Revenue

Budget Hearing on the 4th Next Month... Budget Parliament Begins
Government and Ruling Party Plan to Cut Corporate Tax and Save 4 Trillion Won for Sound Fiscal Policy
Opposition Claims "Raising Second IMF Crisis... Tax Revenue Decrease Impossible"
Ruling and Opposition Expected to Clash Over Revenue

[Asia Economy Reporter Oh Ju-yeon] The curtain rises on the "budget National Assembly" starting with the budget hearing on the 4th of next month. Although the government has shifted the 2023 budget direction from expansionary fiscal policy to sound fiscal policy, the key issue is how much cooperation can be drawn from the major opposition party, which advocates for "increasing the livelihood budget and withdrawing the tax cuts for the wealthy." The approximately 4 trillion won decrease in tax revenue is expected to be the core factor in reaching next year's budget agreement. As forecasts suggest that passing the budget by the legal deadline set for December 2 will be difficult, the budget negotiations may continue for more than two months.

[Image source=Yonhap News]

The 4 trillion won difference arises from the handling of the tax law revision bill, which includes corporate tax cuts and reforms to income tax and comprehensive real estate tax. The tax law revision bill is directly linked to tax revenue, a key component of the budget. This also affects expenditures, which are the source of fiscal spending.

The core of the government's tax law revision bill is to lower the top corporate tax rate from the current 25% to 22% and reduce the burden of the comprehensive real estate tax. According to the government proposal, the comprehensive real estate tax will decrease by 1.4244 trillion won next year, and corporate tax will be reduced by 618.2 billion won. Income tax is also expected to decrease by 2.0592 trillion won next year alone.

The Democratic Party points out that the total tax revenue decrease next year caused by these three tax law revisions amounts to 4.1018 trillion won, arguing that the so-called "tax cuts for the wealthy" policy paradoxically forces the public to bear a 4 trillion won loss in tax revenue. Ultimately, during the budget discussions, the ruling and opposition parties are expected to engage in a tug-of-war over whether to reduce the budget by 4 trillion won.

Park Hong-geun, the Democratic Party floor leader, recently emphasized at a party meeting, "Even in a situation where a second IMF crisis is being raised, the government's and ruling party's mistake of calling for ultra-rich tax cuts, which is completely contrary to global trends, must be corrected."

[Image source=Yonhap News]

The Democratic Party's position is to prevent the tax revenue decrease and secure 4 trillion won to focus on the "livelihood budget." Representative examples include the local currency budget, which was cut entirely by 700 billion won, as well as budgets for jobs, public rental housing for low-income groups, and the Youth Tomorrow Savings Deduction. In particular, local currency was a flagship project promoted by Democratic Party leader Lee Jae-myung, and it is self-assessed as effective in revitalizing neighborhood markets. Considering that it helps small business owners and self-employed individuals and the need to stimulate consumption next year, they argue that the local currency budget must be restored.

They also criticize the employment budget as "backward." In the government's budget proposal for next year, the employment budget is 30 trillion won, a decrease of 1.9 trillion won compared to last year. The rental housing budget was also drastically cut by 5.6 trillion won in the government's budget proposal for next year, raising concerns that the government is giving up on housing issues for low-income groups.

[Image source=Yonhap News]

On the other hand, the People Power Party states that despite the decrease in tax revenue, they will by no means neglect the livelihood budget. President Yoon Suk-yeol has already emphasized in his budget speech that "protecting the socially vulnerable is the fundamental duty of the state."

Joo Ho-young, the People Power Party floor leader, said, "In the complex economic crisis situation, we have not neglected tailored welfare that strengthens the vulnerable and the disadvantaged, who are vulnerable to the crisis, as a stepping stone for livelihood recovery," adding, "When budget review begins, I hope opposition lawmakers will put their heads together for budget review that can maintain national fiscal soundness while providing tailored welfare, rather than framing the issue with inaccurate facts." He also urged the Democratic Party, "Since this is the first year after the regime change, please cooperate magnanimously to reflect the new government's national philosophy and policy tasks."

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