Economic Experts from Both Parties Clash Over Corporate Tax... Ruling Party "Investment Will Increase" Opposition Party "Fiscal Crisis Accelerates"

Hong Seok-jun "Effective in attracting Chinese companies withdrawing... Income sources generated through induced investment effects"
Lee Yong-woo "Investment decisions based on profit, not corporate tax cuts... Supplementary budget also inevitable"
Ruling and opposition leadership still confrontational
Joo Ho-young "Opposition should accept 3%p reduction after 2-year grace period"
Park Hong-geun "Corporate tax cuts for small and medium enterprises will also fulfill President Yoon's pledge"

[Asia Economy Reporter Naju-seok] As the budget bill for next year is about to be processed, the revenue bill 'corporate tax' has emerged as the biggest issue. Economic experts from both ruling and opposition parties showed sharp differences in views regarding the employment effects and revenue securing when lowering the top corporate tax rate. The ruling party argues that lowering corporate tax can attract companies and investments, while the opposition warns that it will only accelerate fiscal difficulties amid the tough economic crisis next year.

On the 13th, Hong Seok-jun, an economic expert from the ruling People Power Party, appeared on MBC Radio's 'Kim Jong-bae's Focus' and emphasized the necessity of lowering the top tax rate. Hong said, "(When lowering the top corporate tax rate) companies have an investment inducement coefficient effect through investments, and many companies are withdrawing from China during the supply chain relocation process," adding, "Taiwan's top corporate tax rate is 20%, and Speaker Kim Jin-pyo is also advocating for a reduction."

Hong Seok-jun, Member of the People Power Party./Photo by Dongju Yoon doso7@

Regarding tax revenue from lowering corporate tax, he also argued, "If corporate tax is adjusted, companies' investment decisions are influenced, and compared to before the tax cut, there is a significant economic inducement effect from income related to employment and business operations," adding, "More income sources subject to taxation will be generated."

Lee Yong-woo, an economic expert from the Democratic Party of Korea, questioned the effect of lowering the top corporate tax rate. Lee said, "(During the Park Geun-hye administration, when corporate tax was lowered) companies only retained earnings and did not invest, so the proposition that tax cuts increase investment has already been shown by data to be invalid." Regarding the argument for attracting companies, he said, "Companies do not move solely because of corporate tax, but it is related to how the division of labor or value chains are connected and how the system and supply chains are structured," adding, "(Companies) can only be taxed if they make profits, and if there is no profit outlook, they will not invest even if taxes are cut."

Lee Yong-woo, Member of the Democratic Party of Korea./Photo by Dong-joo Yoon doso7@

Regarding Speaker Kim's position to lower corporate tax with a two-year grace period, Lee interpreted, "Next year's economic situation is difficult, and there will be large costs socially due to restructuring, so tax cuts would reduce resources, so we should observe the economic situation." Lee added, "(Considering the economic situation) an additional supplementary budget next year is inevitable, so will government bonds be issued?" and "If government bonds are issued, the bond market including corporate bonds will be paralyzed."

Regarding the Democratic Party's tax cut proposal to lower the tax rate from 20% to 10% for small and medium-sized enterprises with a taxable income base of 200 million to 500 million KRW instead of lowering the top rate, economic experts from both sides had different positions. Hong said, "The budget must be processed after subsidiary bills are organized, and expanding the front again is an irresponsible claim as the ruling party." On the other hand, Lee emphasized the necessity, saying, "Small and medium-sized enterprises are in a situation where it is difficult to prepare for crises annually through retained earnings, so support is needed."

[Image source=Yonhap News]

With only two days left until the budget processing deadline (the 15th) set by Speaker Kim, the leadership of both parties continues to be at an impasse regarding corporate tax. The ruling party pressured for lowering the top corporate tax rate, citing past cases of corporate tax cuts during the Democratic Party governments. Joo Ho-young, floor leader of the People Power Party, said, "(The Democratic Party) cannot concede because it is an ideological issue," adding, "How do you explain the 1% corporate tax cut during the Kim Dae-jung and Roh Moo-hyun administrations?" and urged, "Accept Speaker Kim's mediation proposal."

The Democratic Party argued that the 'people's tax cut' claim aligns with President Yoon Suk-yeol's election pledge. Park Hong-geun, floor leader of the Democratic Party, said at the party's strategy meeting that day, "Even if corporate tax is cut in a way that benefits small and medium-sized enterprises as proposed by the Democratic Party, the president's corporate tax cut pledge can be upheld."

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