Confident 'K-Chips Act and Fiscal Rules' Passed in February National Assembly Remain Unclear

[Asia Economy Sejong=Reporter Dongwoo Lee] The possibility of passing the so-called K-Chips Act and the fiscal rules legislation, which the government considers major economic bills, during the February extraordinary session of the National Assembly has become uncertain. In the case of the K-Chips Act, the ruling and opposition parties failed to narrow their differences over the government's tax base reduction issue due to additional tax support, and regarding the fiscal rules, there was a conflict of opinions on adjusting the introduction timing as the possibility of drafting a supplementary budget was raised following the recent heating cost crisis.

According to the National Assembly and government officials on the 16th, the National Assembly's Planning and Finance Committee recently discussed the amendment to the Restriction of Special Taxation Act (RSTA) submitted by the government to expand the tax credit for semiconductor facility investment through consultations between the tax subcommittee and the ruling and opposition party floor leaders but failed to reach a conclusion. The core of the government's proposed RSTA amendment is to raise the basic deduction rate for semiconductor facility investment from 8% to 15% for large corporations and from 16% to 25% for small and medium-sized enterprises. The current government's position is that the amendment should swiftly strengthen corporate investment speed in national strategic technologies.

The problem is that concerns about the resulting tax revenue reduction have not been resolved. The opposition party, the Democratic Party, stated that the government, which estimated a tax revenue decrease of about 3.6 trillion won if the bill passes, should disclose a detailed estimation plan. This is because it is necessary to transparently assess whether the tax revenue reduction could be larger than expected. The opposition also claims that the bill is a corporate tax cut favoring large corporations. It is argued that the bill provides tax benefits to Samsung and SK Hynix, which account for more than 90% of sales among domestic semiconductor companies. The government and ruling party emphasized the urgency of the amendment to secure growth engines for national core technologies but ultimately failed to narrow differences with the opposition and could not proceed with the formal approval process.

The amendment to the National Finance Act, which includes the introduction of fiscal rules, also failed to reach an agreement between the ruling and opposition parties. The core of the National Finance Act amendment is to limit the annual managed fiscal balance deficit ratio to within 3% of the gross domestic product (GDP). The main point is to establish a safeguard to secure sound finances by strengthening the deficit ratio to within 2% if the national debt ratio exceeds 60%. This is based on the government's assessment that national debt will reach 1,134.4 trillion won this year, about 50.4% of last year's GDP, making fiscal management urgent. Although the related bill was submitted to the National Assembly in September last year at the government's initiative, discussions have been delayed without proper progress.

While the ruling and opposition parties have formed a consensus on introducing fiscal rules, the recent 'heating cost bomb' crisis amid economic downturn has emerged as a major variable. The rapid increase in heating costs due to rising gas prices this winter has raised the need for drafting a supplementary budget, especially among political circles. The Democratic Party is supporting the argument that the introduction of fiscal rules should be postponed for a certain period to allow fiscal input due to the sharp economic downturn. Some within the ruling party also sympathize with this view, making the possibility of passing the amendment this month slim. The ruling and opposition parties are discussing holding a public hearing on fiscal rules during this month's extraordinary session, but the prevailing opinion is that finding a concrete consensus will be difficult.

The amendment to the Subsidy Management Act, which Deputy Prime Minister Chu emphasized as a major bill, has not even undergone specific discussions. This bill, prepared to enhance the transparency of national treasury subsidies amounting to 100 trillion won annually, mainly aims to strengthen the obligation for business operators to submit audit reports by lowering the annual subsidy total amount threshold from 1 billion won to 300 million won. However, some opposition circles are reportedly opposing the amendment, citing the possibility of accounting audits on specific organizations and business operators.

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