"More Important Than Washing Face: Extending Fuel Tax Cut to Control Prices"

The government is considering extending the fuel tax reduction measure, which is scheduled to end later this month, until the end of this year. Although the termination of the reduction was initially favored, the atmosphere changed rapidly as the average domestic gasoline price recently surpassed 1,700 won per liter. The government plans to extend the fuel tax reduction to minimize the burden on the low-income economy caused by rising prices. However, some point out that a decrease in government fiscal expenditure due to reduced tax revenue is inevitable.

According to the government on the 16th, the Ministry of Economy and Finance plans to announce as early as this week a plan to extend the fuel tax reduction for gasoline, diesel, and liquefied petroleum gas (LPG) for four months until the end of this year. For gasoline, the current tax of 615 won per liter will be maintained, while for diesel, which had a larger reduction, a plan to gradually reduce the tax by 369 won per liter (37%) to partially offset the shortfall in tax revenue is considered likely.

The background for the government's additional extension of the fuel tax reduction until the end of this year is analyzed to be decisively influenced by the soaring international oil price trend. On the 15th (local time) at the New York Mercantile Exchange, West Texas Intermediate (WTI) crude oil was priced at $80.99 per barrel, up 9.22% from a month ago ($74.15). Dubai crude oil, which serves as the benchmark for crude oil imported into Korea, also surged 9.6% to $86.39 from $78.83 during the same period. Accordingly, the average domestic gasoline retail price was 1,729.38 won as of that day, up 9.4% from 1,580 won a month earlier.

The sensitivity to gasoline price fluctuations is because oil prices directly affect consumer price inflation. A government official said, "When international oil prices rise, they affect industrial production prices such as manufactured goods, which leads to increased logistics costs and higher retail prices, making it highly likely that consumer prices will rise." This is why the government aims to strengthen price stability through the extension of the fuel tax reduction. According to Statistics Korea, the consumer price inflation rate stabilized at 2.3% in July, remaining in the 2% range, but the core inflation rate was still high at 3.9%. Considering the recent rise in international energy prices, there is also analysis that this month's inflation rate may reverse its slowing trend and turn upward.

A representative example is the increase in city bus fares in Seoul. Since the 12th, Seoul City has raised the city bus fare from 1,200 won to 1,500 won (25%) based on transportation cards, and village bus fares from 900 won to 1,200 won (33%), each increasing by 300 won. Regarding agricultural products, as of the 14th, the wholesale price of cabbage was 53,637 won for 20 kg, up 8.4% from 49,470 won a year ago, and the price of dining out, which greatly affects daily living costs, also rose 5.9% last month, significantly exceeding the consumer price inflation rate.

However, the decrease in tax revenue acts as a burden factor for extending the fuel tax reduction. National tax revenue in the first half of this year was 178.5 trillion won, down 39.7 trillion won compared to the same period last year. Among these, the transportation energy environment tax, which includes fuel tax, was 5.3 trillion won, down 700 billion won (11.9%) from the previous year. It is judged that repeated fuel tax reduction measures have partially contributed to the decrease in tax revenue. Professor Sung Tae-yoon of Yonsei University's Department of Economics said, "Raising the fuel tax again amid ongoing economic sluggishness and inflationary pressure is not desirable," adding, "Compared to other countries, Korea's fuel tax itself is relatively high, so it is necessary to continue the reduction measures for the time being."

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