Choo Kyung-ho "Fuel Tax Cut Extended Until October... Low-High Pattern Remains Unchanged" (Comprehensive)

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho announced on the 16th that "considering the rising trend of international oil prices, the fuel tax reduction measure will be extended for two months until the end of October."

Deputy Prime Minister Choo made this statement during a press briefing held at the Ministry of Economy and Finance press room on the same day. He explained, "By extending the fuel tax reduction measure for two months until the end of October, we aim to buffer the burden on the public caused by rising oil prices."

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho is answering reporters' questions at a press briefing held on August 16 at the Ministry of Economy and Finance press room in the Central Building of the Government Complex Sejong.

As the government extends the fuel tax reduction measure, which was scheduled to end at the end of this month, the current tax rates of 615 KRW per liter (25%) for gasoline and 369 KRW per liter (37%) for diesel, which had a larger reduction, will be maintained. The government initially considered extending the reduction measure until the end of this year but decided to limit it to two months first and then reassess based on external conditions such as international oil prices.

Deputy Prime Minister Choo explained the background of the extension, saying, "The application of the flexible tax rate, which further reduces the basic fuel tax rate, expires at the end of August. Recently, international oil prices have been rising, and the burden on the public is gradually increasing."

Analysis suggests that the government’s decision to extend the fuel tax reduction for two months was made considering the surging 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 $74.15 a month ago. Dubai crude oil, which serves as the benchmark for oil imported into Korea, also surged 9.6% from $78.83 to $86.39 during the same period. Consequently, the average domestic gasoline retail price rose 9.4% to 1,729.38 KRW per liter from 1,580 KRW a month earlier.

Since the sharp rise in oil prices can directly contribute to consumer price inflation, the government plans to prevent this in advance. However, the burden of reduced tax revenue due to the extension of the fuel tax cut remains. National tax revenue in the first half of this year was 178.5 trillion KRW, down 39.7 trillion KRW compared to the same period last year. Among this, the transportation energy environment tax, which includes fuel tax, was 5.3 trillion KRW, a decrease of 700 billion KRW (11.9%) from the previous year. It is judged that repeated fuel tax reduction measures have partially contributed to the decline in tax revenue.

No Change in the ‘High-Low’ Trend for the Second Half of the Year

Deputy Prime Minister Choo also emphasized, "There is no change in the government’s outlook on the ‘high-low’ trend of the Korean economy." He explained, "We are closely monitoring uncertain factors such as the uncertainty of the Chinese economy, global financial instability, and the surge in oil prices, but there is no change in the overall economic outlook of our economy."

Major international organizations have been revising down their growth forecasts for the Korean economy. The Asian Development Bank (ADB) lowered Korea’s economic growth forecast for this year by 0.2 percentage points from April to 1.3% last month. The Organisation for Economic Co-operation and Development (OECD) issued a forecast of 1.5% in June, down 0.1 percentage points from the previous March forecast. The International Monetary Fund (IMF) also revised its forecast down from 1.5% in April to 1.4% in July.

Regarding the downward trend in Korea’s economic growth forecasts, he said, "Recently, some institutions have adjusted Korea’s economic outlook to around 1.3 to 1.4%, raising concerns about the government’s ‘high-low’ outlook, but at this point, there is not much difference from the government’s forecast of 1.4%." He added, "These institutions initially had an optimistic view of overseas economies such as Europe but have continuously revised their forecasts, resulting in various changes in figures. The government has been managing the economy by presenting objective figures that accurately reflect the state of the Korean economy."

The reason Deputy Prime Minister Choo emphasizes the ‘high-low’ outlook is due to improvements in export indicators. He said, "Recently, export volume indicators have revived, and the decline in exports is gradually narrowing. Although August is seasonally weak for exports due to the summer vacation period, there is a high possibility that the trade balance will enter a structural surplus from September." He added, "I expect it to turn positive in October." However, Deputy Prime Minister Choo also noted, "If external uncertainties such as prolonged instability in the Chinese economy increase, the economic outlook may be revised again."

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho is answering reporters' questions at a press briefing held on August 16 at the Ministry of Economy and Finance press room in the Central Building of the Government Complex Sejong.

Rising Exchange Rate Has Little Impact on Core Inflation

Regarding the recent rising trend in the exchange rate, he explained, "It cannot be said to have a significant impact compared to core inflation." Deputy Prime Minister Choo said, "The exchange rate moves reflecting a combination of domestic and international economic conditions, major countries’ exchange rate fluctuations, and supply and demand. When there is a general tendency toward market anxiety on one side, appropriate market stabilization measures will be taken."

Regarding criticism that the tax cut policy to boost private sector vitality has had less effect than expected, he said, "The repatriation of dividends from foreign corporations positively affects the current account and foreign currency supply and demand," and predicted, "The effects of tax cuts will appear with a time lag."

On concerns that the recent electricity rate hike this summer may increase the burden on low-income households in the future, he said, "Since various measures such as energy cashback have been implemented, there will be no immediate additional measures," but added, "We will continue to comprehensively assess the financial status of public enterprises, international energy prices, and the burden on the public."

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