The New Nation - Internet Edition

Vim Joo-young

The buzzword for President Lee Myung-bak's government is economic revival, though it was briefly overshadowed by a controversy over Lee's Cabinet and secretarial appointments and the April 9 general elections. In last December's presidential election, the Korean people distressed by prolonged economic slump, overwhelmingly elected Lee. His "74T campaign pledge called for increasing annual economic growth to 7 percent, raising per capita income to U5$40,000 in a decade and making Korea one of the world's top seven economies.

The Lee government is now obliged to produce visible results to quench the people's desire. But the present circumstances at home and abroad are not favorable. A variety of external threats, including sky high oil prices and the U.5. slowdown, are weighing heavily on the Korean economy. The start of the Lee government appears to be extraordinarily turbulent. How should the government handle the unpredictable situation? Above all, it has to encourage "economic-mindedness." That's because it is a source of omnipotent power that makes even the impossible possible.

Our past era of high economic growth is a good example. In this respect, I want to point to the importance of lower taxes. The government's partial tax reduction plan, already unveiled by ministries in their policy briefing sessions, is effective in stimulating the people's economic mind. The government has to maximise its policy effect by devising more comprehensive cuts. Of course, there was a similar pro-con debate on tax cuts three years ago. At that time, even the then president and his budget minister joined in the debate, siding with opponents to lowering taxes. But the debate ended fruitlessly because of the government's nervous response to the issue.

All advanced countries' efforts toward economic revival since the 1980s have been based on "streamlining of government functions and restoration of market's role." A low tax regime is regarded as an important means of economic revival. In line with such a global trend, tax reductions should be reconsidered in Korea.

For that purpose, I want to point to several misunderstandings about tax cuts. First of all, the argument that tax cuts are not necessary because Korea's tax burden ratio is not higher than those in advanced countries is erroneous. From the standpoint of the taxpayers, the lower tax burden, the better. Moreover, Korea should lower its tax burden ratio if it is providing far fewer government services compared to advanced countries.

At this point, few Koreans seem to believe that they are being sufficiently served by the government in return for their tax payments.

The tragedy of the previous Roh Moo-hyun government began with its argument that the nation would have to pay more taxes to receive more government services. Second, the contention that tax reduction would worsen state fiscal deficit is not right, either. That's because the fiscal deficit problem can be resolved by cuts in state expenditures and privatisation of public corporations. But tax cuts would be rendered impossible, if a high-ranking government official strongly insists there is no such room as was the case with the Roh administration.

Don't we really have room to slash expenditures? Evidence of wasted taxpayer money is everywhere, as seen in the perennial year-end replacement of sidewalk bricks nationwide as well as the controversial infrastructure projects, such as the artificial coastal lake Sihwa and the massive Saemangeum reclamation. Considering the realities of widespread inefficiency and budget misappropriations, the expenditure cut is merely a matter of the government's will.

Lastly, at issue is an argument that tax cuts are advantageous to the high-income class and adversely affects income distribution. The issue should not be viewed from an excessively class-oriented perspective. Besides, the middle class leads consumption and savings. Brisk economic activity by the middle class will help revitalise the economy and thereby help lift up those in the low-income bracket.

That is a very natural way to fight poverty. If such principles are ignored, it is difficult to expect any policy measures to produce visible results. The Roh administration already proved that. Accordingly, the Lee government needs to rearm itself with the theory of market economy. In this sense, the new government's push for government downsizing and deregulation appears to be in the right direction.

-Korea Economic Daily