Here is just another example of how South Korea is following the same road the US has gone down where people want government services without paying more in taxes and politicians keep promising that they can do this:
Civic groups hold a rally after the government scaled down support for pension plans and health care promised during the 2012 presidential election. (Yonhap file photo)
If broader welfare without a tax hike sounds too good to be true in a country where people live longer and give birth to fewer babies in an era of slow economic growth, it probably is.
Taking office two years ago with the promise of more social welfare, President Park Geun-hye said she will dig up the underground economy for tax revenue and eliminate unnecessary spending to finance welfare programs, such as child care, college tuition support and a pension plan for seniors.
So far, the government has done little to show results.
Considered too unrealistic by many economists from the outset, and even questioned by her own party, Park’s welfare goal may be derailed as her administration comes under growing pressure for a tax overhaul to meet growing demand for a better social safety net.
The government came under fire for its clumsily patched year-end tax adjustments that resulted in several tax deductions and other tax breaks being scrapped, diminishing the amount of tax refund for salaried workers and, in some cases, forcing them to cough up more. Officials defended the new system as having been designed to “collect less, return less,” but taxpayers blamed the government for tweaking the tax code to deliberately raise the burden on the middle class.
The government apparently lost the argument. President Park’s popularity rating dipped to a record-low 29 percent last week.
The extra cash from the tax refund may be small in amount, but coming after a sharp surge in tobacco prices and the ongoing push for residential and auto tax increases, the strong resistance forced the finance minister to apologize and the tax office to return part of the taxes retroactively, the first such move.
The tax refund fiasco is just one example of mixed challenges faced by Asia’s fourth-largest economy, which is struggling to strike a balance between a budget shortfall and rising welfare costs from the rapidly increasing elderly population.
Now nearing the midpoint of her single, five-year term, Park needs to make a critical political decision: raise taxes or discard welfare pledges, experts say.
“People were enraged because they felt the government lied about not raising taxes,” Shin Yul, a political science professor of Myongji University, said. “Welfare without tax increase was not a realistic goal from the beginning. If the government does not acknowledge this simple fact and sticks to its oxymoronic pledge, it would result in an early lame duck.”
South Korea’s tax rate is equal to 20 percent of the gross domestic production (GDP), lower than the Organization for Economic Cooperation and Development (OECD) average of 25 percent, while its public welfare budget is just half of the OECD average at 10 percent of the GDP. [Yonhap]
You can read more at the link, but to complete this cycle the next thing politicians will likely do is turn to blaming rich people for not paying their fare share.
Could you imagine what the outcry in the US would be if tax deductions such as for children and mortgage interest were eliminated?:
Many salaried workers will be disappointed with their year-end tax settlement for 2014. Tax refunds are expected to shrink after tax code revisions made in 2013 went into force this year.
Some are even angry because they have to pay additional taxes. Their monthly deductions didn’t cover the amount they owe under the new tax laws.
Mr. Kim, a 33-year-old married worker at a conglomerate who has no children yet, breathed a sigh of relief after he learned that he will receive a tax refund of 430,000 won ($400) this year. Kim’s salary has been fixed at 37 million won since 2013, but his estimated tax refund is almost half of that last year.
“I feel lucky because at least I don’t have to pay more,” he said. Many of my superiors are panicking because they found out they owe taxes.”
Mr. Park, a senior manager at another conglomerate, is upset. Park used to receive about 800,000 won in tax refunds. He was taking care of his retired parents, but last year his younger brother decided to look after them. As a result, Park is no longer eligible for the tax deduction for taking care of his parents. As a result, his total tax refund this year sharply dropped.
“I heard from our finance team that I might end up paying an additional 1 million won in taxes,” he said.
Since the National Tax Service opened its website for year-end settlements on Jan. 15, complaints are exploding among office workers and other company employees.
In July 2013, the former economic team of the Park Geun-hye administration led by Finance Minister Hyun Oh-seok announced a tax reform plan.
Its main idea was to do away with deductions from taxable income of spending in four areas: education, medicine, charitable donations and insurance premiums, including the national pension system.
Under the new system, those forms of spending will instead be deducted at a new rate from tax owed, not from taxable income as a whole.
They are the major income tax deductions in Korea.
The measure was aimed at raising government revenues amid an economic slowdown, while keeping the president’s promise that the government wouldn’t raise tax rates. [Joong Ang Ilbo]
