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South Korea Rules Out Interim Budget

by Mary Swire,, Hong Kong

17 July 2014

At a press conference after his inauguration, South Korea's new Minister of Strategy and Finance, Choi Kyung-hwan, disclosed that the Government would not be introducing a supplementary budget this fiscal year, despite an expected fall in revenue against forecasts.

It had been expected for some time that the Government would have to react to this year's lower-than-expected economic growth rate and consequent reduced tax revenues. There has been concern that it would otherwise be unable to fulfill the pledge for a substantial rise in welfare spending promised by President Park Geun-hye.

One of the measures that the Government was said to be considering was a restructuring of tax breaks and incentives in order to provide extra revenue. Priority, it was said, would only be given to tax expenditures that support job-creating investments and research and development, and tax incentives for small and medium-sized enterprises and venture capital would be maintained.

However, Choi has now indicated that, while the country's economic growth target for this year would be reduced, he was not planning to produce an additional budget. He noted that, even if the Government was to begin to draft measures now, it would probably not be possible to implement budgetary changes before the end of the year. Instead, measures will be included in the 2015 budget, which the Ministry is already drafting.

During his remarks, he criticized the higher, and substantial cash holdings presently being held by South Korean companies that are not being used to boost the economy. He is therefore promoting a proposal to tax corporate cash reserves that are not used for capital investment or dividend payments.

TAGS: Finance | tax | investment | economics | business | tax incentives | fiscal policy | budget | venture capital | Korea, South | tax breaks | research and development | business investment

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