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South Korea To Maintain Expansionist Tax Policies

by Mary Swire,, Hong Kong

18 September 2014

Finance Minister Choi Kyung-hwan has confirmed that South Korea will maintain its stimulus measures, including a "no-tax increase" policy for the foreseeable future, as the economy is still not performing to its potential.

He stated that, despite a recent announcement of a hike in the average price of a packet of cigarettes by 80 percent to KRW4,500 (USD4.34) from January 1, 2015 for public health reasons, and a plan to help local government revenues by increasing vehicle taxes, which will both require parliamentary approval, there was no general government intention to raise taxes.

The Finance Ministry has had to cut the expected South Korean economic growth rate in 2014 to 3.7 percent from 4.1 percent, and, in his speech to the Seoul Foreign Correspondent Club on September 16, Choi confirmed that the "economic recovery is slowing amid continuing years of low growth."

He also pointed out that "the current slowdown is not a temporary phenomenon affected by cyclical factors, but rather stems from more complex and structural problems." The Government fears that, if it does not take effective action, "the Korean economy might take the road to Japan's lost decades."

In that case, he disclosed, the Government "will implement expansionary macroeconomic policies until they produce tangible results [possibly beyond 2015]. In addition to a KRW41 trillion stimulus package this year, we will add KRW20 trillion to the budget next year, which is larger than the supplementary budget in the past few years, in order to solidify recovery momentum."

In particular, Choi confirmed that, so as not to detract from the Government's continuing effort to promote investment and job creation, his Ministry is not currently looking at any proposals to raise personal and corporate income taxes, to fill any prospective gaps in government revenue.

TAGS: individuals | Finance | tax | economics | business | fiscal policy | vehicle tax | public health | gross domestic product (GDP) | budget | corporation tax | excise duty | Korea, South | individual income tax

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