Gov't must cut tax rates but broaden revenue base: think tank

SEOUL, Aug. 18 (Yonhap) -- The government should keep tax rates low but make
efforts to broaden its overall revenue base in order to strengthen the nation's
economic growth potential without hurting its fiscal soundness, a tax policy
research body said Tuesday.

The policy proposal by the Korea Institute of Public Finance comes as concerns
are growing that the government's expanded fiscal spending and tax reductions
aimed at bolstering the slumping economy could undermine fiscal soundness.
"Tax policies must be designed to be in line with a long-term target of
strengthening growth potential. At the same time, it should be done to keep the
nation's finance sustainable," the think tank said in a report. "To achieve the
two objectives, (the government) should reestablish the principle of so-called
low tax rates and broad tax base."
Corporate and income tax rates should be lowered in line with the government's
plan to resuscitate economic activities, the think tank said. "Complicated" and
"indiscriminate" tax benefits should be streamlined and reduced in order to keep
the nation's fiscal status in stable shape.
In the wake of the financial turmoil that started last year, the government has
been pushing to increase spending, including an extra budget and subsidies, while
reducing the tax burden to stimulate domestic demand and the sluggish economy.
The efforts helped ease an economic downturn but skeptics say that expanded
expenditure and declining tax revenues amid an economic slump might harm the
nation's fiscal soundness.
According to a report by the International Monetary Fund (IMF), South Korea's
fiscal deficit will account for 3.2 percent of gross domestic product (GDP) this
year and rise to 4.3 percent next year. Its fiscal balance will turn to black
with a surplus in 2014, it added.
"Now is the time to assess and review fiscal policies that have been aggressively
introduced (by the government) to tide over a crisis as the economic difficulty
caused by soaring oil prices and financial turbulence is passing the worst
phase," the report said.
Meanwhile, the think tank emphasized that the government needs to provide help
with a "focused" targeting to those in the low- and middle-income brackets who
are most vulnerable to a protracted economic downturn.
kokobj@yna.co.kr
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