Korea’s budget plan in limbo after lawmakers clash over corporate tax cut

From left, DP floor leader Park Hong-keun, National Assembly Speaker Kim Jin-pyo and PPP floor leader Joo Ho-young at the speaker‘s office on Thursday. [Photo by Han Joo-hyung]

South Korean political parties remain deadlocked over next year’s budget plan as the ruling People Power Party (PPP) and main opposition Democratic Party (DP) are at odds over corporate tax rate cut.

On Thursday, DP accepted a deal proposed by National Assembly Speaker Kim Jin-pyo to slash the maximum corporate tax rate by 1 percentage point to 22 percent. The DP’s move comes as it wants to make progress in budget negotiations for next year and move on to other issues such as administration inspection related to the deadly Itaewon crowd crush in Seoul.

“The DP, from a broader sense, decided to respect and accept the National Assembly Speaker’s proposal,” said DP leader Lee Jae-myung. “The proposal is not in accord with DP’s position but the decision was made considering difficult livelihood conditions of the people.”

Kim met with floor leaders of each party in the morning and proposed to cut the maximum corporate tax rate from 25 percent to 24 percent, still higher than what the government and ruling PPP presented in the budget plan - a 3-percentage-point cut to 22 percent.

The PPP convened a meeting and discussed what Kim proposed but was unable to decide on whether to accept it.

“A proposal of a 1-percentage-point cut is too small, and there are other issues that need to be discussed such as that involving financial investment income tax,” said an unnamed official from the PPP. “We cannot accept it now.”

A 1-percentage-point cut in maximum corporate tax rate is estimated to generate 3.97 percent more in facility investment and 7.2 trillion won ($5.5 billion) more in investment, according to a study conducted by Korea Economic Research Institute upon request by Maeil Business Newspaper. The investment effect, however, is only one third of what can be induced from a 3-percentage-point cut proposed by PPP and the government.