Budget agreement reached, corporate taxes cut 1 point

Under the compromise, 4.6 trillion won was cut from the initial government proposal of nearly 640 trillion won ($497.7 billion). Both the budget and the corporate tax cut reform will be put to a vote on Friday.

From left, Democratic Party floor leader Park Hong-keun and People Power Party floor leader Joo Ho-young exchanges the agreements made on next year's budget as well as other pending issues at the National Assembly in Yeouido, Thursday next to Finance Minister Choo Kyung-ho. [NEWS1]

A budget agreement was reached Thursday, with a 1-percentage-point drop in the corporate tax agreed to.

The cut applies to the highest marginal rate, of 25 percent, and the rate charged smaller companies, of 10 percent.

Both sides compromised to reach the agreement.

The People Power Party (PPP) had been pushing for a 3-percentage-point reduction on the maximum 25 percent rate, citing the relatively high tax rate weakening competitiveness in the global market.

The Democratic Party (DP) earlier accepted a proposal by National Assembly Speaker Kim Jin-pyo to lower the maximum rate 1 percentage point.

The corporate tax reform was the biggest obstacle that kept the two parties from reaching an agreement on next year’s budget, which was supposed to be finished weeks ago.

Under the compromise, 4.6 trillion won was cut from the initial government proposal of nearly 640 trillion won ($497.7 billion).

This is the Yoon Suk-yeol government’s first budget proposal.

Earlier the DP wanted to cut at least 5 trillion won, almost the same as during the last five years under the Moon Jae-in government, while the PPP and the government were adamantly against such a sharp cut.

They argued that the budget is already slimmed down, a turnaround from the previous administration’s expansionary fiscal policy.

One of the major cuts is downsizing the budgets for a newly created police bureau set up within the Ministry of Interior and Safety and a newly created department under the Justice Ministry that will screen candidates for high ranking public offices.

The budget that was initially proposed at 5.1 trillion won will be cut 50 percent.

Both the budget and the corporate tax cut reform will be put to a vote on Friday.

The two parties have also agreed to vote on several major pieces of legislation, including extending a freight rate system for cargo trucks that expires at the end of the year and allowing Korea Electric Power Corp. to issue more debt.

The vote on the legislation will be held Dec. 28.

“We apologize for the passing of the budget being delayed,” said DP floor leader Park Hong-keun. “More so we have worked with the responsibility of improving the livelihoods of the average Koreans and the economy amid a complex economic crisis.

“While we still have some differences with the PPP on the tax reforms as well as the budget, we have decided to cooperate for the greater good as we can no longer trouble the people.”

PPP floor leader Joo Ho-young said his party has tried its best to implement most of the policies and follow the philosophy of the government despite its disadvantage of having fewer seats in the National Assembly.

“While it was really difficult as it wasn’t easy to narrow the differences with the DP, it is good that we are able to reach an agreement,” Joo said.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]