Respecting the conviction of officialdom

When the tax subjects are slimmed, only the rich can benefit.

Lee Sang-ryeolThe author is a senior editorial writer of the JoongAng Ilbo.

The military regime, which seized power through a coup on Dec. 12, 1979, was ruthless in wielding its newfound authority. It ravaged the spring for Koreans. It wanted to get rid of the value-added tax (VAT) that had been in place for the fourth year.

It reasoned that the tax was imposed against the wishes of the people. It somehow believed the tax played a part in the earlier assassination of general-turned-president Park Chung Hee and in the fall of the long-held military regime legacy. Kang Man-soo — an official at the Finance Ministry who later became a finance minister under conservative President Lee Myung-bak — was summoned to the ad hoc national security committee to explain the grounds for the VAT. He said that the promotion of heavy chemical industries and the funding for self-defense had been the primary reason for adopting VAT and that without it, the government would lose tax revenue that could cover all annual defense spending. He argued for the merit of fairness in tax, as no one can evade the VAT.

VAT helped pull post-war Korea out of its chronic fiscal deficit. It took up 30 percent of tax revenue in the early stage and still accounts for about 20 percent. We could imagine how fearless the new military regime was, as it thought of abolishing the tax. But it never went through with it. VAT was not the reason for Park’s death, and there was no way to find a substitution for that amount of tax revenue. Many government officials faced injustice under the name of “purification” at the time. But even under dictatorship, government officials did not compromise their pride and commitment to civil service. They are much credited for Korea’s Miracle on the Han River.

We cannot expect that much devotion from government officials these days. Politics are blamed for the weakening in integrity in government service. The ruling power is only valid for five years and merely gives orders, while the liability falls on government officials. Politics overrule economic policy as well. The ruling party steals government people and policies if they can be of any help to the upcoming parliamentary election.

The repeated reshuffle of the trade, industry and energy ministers is one example. Minister Bang Moon-kyu was replaced just three months into office in spite of the volatility in the global trade environment from the intensifying U.S.-China contest and the upheaval of global value chains. Bang is expected to be fielded for a district in Suwon, Gyeonggi, in the April election. Parliamentary elections are crucial in a democracy. The ruling power needs a majority to back the government. But as important as winning is how the election is won. It should not come at the expense of the vacancy of the ministerial head. A senior official from the presidential office said that the ministerial void won’t be that damaging to the country since politics serve as the brain power today. His comment reflects the extent of political dominance.

The presidential office and the People Power Party are infringing on the long-held principle in economic governance. They pushed ahead with the blanket ban on short selling despite the argument by the financial authority that short selling should instead be fully allowed in line with global standards. Short selling helps contain bubbles in stocks and price-manipulating practices.

Financial Services Commission Chairman Kim Joo-kyun, left, flanked by Financial Supervisory Service Chairman Lee Bok-hyun, announces a plan to ban short selling until the first half of next year to “stabilize the stock market,” Nov. 5. [NEWS1]

The plan to raise the threshold for capital gains tax on the stock-rich also goes against economic principles. It does not make sense to grant tax relief for stock gains while hard labor income is taxed. Can this be tax justice? All governments, liberal or conservative, have been broadening the base for capital gains tax. When the tax subjects are slimmed, only the rich can benefit. The proponents claim that the move is to lessen the damage for individual investors as they can be burned by year-end selling spree by big stockholders to avoid taxes. However, the stock-rich tend to buy the shares back at the beginning of the new year. Both the short selling ban and tax breaks for the stock-rich entirely serve the campaign purpose.

The ruling power is contradicting itself by criticizing the complacency of bureaucrats when it entirely disregards their principles and convictions. Former strongman Park Chung Hee told his finance minister Kim Yong-hwan to push ahead with the introduction of VAT, saying, “I will handle politics and you handle the economy.”

Are they all a bygone? This winter feels particularly chilly in the government community. So is the Korean economy.