S. Korea’s finance minister advocates for spending reforms over tax hikes

[Courtesy of Ministry of Economy and Finance]

Choi Sang-mok, South Korea’s Deputy Prime Minister and Minister of Economy and Finance, emphasized the need for the government to focus on restructuring expenditures rather than implementing uniform tax increases. He suggested reducing spending in less critical areas while increasing investments in sectors like support for vulnerable groups and productivity enhancement. Choi asserted that tax incentives should be oriented towards encouraging private investment.

According to the Ministry of Economy and Finance, Choi attended the G20 Finance Ministers’ Meeting in Rio de Janeiro, Brazil, on July 25-26, where he highlighted the importance of fiscal innovation during the session on global economic outlook and risk factors. During the meeting, he also held discussions with Saudi Arabia’s Finance Minister Mohammed bin Abdullah Al-Jadaan and the UK’s Chancellor of the Exchequer Rachel Reeves.

“Spending restructuring has a less negative impact on GDP and investment compared to tax increases. The fiscal space secured through restructuring should be reallocated towards tailored support for vulnerable groups and future productivity-enhancing investments,” Choi said.

He emphasized the necessity of adjusting government spending to increase investments in essential areas rather than resorting to blanket tax hikes.

Furthermore, Choi advocated for tax reforms that support private investment. His remark is interpreted to mean this approach is beneficial for long-term government revenue by boosting economic vitality through corporate support.

The Ministry of Economy and Finance recently unveiled the 2024 tax revision bill, which includes measures to support industries such as extending the sunset of national strategic technology tax credits and raising the unified investment tax credit rate. However, the bill does not include direct measures to reduce corporate tax burdens, such as lowering corporate tax rates.

Commenting on this, Lee Sang-ho Lee, vice president of the FKI’s Economic and Industrial Research Department, expressed disappointment, saying, “It is regrettable that the tax revision does not include corporate tax system reforms like reducing corporate tax rates and rationalizing tax incentives for investment and co-prosperity.”

Choi also stressed the need for structural reforms in labor, capital, and productivity to restore the dynamism of the global economy. He advocated for policies that increase labor participation and mobility and enhance capital efficiency through fair competition.

In the international tax cooperation session, Choi urged for the swift conclusion of the “Pillar One” of the digital tax, known as the “Google tax,” which mandates multinational companies to pay taxes in the countries where they generate profits. “We must swiftly conclude Pillar One to ensure fair taxation of multinational corporations. South Korea will also strive to finalize and implement the discussions on Pillar One,” he said.

During the session on sustainable finance, Choi mentioned the importance of strengthening institutional frameworks and creating an investment-friendly environment to expand private capital participation.