President Yun Seok-yul speaks during a cabinet meeting at the presidential office in Yongsan, Seoul, South Korea, Saturday. Yonhap News Agency

The government voted for the “Basic Plan for Tax Expenditure,” which predicted national tax reductions of 77.1 trillion won this year, at a cabinet meeting on March 26. This is the largest ever, up 10.9 percent from last year's forecast of 69.5 trillion won. National tax reduction is the exemption or reduction of taxes through non-taxation and tax cuts. As the amount of tax reduction becomes larger than that of tax revenue, the proportion of tax cuts to total tax revenue is expected to exceed the legal limit for the second consecutive year. The trend of tax cuts also contributed to last year’s shortage of tax revenue which exceeded 56 trillion won. The economic downturn caused by high prices and high interest rates, decreased tax revenues, and large-scale tax cuts for the rich have made Korea’ fiscal management be on a razor-edge.

If the scale of tax cuts become larger, intensive restructuring of budget expenditures may be inevitable. It is still unclear how much of the budget the government will secure for research and development (R&D), low birth rate, and medical care, which it has said to increase. In this case, it will be difficult to finance the various development programs that President Yoon Suk-yeol has promised. Despite criticism that the general election is being manipulated by the government, Yoon has been touring the country to meet voters and made several promises, including building additional metropolitan area express railways and expanding the scope of national scholarships by holding public forums 24 times this year. He also made a series of customized pledges for specific regions, including the construction of New Airport in Gadeok Island, the redevelopment of Busan's North Port, the creation of a semiconductor cluster in Yongin, and the construction of a Korean-style autobahn linking Yeongam and Gwangju. These are projects that require trillions of budgets to be invested. There are many places to spend money, but if there are not enough financial resources, what he is doing is nothing but paying lip service.

The benefits of the expanded tax cuts are heavily weighted toward high-income earners and large corporations. The proportion of benefits for high-income earners among individual national tax reductions is on the rise from 31.7 percent in 2022 to 34 percent last year and 33.4 percent this year. The proportion of large corporations (21.6 percent) among the expected corporate tax reductions this year is also the highest in eight years since 2016 (24.7 percent). On the contrary, tax cuts that favor the wealthy and benefit large corporations leave less money to support the vulnerable. Budgets for welfare of the vulnerable, such as expanding elderly care facilities and daycare centers, preventing school violence, and enhancing welfare facilities for the disabled, are facing a fiscal shortage. Even now, the debts of self-employed people who were hit hard by the coronavirus pandemic are increasing, and people with disabilities are demanding an expansion of the transportation budget to secure their mobility rights, but the government has not given a clear answer.

The country’s fiscal policy may change depending on the government's political stance. However, the principles and systems that set the legal limit of the tax reduction and exemption ratio must be strictly observed. The livelihood and job situation of ordinary people is already difficult. The government should strictly impose taxes on where there is income, and actively use the finances prepared in this way as a resource to resolve the polarization and use them as a priming water to overcome the economic and welfare crisis.