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(EDITORIAL from Korea Herald on Aug. 8)
Tax code revision
: Greater burden on middle class undesirable

A government committee is to hold a meeting Thursday to fix a tax code revision bill, which is expected to include measures to increase revenue to fill widening fiscal gaps amid the prolonged economic slump.

   State budget planners have been pressed by the ruling Saenuri Party to reconsider their plan to reduce tax deductions for middle-income salaried workers more steeply. They do not seem poised to succumb to this pressure, saying they have already taken into account demands from the political circles.

   With the main opposition Democratic Party also having been critical of the plan, the revised bill is likely to undergo changes in the process of parliamentary deliberation.

   There can be a case for the government’s argument that cutting tax breaks on the middle-income group is needed to broaden the basis of taxation at a time when demand for welfare spending is increasing. But recent figures showing the tight budgets of Korean households may have to be considered in debates over the wisdom of increasing the tax burden on middle-income earners.

   According to data released by the Bank of Korea early this week, household borrowing from local banks amounted to 470 trillion won ($420 billion) as of the end of June, marking an increase of 8.27 trillion won over the second quarter. Households’ rising indebtedness has raised concerns over their weakening capacity to repay debt. It is also feared to crimp consumer spending, which should be further boosted to accelerate economic recovery. The ratio of household debt to disposable income stood at a record 136 percent in 2012, up from 134 percent the previous year.

   A majority of households face increasing difficulty shouldering the cost of education for their children. A recent survey by a financial institution showed 1 in every 5 college students were heavily in debt paying for their school tuition and living expenses.

   What these circumstances suggest may be that it is not the time to push for reduced tax breaks for middle-income workers, which would not result in a substantial increase in revenue. It may be more urgent and effective to work out measures to collect more taxes from affluent self-employed people and increase household income especially by raising the employment of housewives who quit working after marriage or childbirth.