Korea mulls tax cuts to brace for global slowdown The Korea Herald By Choi He-suk Jan. 28 – The government may implement tax cuts and ease corporate regulations as part of efforts to shield the local economy from the effects of a worldwide slowdown, officials said yesterday. The officials said the United States subprime mortgage crisis is likely to have a greaterthan-expected impact on the local economy, which is forcing the government to consider a number of measures to minimize its effects on the country. According to the Ministry of Finance and Economy officials, the government is considering tax cuts to bolster the country's economy against the growing risk of a worldwide economic slowdown. The incoming government has already announced that it will extend tax breaks worth 2 trillion won ($2.1 billion) to companies making facility investments this year, resulting in a 0.2 percentage point rise in the country's GDP growth rate and the creation of 21,000 jobs. According to the presidential transition committee, a 1 trillion won decrease in tax revenues results in an increase of 0.1 percentage point in the country's GDP growth. In addition, the transition committee is considering reducing other taxes including corporate tax in an effort to encourage investment and boost the country's economic growth. Although the transition team is considering a graduated approach to implementing the 5 percent cut in corporate taxes promised by President-elect Lee Myung-bak, with concerns for the global economy growing, calls to bring forward tax cuts are rising. Economy-related government agencies are also considering a number of other measures. The incoming government is maintaining that it will achieve a 6 percent growth rate and the ministry is looking for other ways to compensate for the worsening global economic conditions, a Finance Ministry official told a local news agency.
According to the official, other measures under consideration include easing regulations to provide a more favorable business environment for corporations and other microeconomic conditions. Deregulation is among the issues Lee has been most concerned about and the presidentelect has said several times that his government will be reviewing regulations that are preventing corporations from making investments. Among the changes Lee has mentioned as part of his deregulations plans are a system that sets an expiration date for regulations - where the law is automatically abolished unless the expiration date is extended. The Ministry of Planning and Budget is also considering changing its budget distribution plans to increase the proportion allocated to the first half of the year. The ministry had originally allocated 62.4 percent of this year's 219.9 trillion won ($232 billion) budget for the first half in reflection of the projection that economic conditions will be relatively favorable during the first half of the year. The growing concerns about the world's economy are also affecting operations at the Bank of Korea. Although the country's central bank has been raising call rates to prevent excess liquidity, concerns are rising that the rates should be lowered to stimulate the economy.