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The bare face of taxes

Oct 22,2018
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Kim Jong-yoon
The author is an editorial writer of the JoongAng Ilbo.

Balance is the key to taxation. To any citizen benefiting from public services, paying taxes is an obligation. As the adage goes, nothing is certain but death and taxes. But everyone wishes they could pay less. Authorities must come up with a convincing taxation system for taxpayers. Without balance, taxes could stoke resentment.

The Moon Jae-in administration had been lucky on taxes. National tax revenues reached 213.2 trillion won ($188 billion) in the first eight months of this year — a whopping 23.7 trillion won increase from a year earlier. Tax collection against the original target had already hit 79.5 percent as of the end of August, faster than the 75.5 percent of a year earlier. Tax revenues last year too were robust, a net 265.4 trillion won, exceeding the target by 5.7 percent or 14.3 trillion won. The government has outperformed its targets in tax collections annually since 2015. The gains have been increasing every year.

This does not mean that the economy has been booming, generating greater returns for the government. What it actually means is the government was bad at its estimates. The Ministry of Finance projects its revenue outlook based on real economic growth and inflation. No economy perfectly matches its government’s predictions. But the government misses by such a large margin that it’s enough to raise suspicions that it does so on purpose. It is better to have a happy excess or surplus than to come up short. In that way, the government can stretch the budget further.

Tax riches also raise questions about the efficiency of the government’s economic management. The fact that it has collected more means that money that should have gone to the private sector went to the public sector. If the money was earned by one’s own hard work, one would not be so carefree in spending it. One can be less prudent with the money of others since no direct harm can be done to itself. The government that runs the country on taxpayers’ money innately could be reckless in the management of national finance.

The government has habitually sought one or two supplementary budgets every year because of the fat tax surpluses. In the past, additional budget increases would require debt issuance, which can be very tricky to pass legislative scrutiny. With an excess, however, it can be more easily accepted by the public and legislature. The government first sets a conservative target for its revenue outlook, and when income exceeds the projected figure, it can ask for a stretch in the budget.

Excuses are easy to make. It can cite the need to jump-start the economy or increase jobs — the kind of causes that the legislature can hardly oppose. Since 2015, the government dug into the national coffers to make annual supplementary budgets of over 11 trillion won. This year alone, the government drew up a 3.8 trillion supplementary budget in May. But let’s face it. Even if the economy improves by about 0.1 percentage point from the extra spending as the government claims, have the lives of taxpayers gotten any better?

What really drives the economy is productivity. According to Nobel Prize-winning economist Paul Krugman, “Productivity isn’t everything, but in the long-run, it’s almost everything.” The well-being of individuals as well as the whole nation hinges on a laborer’s ability to produce better and more. Productivity can be enhanced through destruction of regressive ways and innovations. The government has stalled crucial structural reforms because it was too engrossed in fidgeting with growth rates or job numbers.

Louis XIV’s finance minister Jean-Baptiste Colbert famously declared, “The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the least possible amount of hissing.” But what happens if there are no feathers to pluck? Instead of wasting its time collecting more taxes and raising the budget for subsidies for the unemployed, the government must muster the wisdom to enrich the private sector first to encourage its hiring and investment. Reinvigorating the economy in that way is a legitimate way to bolster the national coffers.

JoongAng Sunday, Oct. 20-21, Page 34