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Cost Estimates & Tax Issues

Title NABO Cost Estimates & Tax Issues (No. 1)

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  • Date
    2017-10-24
Cost Estimates & Tax Issues (No. 1)


I. The Status and Additional Work on the Cost Estimation System
 The information on cost estimation needs to be utilized for developing and observing national fiscal management plans and establishing fiscal rules, by evaluating the fiscal feasibility of individual legislation and through baseline projection and scorekeeping.
 
Ⅱ. Review of the Fiscal Demands of Bills Approved in 3Q 2017
 Fiscal demands are expected to rise as six fiscal-related bills were approved in the 353rd(extraordinary) meeting of the National Assembly incurring an additional 23.4 billion Korean won on average per year, and 29 fiscal-related bills were approved in the 354th(regular) National Assembly meeting incurring an additional 700.9 billion won on average per year.
 
Ⅲ. Cost Estimation Due to an Increase of the National Pension Service (NPS) Income Replacement Ratio
 If the NPS income replacement ratio is raised to 45% from 2018, the additional fiscal demand is expected to increase by 18 trillion won on average per year until 2060; and if it is gradually raised to 50% by 2028, fiscal demand may increase by an additional 36 trillion won on average per year.
 
Ⅳ. Cost Estimation across Policy Measures from the Introduction of a Child Benefit
 The total volume of fiscal demands across all policy measures due to the introduction of a child allowance largely shows a wide gap of between 3 trillion and 16.6 trillion won, depending on the age of the beneficiary, monthly amount and household eligibility. It is suggested that most of the measures are to be financed by tax money.

Ⅴ. Cost Estimation based on the Basic Pension Payment Raise
 If the monthly payment is raised to 250,000 won from April 2018 as the government proposes, an additional 1.7 trillion won in fiscal demand is expected(in terms of the 2018 Government Budget Plan). Since a basic pension payment raise may aggravate the burden on not only government expenditures but also municipal expenditures, the government should review the policy options regarding the increased burden on municipal expenditures.

Ⅵ. Key Points and Main Changes to the 2017 Tax Code Revision
 In summary, the 2017 Tax Code Revision shifted the policy target from increasing tax revenue and investment support to employment promotion, while strengthening the function of income redistribution. The average annual tax revenue is 5.5 trillion won, relatively higher than the post-tax code revision tax revenue effects of the past few years.

Ⅶ. International Trends in Tax Codes to Support Job Creation
 Building on their experience in operating existing systems, major countries have recently been setting concrete conditions(creating jobs for a specific class or specific region, etc.) and limitations with regard to developing a tax code to support job creation.

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