NABO Cost Estimates & Tax Issues (No. 2)
I. Special report on the confirmed budget of fiscal year 2018
25 of the draft supplementary laws for the draft Tax Revenue Budget, which affects the increase and decrease of tax revenue budget, have been placed in the Plenary agenda, 15 of which were approved. Regarding mandatory expenditures on welfare, the institutional changes made in 15 specific programs were examined including subsidies for the national basic livelihood security program, basic pension, child allowance, job search allowance and industrial disaster insurance. The nominal tax rate increase as well as expanded tax incentives for the middle-to-lower class through the 2018 Tax Code Revision are expected to result in an annual tax revenue increase of 5.3 trillion Korean won on average over the next five years (2018-2022).
Ⅱ. Review of the Fiscal Demands of Bills Approved in 4Q 2017
In the fourth quarter of 2017, a total of 328 legislative bills were approved, 113 (34.5%) of which have an impact on the national and municipal governments' finances. Upon implementation of the relevant laws, the income-related laws are expected to result in a net annual revenue increase of 5.6 trillion won on average over the next five years (2018-2022), while the expenditure-related laws are expected to result in a 0.9 trillion won annual increase in net spending on average.
Ⅲ. Analysis of major policy issues regarding taxation estimates
Regarding the reinforcement measures for health insurance coverage, if the premium rates were to be increased every year by 3.2%, the current balance of health insurance payments will turn into a deficit in 2019 and the cumulative reserve is expected to be depleted by 2026. Therefore, measures to manage the financial affairs of the health insurance system need to be developed. When allowing freelance artists and workers in special employment types to optionally subscribe to the unemployment allowance service within the employment insurance scheme, it is expected to increase the average fiscal demand by 0.1 trillion won. Therefore, ways to boost the subscription rate need to be reviewed. An additional average of 1 trillion 830.5 billion won per year in fiscal demand is expected to occur when the national or municipal governments pay for 50% of the construction costs for reinforcing the seismic preparedness of privately-owned buildings. Therefore, cost-effective ways to reinforce seismic preparedness should be developed in addition to holding discussions on financing measures.
The local tax cut and tax exemption reduction rate is 13 trillion won (a 14.6% reduction) as of 2016, and the legal boundary ceiling (15%) to limit the local tax cut was given a grace period until February 2017, but the legal boundary should continue to be observed and the local tax reduction should be continued by including the deduction and reduction rates of individual local income taxes.
Ⅳ. Tax trends in Korea and abroad
Upon examining the tax reforms of OECD member states in 2017, it is apparent that individual income tax increases the effect of income redistribution, corporate tax reduces the tax burden on companies, consumption tax reduces the tax burden; whereas taxation on items such as liquor, tobacco and soda drinks aggravates the tax burden and property tax increases tax burden. The US has implemented a tax break and employment act that includes tax reforms on international transactions in order to repatriate overseas earnings held in foreign accounts. According to the CBO and JCT, this is expected to result in an approximately US$1.5 trillion decrease in tax revenue, with higher income-earners gaining a higher tax break.