The economy has lost its growth momentum because the government has no clear directions in its fiscal policies, economists said Sunday.
They said the administration should reform the tax structure to increase revenue and redistribute wealth to low-income families because this was the fastest way to boost private consumption and fuel economic growth, Yahoo news reported.
Strategy and Finance Minister Choi Kyung-hwan vowed to revive the sluggish economy with expansionary policy packages in his inaugural speech in July, but Asia’s fourth-largest economy has seen no growth momentum so far, according to analysts.
They say that the focus of fiscal policy changes too often from revitalizing the economy to corporate restructuring to tax hikes, making economic players confused about what the government is aiming to achieve.
For instance, the finance ministry withdrew its new tax return formula last month, after facing severe criticism from salaried workers who complained that the government targeted their low incomes while cutting the tax burden on big conglomerates.
“The government should reform the structure of tax revenue by increasing transparency in taxation and tapping more sources for tax,” wrote Hyundai Research Institute economist Kim Dong-yeol in a report.
Warns of Fiscal Deficit
Kim warned the government that the country may follow in the footsteps of Japan which is suffering from a fiscal deficit, if Korean policymakers are reluctant to change its tax structure.
HSBC economist Ronald Man advised the government to reform its tax rate for individuals to ensure redistribution of wealth.
“We analyze changes to the marginal tax rate for individuals and argue that a steeper marginal tax curve is a more efficient tool to stimulate economic activity than further monetary easing, and that it can tame household leverage,” wrote Man in another report.
