This year, tax expenditure amounting to 78 trillion won will be put on the operating table. Tax expenditures are policies that reduce the tax burden through exemption or reduction methods and are similar to fiscal spending, often referred to as "hidden subsidies." For the Lee Jae-myung administration, which is accelerating the preparation of the supplementary budget, this will likely be the first test of fiscal efficiency.
According to Yonhap News on the 15th, the government and political circles are expected to soon begin a comprehensive reassessment of tax expenditures. The tax expenditures set to expire this year are the top priority for revisions, totaling 65 cases (amounting to 16.9 trillion won). Among these, those classified as "actively managed targets" for maintenance comprise 61 cases (amounting to 15.1 trillion won).
Tax expenditures that do not have an expiration can also be selectively restructured. However, as legal amendments are required, the will of the National Assembly is expected to be a significant variable.
Restructuring tax expenditures has often been undermined by potential backlash from existing beneficiaries. As a result, the scale of tax expenditures has increased more than double from 37.4 trillion won in 2016 to 78 trillion won this year.
The ruling party sees that it is becoming increasingly difficult to allow indiscriminate tax expenditures to continue. This is due to the structural low growth caused by low birth rates and an aging population, making it challenging to improve tax revenue conditions. The fact that tax expenditures contradict income redistribution also heightens the necessity for restructuring. Higher marginal tax rates disproportionately reduce the tax burden for high-income individuals or large corporations.
President Lee Jae-myung stated in his campaign manifesto that he would overhaul the tax preference items classified as "actively managed targets" to adhere to the statutory limits on national tax reductions. He also pledged to strictly enforce pre-qualification requirements for large tax preferences exceeding 30 billion won and to establish a system to prevent indiscriminate tax expenditures.
The specific methods of restructuring are expected to be decided once the National Planning Commission, which effectively acts as a transition committee, is launched on the 16th. The National Planning Commission plans to organize the 100 key national tasks of the Lee Jae-myung administration over the next 60 days and prepare a roadmap for each task entitled "Five-Year National Management Plan."