The Korea Herald


[Editorial] Unification tax

By 류근하

Published : July 20, 2011 - 18:50

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On Aug. 15 last year, President Lee Myung-bak proposed the introduction of a unification tax to secure the funds that would be needed to finance reunification with North Korea.

Given that the North is, for all intents and purposes, an economic basket case, it is impossible to dispute the need for the South to prepare for reunification. But this does not necessarily mean that the public would welcome a new tax to fund the reunification process.

Since October last year, the Unification Ministry has been working on a fundraising scheme under a three-stage reunification formula envisioned by Lee ― first building a peace community, then an economic community, and finally a community of the Korean people.

Last Friday, two high-ranking officials of the ministry gave a brief outline of the plan, saying the details still need to be worked out. The entire picture may be presented by Lee during his Liberation Day speech on Aug. 15.

According to press reports, the ministry plans to use two ways to secure financial resources for reunification ― first by accumulating the unspent portions of the annually earmarked Inter-Korean Cooperation Fund and second, by introducing the proposed unification tax.

Each year, the government sets aside some 1 trillion won to finance diverse cooperation and exchange projects with the North. Between 2000 and 2007, the fund’s implementation rate ranged between 37 percent and 92.5 percent. But under the Lee government, the rate plunged. Last year, only 7.7 percent of the earmarked 1.1 trillion won was spent, with the remainder returned to the state coffers.

The ministry plans to revise the relevant law so that the leftover money could be automatically accumulated on the fund’s new account instead of being channeled back to the national treasury. This idea makes sense. Had the government put the idea into practice upon its inauguration three years ago, it would have already raised some 3 trillion won.

But the amount that could be accumulated this way would not be anywhere near large enough to prepare for reunification. According to reports, the government forecast that the unification funds might begin to be utilized in 10 or 15 years and that it would be necessary to accumulate around 50 trillion won by that time. To attain this fundraising goal, it is necessary to introduce the planned unification tax.

But the government needs to promote its tax plan with extra care, given the unfavorable circumstances confronting it. In the first place, the public is far from enthusiastic about the scheme. About one year ago when Lee first floated the tax idea, he failed to win public support for it. The situation has since changed little.

According to a poll conducted in June by the Institute for Peace Affairs, only 38 percent of the respondents said they were willing to pay unification tax. Those who were opposed to the idea accounted for 30 percent, while 29 percent said they were neither for nor against it.

The survey outcome suggests the government has a long way to go to build a social consensus on its tax plan. Without strong support from the public, it will have difficulty overcoming resistance from the main opposition Democratic Party. DP lawmakers say the incumbent government has no business of levying a unification tax on the public because it has strained inter-Korean relations.

Furthermore, the government cannot expect strong backing from the ruling Grand National Party, given that the party is busy recalibrating its welfare policies. To such a party, a new tax to finance reunification is a hard sell.

The economic situation is not helpful either. The government suggested it would levy a direct tax on affluent people and corporations to avoid putting a burden on ordinary citizens. But no one welcomes a new tax. And tax aversion increases when economic growth falters.

All these circumstances suggest that the Unification Ministry will have its work cut out for it to draft and implement the fundraising scheme. One thing it needs to bear in mind is that it cannot move forward without building a consensus on its plan.