By Lee Hyo-sik
Staff Reporter

The ruling Uri Party on Monday proposed an income tax cut by one percentage point and additional government spending of 5.5 trillion won next year in a policy bid to stimulate the economy.

In a policy consultation meeting with policymakers and economists at the National Assembly in Seoul on Monday, the governing party also suggested scrapping the special excise tax on such products as plasma display panel TVs as well as a reduction in interest and dividend income taxes by one percentage point to 9 percent and 14 percent, respectively.

The Uri Party estimated small-and medium-sized enterprises (SMEs) are expected to see their corporate tax burden fall by as much as 15 percent and labor flexibility will be promoted through stable labor-management relations and rigorous job training.

The Uri Party also proposed removing unnecessary government red tape and open the services market wider to foreign competition for upgrading the domestic service industry.

Deputy Prime Minister and Finance-Economy Minister Lee Hun-jai, who attended the meeting, has not clearly indicated whether the government would accommodate the proposal. A Ministry of Finance and Economy official said, ``The government will positively review the suggestion and finalize its stance on the proposal as soon as possible.

``The ruling party is determined to mobilize a wide range of economic policy measures to stabilize the livelihood of needy people and stimulate the stagnant domestic economy in consultation with the government,’’ Uri Party’s chief policymaker and former finance-economy minister Hong Jae-hyong said at the meeting.

Another Uri lawmaker Kang Bong-kyun, who was also the finance-economy minister, said that the government must brace for sustaining a fiscal deficit equal to 1 percent of the gross domestic product to stimulate domestic demand as well as considering a temporary tax cut on oil products to help consumers ease financial burdens linked to rising oil prices.

Kang said the most crucial task is to adopt an effective policy mix to hasten a full economic recovery and maximize growth potential, a growth not entailing serious inflation.

However, some participants at the meeting cautioned that such short-term expansionary policies, such as tax cuts and more government spending, could reduce the nation’s long-term economic growth potential.

Kim Choong-soo, president of the Korea Development Institute (KDI), pointed out that the short-term economic measures could worsen the fiscal soundness and be ineffective in boosting a mid-and long-term growth potential.

``The government must decide first whether or not the current economic hardship is either temporary or structural before implementing a fiscal stimulus package because such measures might delay the structural reform of the economy, Kim stressed.

Lee Won-ki, managing director of Merrill Lynch Securities on Monday questioned the effectiveness of the economic stimulus package. But the governing party seeks to stimulate the economy as the majority of people are complaining of economic hardship although the economy has been growing at the 5 percent range so far this year.

leehs@koreatimes.co.kr