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S.Korea's tax cut only leads to greater private education spending

(Xinhua)
Updated: 2008-09-22 09:55

SEOUL -- The recent income tax cut plan by the South Korean government is unlikely to boost household consumption as many families are expected to spend extra disposable income on private education rather than purchase various consumer goods and services, Korea times said Monday quoting the report by the National Assembly Budget Office.  

"The government expects the income tax cut to lead to greater private spending on a wide range of industrial goods and services. But tax cuts will likely only benefit the private education sector, creating few jobs and attracting less corporate investment," the report said.

According to the budget office, when expected income rise by 10,000 won, the average South Korean's spending on education-related goods and services goes up by 18,300, while consumption on entertainment and leisure activities falls by 5,800 won.

The report shows that South Korean households put education on the top of their spending list, and thus with extra money, many parents invest more in private education to send their children to high-ranked universities.  

Meanwhile, the Ministry of Strategy and Finance said earlier this month that it will cut income tax for salaried workers and the self-employed by 2 percentage points over the next two years.

The ministry expected that with less tax to pay people will increase private consumption by 0.5 percentage points.