[Editorial] Corporate anxiety
Korean companies are concerned that the Lee Jae Myung administration and the ruling Democratic Party of Korea are stepping up legislation that could add to their burdens, following the revision of the Commercial Act.
The revised Commercial Act proposed by the party passed the National Assembly on July 3. The revision expands the fiduciary duty of corporate board members to serve the interests not only of their companies but of shareholders as well. Business circles worry that the change could make directors avoid long-term investments because of shareholder objections.
Last Friday, Democratic Party lawmakers presented a bill to revise the Labor Union Act — a proposal known as the "Yellow Envelope Law" — to the National Assembly's Environment and Labor Committee, then proceeded to forward it to the subcommittee for deliberation.
The party, which has a large majority in parliament, vowed to get the bill passed in an extraordinary session of the Assembly next month.
Article 2 of the Labor Union Act revision would require primary contractors to bargain collectively with the employees of subcontractors. Article 3 makes it practically impossible for companies to claim damages from workers taking industrial action.
If hundreds or thousands of subcontractor employees were to demand collective bargaining, subcontractors and the large companies that outsource work to them could be mired in incessant labor disputes.
The article limiting damage claims against workers could encourage more industrial action.
For these reasons, former President Yoon Suk Yeol vetoed the bill twice.
The deepening anxiety of companies is understandable.
Koo Yun-cheol, the nominee for deputy prime minister and minister of economy and finance, mentioned the decline in corporate tax revenue during his confirmation hearing at the National Assembly last Thursday.
He said he would consider restoring the higher corporate tax rates that the Yoon administration lowered. The Moon Jae-in government raised corporate tax rates to a range of 10-25 percent, then the Yoon administration eased them by 1 percentage point to 9-24 percent.
Koo blamed the tax cuts for a decrease in corporate tax revenue. He argued that the tax reductions failed to have the desired effects, such as increased investment and economic growth.
Corporate tax revenue decreased from 103 trillion won ($74 billion) in 2022 to 80 trillion won in 2023 and 62 trillion won in 2024.
Koo is mistaken. Corporate tax revenue did not shrink by 41 trillion won in two years because of tax rate reductions. The biggest factor was the deterioration of business performance, affected by an export slowdown and a semiconductor slump.
Unless the economy improves, raising corporate tax rates will not guarantee an increase in tax revenue. Rather, it could reduce tax revenue by dampening corporate investment.
If corporate tax revenue diminished because of a weaker economy, common sense says to help businesses attain better results by lowering tax rates. However, Koo says he would do the opposite.
The US and European countries offer tax incentives to foster their strategic industries and attract foreign investments. It is questionable whether revising the tax code to increase tax collection can enhance companies' international competitiveness.
In his meeting with Korean business leaders last month, President Lee promised to fully support their business activities. Last week, he had separate dinners with Hyundai Motor Group Executive Chairman Chung Eui-sun and LG Chairman Koo Kwang-mo to discuss trade issues. Lee emphasized cooperation between the government and their businesses.
But the bill to amend the Labor Union Act is far from a show of support for companies. Lee's economic policy seems to be deviating from the pragmatism that he vowed to champion.
If revising the Labor Union Act is inevitable, lawmakers may as well hold further discussions about whether to make it mandatory for primary contractors to bargain collectively with subcontractor employees.
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