2014年经济学人 税收磨刀霍霍向猪羊（在线收听）

Taxing corporate cash

A tempting target

South Korea's government tries to get firms to spend their accumulated riches

SINCE becoming South Korea's finance minister in July, Choi Kyung-hwan has been busy. First came a 41 trillion won stimulus package. Now Mr Choi is trying to pep up the economy further by getting South Korean firms to spend more on wages and dividends.

Mr Choi's scheme, submitted to South Korea's parliament this week, will tax companies' cash piles on the grounds that corporate stinginess is holding the country back. Cash reserves at South Korea's ten biggest chaebol, or conglomerates, have doubled in five years. Together, the country's non-financial firms hold over 450 trillion won. Though corporate earnings trebled between 2000 and 2012, household income in Korea barely doubled. The pace of salary growth has dropped, from 4.4% a year between 2001 and 2005 to just 0.3% a year since 2011.

If the plan is approved, the 4,000 or so South Korean firms with over 50 billion won in capital will pay a 10% surcharge on their corporate tax rate unless they have spent a certain proportion of their income on dividends, investment and wages. The government has yet to set the threshold, but it is likely to be 60-80%. Firms will also be exempt if they spend 20-40% of income on dividends and wages alone, a nod to the low investment rate of the service sector.

Companies are stockpiling cash in the face of mounting Chinese competition and slowing domestic demand as South Koreans age. Their bosses also remember the Asian financial crisis of 1997-8, when many firms ran out of cash and were forced to sell assets. They are miserly with dividends. Yields on South Korean equities are among the lowest in the world, at around 1.2%. Payouts dropped by 15% in the first half of this year, to 455 billion won.

Low dividends are thought to be part of the reason for the “Korea discount”: the relatively low valuations of Korean firms. Daishin Securities, a local broker, estimates that Mr Choi's scheme will boost dividend payments by about 3 trillion won a year, a 28% increase.

It is less clear, argues Shaun Cochran of CLSA, another broker, how much the tax will help the economy. Foreigners, who hold a third of the shares of South Korea's 200 biggest companies, will be some of its chief beneficiaries. Forcing companies to spend their cash could lead to unproductive investments. Many will squirrel away their reserves in property. Last week Hyundai, another chaebol, bought a plot of land for new headquarters in central Seoul for a whopping $10 billion. Kim Hak-soo of the Korea Institute of Public Finance, which advises the government, says it ought to be lowering corporate tax rates to achieve higher growth, not raising them.

Firms may choose to pay the tax rather than make marginal investments or raise wages . Mr Choi's ministry insists that it wants “zero revenue” from the scheme. It, too, may soon find itself with lots of cash on its hands.