South Korea Calls for Unity Tax as North Slams Drills
South Korean President Lee Myung Bak
Munshi Ahmed/Bloomberg
South Korean President Lee Myung Bak.
South Korean President Lee Myung Bak. Photographer: Munshi Ahmed/Bloomberg
South Korean President Lee Myung Bak called for a special tax to cover the costs of eventual Korean unification as North Korea threatened to respond to a U.S.-South Korea military drill with “the severest punishment.”
“It is imperative that the two sides choose coexistence instead of confrontation, progress instead of stagnation,” Lee said yesterday in an address celebrating the Korean peninsula’s liberation from Japanese colonial rule in 1945. “It is therefore our duty to start thinking about real and substantive ways to prepare for reunification such as the adoption of a unification tax.”
Lee’s proposal for a unification tax, the first to be made by a South Korean leader, comes amid speculation that ailing North Korean ruler Kim Jong Il is preparing to hand over leadership to his youngest son. Tensions have also escalated on the divided peninsula since the March 26 sinking of a South Korean warship, which a multinational panel blamed on a North Korean torpedo.
“The proposal will help South Koreans approach reunification with a dose of reality rather than as a far- fetched goal,” said Dong Yong Sueng, a senior fellow at the Seoul-based Samsung Economic Research Institute. “Estimates vary on how much reunification will cost, but there is no question that it will cost a lot.”
North Korea yesterday condemned the U.S. and South Korea’s annual war games that begin today as “all-out war maneuvers,” in a statement carried on the official Korean Central News Agency.
Reunification Costs
“The army and people of the DPRK will deal a merciless counterblow to the U.S. imperialists and the Lee Myung Bak group of traitors,” KCNA said, using the initials of the North’s official name. The statement also reiterated North Korea’s denial of having sunk the Cheonan.
The cost of reunification for South Korea would be as high as $2 trillion to $5 trillion spread over 30 years, Peter Beck, a senior fellow with the Atlantic Council’s Asia Program, has estimated. A South Korean presidential committee study estimates the cost at between $322 billion to $2.1 trillion over 30 years, Chosun Ilbo reported today.
South Korea, with a $931 billion economy, will need to set aside an amount worth at least 12 percent of its gross domestic product annually for the first 10 years of reunification, the state-run Korea Institute of Public Finance said in a 2008 report.
Economic Integration
South Korea and North Korea remain technically at war since their 1950-53 conflict ended in a cease-fire, which was never replaced by a peace treaty. The two countries have since grown apart in political ideology and economic development, with the South’s per capita income hovering at 18 times that of the North’s in 2009, according to the Bank of Korea in Seoul.
Lee yesterday proposed a three-step process to reunification, in which the two countries’ economic integration will precede a peaceful unification. Any integration will only come after North Korea gives up its nuclear weapons program, Lee’s office said in a separate statement.
Lee didn’t propose the unification tax with any imminent change in the North Korean regime in mind, his office said. The government will consider details of the tax after discussions with relevant groups, it said.
Lee in May cut off most trade with North Korea after a South Korean-led multinational panel blamed Kim’s regime for the March 26 sinking of the warship Cheonan. North Korea also faces stricter U.S. sanctions targeting government officials and foreign banks sustaining its arms industry for the attack that killed 46 sailors.
Succession
Kim Jong Il, 68, is visibly frailer than in recent years and analysts and South Korean officials have said he may be preparing to designate Kim Jong Un, believed to be in his late 20s, as his successor. North Korea’s plan to elect new leaders of the ruling Workers’ Party in early September may provide some insight into the succession, South Korea’s Foreign Minister Yu Myung Hwan said in a July 24 interview.
The younger Kim has no known political office and analysts have said he may not yet have the full loyalty of the communist nation’s military and its political elite, risking instability in any transition period.
To contact the reporter on this story: Bomi Lim in Seoul at blim30@bloomberg.net; Shinhye Kang in Seoul at skang24@bloomberg.net
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