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The South Korean government has announced an extension of its fuel tax cut until the end of October 2024 to alleviate the financial burden on consumers amid rising global crude oil prices. This decision, however, has sparked concerns over a potential shortfall in tax revenues, which could strain the country’s fiscal stability.
Finance Minister Choo Kyung-Ho stated that the fuel tax cut extension is necessary to mitigate the effects of surging international oil prices, which have put pressure on household budgets and exacerbated inflation. The current cut includes a 25% reduction in gasoline taxes and a 37% cut in diesel and liquefied petroleum gas (LPG) taxes. Choo emphasized that the government would review further extensions based on economic conditions later in the year.
South Korea has been grappling with inflation, which rose to 3.1% in July, primarily driven by escalating utility and fuel prices. The recent rise in retail gasoline prices, up 7.8% from the previous month, reflects the broader inflationary trends. As a result, the government has faced increasing pressure to balance consumer relief with maintaining fiscal health.
However, the extended tax cut comes at a cost. Tax revenues have already been affected, with economists warning that prolonged reductions could widen the deficit further. Critics argue that the government’s decision to extend the cut is driven by political motivations ahead of crucial elections in 2024, rather than long-term fiscal planning.
The Ministry of Economy and Finance has acknowledged these concerns but stressed that public welfare remains the priority. They also indicated that additional measures would be considered after October, depending on global oil market developments and domestic economic performance