The Ministry of Strategy and Finance has been saddled with two contradictory tasks: boosting sagging private consumption and raising tobacco prices.
Last year, financial policymakers were skeptical about a cigarette price hike pushed by the Health and Welfare Ministry. They cited possible negative effects on consumer prices and household consumption.
Further, the Finance Ministry denied the rumors in January that policymakers are poised to raise cigarette prices or create a new tax on the products.
In a statement, the ministry said it “has not considered raising cigarette prices” over the past few months.
Its official stance, however, has apparently changed since Hyun Oh-seok was nominated as the finance minister and deputy prime minister for the Park Geun-hye administration.
Hyun recently told the National Assembly that “it is necessary to consider raising prices as the last hike in tobacco prices was December 2004.”
But he hinted that the ministry would take a cautious approach on the rate of the price hike, while Rep. Kim Jae-won of the governing Saenuri Party has proposed a motion to raise tobacco prices to 4,500 won ($4.10) from the current average of 2,500 won per pack.
The finance minister nominee told lawmakers that the prices hike should be attained in consideration of consumers’ growing burden and the nation’s consumer prices.
“When cigarette prices climb 2,000 won (80 percent), consumer prices will rise 0.68 percentage point,” Hyun said.
Some market observers predict that the Finance Ministry ― in consultation with lawmakers and the Health and Welfare Ministry ― will set the hike level between 500 won and 1,000 won per pack to minimize heavy backlash from smokers.
As some ministry officials raised the feasibility of hikes on a gradual basis, analysts expect the increase margin to be 500 won in 2013 and 1,000 won each consecutive year until 2015.
KT&G officials expected that it could take about one year for the National Assembly to pass any cigarette-related bills proposed for raising prices.
According to a public agency’s research report, the government will see the tax revenue increase by 2.67 trillion won should the price per pack climb 500 won, and 4.46 trillion won if it climbs 1,000 won.
Last year, the Ministry of Health and Welfare clarified that it plans to double the average price of a pack of cigarettes to 5,000 won.
By Kim Yon-se (firstname.lastname@example.org