[Insight & Opinion] Stock Tax Reform Needed to Help Young People Accumulate Assets

Demographers abroad are appalled by South Korea's fertility rate data of 0.7. No country in history has shown such a figure. Having a low fertility rate itself may not be a problem. The issue lies in the elderly support ratio. Welfare costs such as pensions are increasing exponentially, but the younger generation that should support this system is shrinking, making it impossible to sustain. Experts and major institutions commonly point to high housing prices, private education costs, and poor childcare environments, but no clear solution has been presented. The experience of the past 20 years shows, as some critics say, that all that has been done to prevent low birth rates is spending astronomical amounts of money.

The way to alleviate the "economic fear" felt by the younger generation is to increase the possibility of asset accumulation. In the past, young generations during the period of rapid growth accumulated assets through real estate, especially housing. Policies such as subscription savings accounts for housing, tax benefits, and loan support for one household one house all provided incentives for young people to buy homes. From both tax and price appreciation perspectives, housing was the most stable and reliable source of income, and the baby boom generation, now the mainstream, rose to the middle class through this process.

However, today, homeownership determines the tier of one's asset class. Acquiring a home in a major city through earned income like salaries is out of the question. Another reason why asset accumulation through real estate has become more difficult is polarization. Aging and population decline lead to polarization. The gap between Seoul metropolitan area and other regions, and even within the Seoul metropolitan area between well-equipped infrastructure areas and others, will widen further. Considering humans' inherent comparative nature, this polarization will cause social conflicts on one hand and voluntary surrender on the other.

Real estate can no longer be a common method of asset accumulation as in the past. If there is another way, it is stocks, but this is also challenging. It is academically and empirically proven that buying and selling stocks short-term does not increase wealth. There must be incentives to hold stocks long-term, but Korea lacks these. This is the so-called "Korea Discount."

The reality is that Korea ranks at the bottom among OECD countries in shareholder returns (the ratio of treasury stock purchases and dividends to total profits), major shareholders exploit minority shareholders, inheritance taxes are excessively high, and separate taxation on dividend income is not applied, so the merits of holding stocks long-term are limited. Unlike housing, holding stocks long-term does not reduce taxes, nor do companies pay dividends or buy back shares sufficiently, and high inheritance taxes cause major shareholders to struggle with corporate succession and seek loopholes. The common saying that young generations leave the "Gukjang" (Korean stock market) for the "Mijang" (U.S. stock market) hides this inconvenient truth.

Recently, with the general election approaching, discussions on stock-related tax systems are taking place again. One side calls it a tax cut for the rich, while the other demands capital market regulatory reforms to the level of advanced countries. Regardless of the justification, the important thing is to secure trust that money can be made in the stock market. The belief that investing in stocks can accumulate assets. A society that does not create opportunities for asset accumulation for the younger generation is one that castrates their dreams, and ultimately, this will return as a boomerang of misfortune to all citizens. Discussions for the future, not for election purposes, are needed.

Lee Sang-geon, Head of Mirae Asset Investment and Pension Center

This content was produced with the assistance of AI translation services.