[Inside Chodong] Will Tax Reform Follow the Same Path as Pension Reform?

The major opposition party, the Democratic Party of Korea, has launched a tax politics campaign immediately upon the opening of the 22nd National Assembly. They are pressuring the ruling party by suggesting discussions on the comprehensive real estate holding tax (종부세), introduced during the Roh Moo-hyun administration, as well as the easing of inheritance tax. Both policies have been pursued by the government and the ruling party until now. Although the ruling People Power Party has counterattacked by bringing up the abolition of the comprehensive real estate holding tax along with the redevelopment excess profit recovery system (재초환) and the financial investment income tax (금투세), it does not seem easy for them to regain the initiative at this point.

The reason the Democratic Party started tax politics to seize the issue as soon as the new National Assembly opened is clear.

They intend to expand their influence in the metropolitan area’s ‘centrist and conservative zone’ and are determined to win the next presidential election. Although the Democratic Party won a landslide victory in the general election last April, they faced a tough battle in the ‘Hangang Belt,’ where apartments subject to the comprehensive real estate holding tax are concentrated. The rising housing prices in Gangbuk, a stronghold of the opposition, are also a burden. Although the basic deduction for the comprehensive real estate holding tax for one household one house owners was raised to 1.2 billion won, apartments exceeding this amount are increasingly appearing even in Gangbuk.

[Image source=Yonhap News]

In fact, the comprehensive real estate holding tax has been controversial since its introduction in 2005. Contrary to its purpose of ‘stabilizing real estate prices and enhancing tax equity,’ it has been criticized as a ‘punitive tax measure’ as the number of taxpayers increased. Even last year, when the tax base was raised and the number of taxpayers decreased compared to the previous year, the proportion of one-house owners subject to the tax was as high as 27%. This is why voices calling for unifying real estate taxation under property tax continue despite the constitutional ruling on the comprehensive real estate holding tax.

The Democratic Party’s push to ease inheritance tax has a similar background. It is a calculation to protect the votes of the middle class who have become subject to inheritance tax due to rising housing prices.

The problem lies in the method of this tax politics. Both the comprehensive real estate holding tax and inheritance tax easing appear to be agendas raised solely with an eye on ‘centrist and conservative votes.’ Neither the opposition nor the ruling party seems to show sincerity about ‘why these are necessary.’ As a result, there is a lingering thought that they might just raise the issue and then drop it.

The Democratic Party’s changing stance on the comprehensive real estate holding tax is clear. They hastily pushed for revisions without sufficient persuasion on why the tax, which had been considered a progressive frame, needed to be modified. When strong backlash from their support base arose, they are now taking a breather, saying “the direction of the (comprehensive real estate holding tax) is not yet decided.” It seems reminiscent of the last presidential election, where the promise to ease the comprehensive real estate holding tax was made but faded away due to internal opposition.

The People Power Party is not much different. Reforming the comprehensive real estate holding tax was a core agenda for the ruling party. However, when the Democratic Party proposed abolishing the tax for one-house owners, the ruling party revealed differences in views by saying that they need to consider easing the heavy tax on multiple homeowners as well as completely abolishing it and integrating it into the property tax. When the Democratic Party ignited the debate on reforming the comprehensive real estate holding tax, the ruling party brought out stronger proposals to avoid losing ground, but it rather seemed like they were trying to ease the tension. It is difficult for the opposition to accept a card that calls for the outright abolition of such a far-reaching tax system as the comprehensive real estate holding tax.

It is regrettable that a tax reform plan, which could have been a rare opportunity for bipartisan cooperation, is showing signs of the opposition focusing on their core supporters and the ruling party concentrating on internal power struggles, resulting in a loss of momentum. If this continues, the tax reform plan could end up being shelved like the National Pension reform bill in the 21st National Assembly. If you have drawn the sword, shouldn’t you at least cut the radish well?

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