[Insight & Opinion] Government Pursues Tax Cuts for the Wealthy, Major Opposition Party Distributes Gift Certificates

Despite Last Year's Record Tax Revenue Shortfall,
Government and Opposition Compete for Showmanship
Fiscal Deterioration Becomes a Heavy Burden for Future Generations

The 2024 tax law amendment announced by the Ministry of Economy and Finance is unlikely to escape criticism as a "tax cut for the wealthy." Meanwhile, the major opposition party is pushing a massive fiscal spending plan under the fancy name of the "Special Act for the Payment of Livelihood Recovery Support Funds," which is no different from a cash handout to thank voters for the Democratic Party's general election victory. Both the government and the major opposition party are so preoccupied with short-sighted showmanship that they neglect any alternatives to the already mounting fiscal deficit, leaving the public to sigh deeply.

The Korea Tax Association evaluated the 2024 tax law amendment as a tax cut policy primarily benefiting high-net-worth individuals, with minimal tax relief effects for middle-class homeowners with one house. They pointed out that while the extension and increase of the integrated investment tax credit expanded tax reductions for large corporations and wealthy individuals, deductions for credit card use and electronic filing were lowered, thereby reducing tax exemptions and relief for small business owners and the general public.

Last year, the inheritance tax burden was only 6.5% of the decedent's estate, with the top 1% bearing 64% of the total inheritance tax. If the top inheritance tax rate is lowered from 50% to 40%, it is estimated that 2,400 beneficiaries will receive a tax revenue reduction of 1.9 trillion won, making criticism of tax cuts for the wealthy justified. Meanwhile, although the stock premium valuation system for large corporations was abolished, the issue of overvaluation of unlisted stocks of small and medium-sized enterprises was ignored, causing reverse discrimination.

The "Special Act for the Payment of Livelihood Recovery Support Funds," promoted by the Democratic Party, which became the major opposition party after the general election, has passed the Administrative Safety Committee and is under review by the Legislation and Judiciary Committee. This bill, which was former leader Lee Jae-myung's general election pledge and his first bill introduced in the 22nd National Assembly, proposes to distribute regional love gift certificates worth 250,000 to 350,000 won to all citizens, to be used within four months, to revitalize the domestic economy. Given the severe domestic demand slump, the need to stimulate the domestic economy is clear.

However, distributing 250,000 won to every citizen is essentially no different from a congratulatory cash handout for the Democratic Party's general election victory. If this bill passes the National Assembly, the National Assembly Budget Office estimates that it will require fiscal spending ranging from a minimum of 12.8 trillion won to a maximum of 17.9 trillion won. If this bill represents Lee Jae-myung's "Muksanism," it would be more reasonable to focus on the severely struggling low-income groups or use the funds to support restructuring of self-employed businesses to improve the efficiency of fiscal spending. Distributing gift certificates to all citizens is a shameful demonstration of the Democratic Party's limited policy development capabilities and is sure to greatly disappoint the people who made the Democratic Party the overwhelming majority with more than half the seats.

What deserves attention is that both the government and the major opposition party are ignoring the growing tax revenue shortfall and competing in "showmanship" to gain public support. Last year, the government recorded a record tax revenue shortfall of 56.4 trillion won, and this year, a tax revenue shortfall is also inevitable. Moreover, the total amount of tax cuts over the next five years resulting from the tax law amendments during the three years of the Yoon Suk-yeol administration amounts to a staggering 81.7 trillion won. Since the government is not troubled by the tax revenue shortage, there is no reason for the major opposition party to avoid competing in showmanship with lavish spending to the public.

The Yoon Suk-yeol administration's tax policy abandoned the sound fiscal stance of the early administration and shifted to promoting a trickle-down effect to boost growth, falling into the trap of tax cuts for the wealthy. While it is true that livelihood support is needed, the major opposition party's distribution of gift certificates to all citizens cannot be a reasonable policy alternative. Both the government and the major opposition party should correct their flawed policies to avoid further disappointing the public.

Kim Dong-won, Former Visiting Professor at Korea University

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