"There is no policy consistency, so the justification is also lacking. It is bound to lead to confusion. Isn't it 'financial investment tax season 2'?"
The first tax reform plan of the Lee Jae-myung government has emerged as an adverse factor for national governance. The proposal to revert the capital gains tax threshold on stock profits from 5 billion won (50억원) to the level before the previous Yoon Suk-yeol government (1 billion won) ignited controversy. The intention is to widen the criteria for the 'major shareholder' subject to taxation to fill the revenue shortfall. However, the government's declaration of revitalizing the domestic stock market has instead heightened investor concerns that expanding the tax base will encourage large investors to sell off their shares rapidly. Leaving aside the essence of market distortion, this is a problem directly linked to the lack of policy consistency.
The Democratic Party of Korea secured moderate public opinion during the last presidential election by pledging to abolish the financial investment tax, ease inheritance tax, and suspend taxation on virtual assets. However, the situation has reversed now. This indicates that the tax issue has become a variable that could shake the administration's credibility. Within the party, many view the beginning of this situation as stemming from the 'abolition of the financial investment tax'. Maintaining the progressive value that "taxation exists where there is income", they argue that consistency should have been maintained by rationalizing the tax system. There are complaints that by abolishing taxes in pursuit of votes for the presidential election, they have lost both the revenue base and the justification for other taxes.
Yoon Ho-jung, a five-term veteran lawmaker and Minister of the Interior and Safety, said on CBS Radio on the 6th that the term 'major shareholder' is incorrect, and the approach was very clumsy. He noted, "It accurately refers to lowering the criteria for capital gains tax exemptions, but since it is expressed as 'major shareholders', stock investors ask, 'Why am I a major shareholder?'", adding, "It would be better to discuss this more rationally in the tax subcommittee."
The day before, newly appointed Democratic Party leader Chung Cheong-rae instructed his party members to refrain from expressing personal opinions, but divisions within the ruling party are growing. Personal attacks on individual lawmakers have also intensified. On top of this, the presidential office's stance has exacerbated market anxiety. Presidential Office Spokesperson Kang Yoo-jung stated during a briefing that afternoon, "It is not easy to reconsider policies based solely on one or two days of stock price fluctuations in changing the very structure of the stock market."
◇Abolition of financial investment tax just five days after measures announced… "Lack of philosophical foundation"
A member of the National Assembly's Strategy and Finance Committee, which oversees tax laws, stated, "Regardless of the disputes, what is consistent is that there is no principle, which is the same as during the time of the financial investment tax." He said, "If the financial investment tax had been implemented, we could have upheld the value of 'tax justice' and the practicality of 'securing revenue' as well," suggesting that from a consistency perspective, the scope of stock capital gains tax should also be expanded but pursued separately in terms of taxation on dividends, as that would provide a justification to persuade the public even if the market opposes it."
The Democratic Party abolished the financial investment tax on Nov. 4, 2022. It was a decision that reversed the party line, made at the behest of then-leader President Lee Jae-myung. This was two years after adopting the financial investment tax as party policy. Until five days before, the party had even prepared a bill focused on 'complementary implementation'. This bill, created by members of the Strategy and Finance Committee at the instruction of President Lee, aimed to adjust the complicated tax system and allowed for direct purchases of overseas stocks through Individual Savings Accounts (ISAs). With increasing criticism from investors, it effectively reversed this philosophy in just five days.
Within the progressive camp, there are criticisms that the party leader is undermining the party's identity and policy consistency to chase presidential power. Not only the Justice Party but also the People's Solidarity for Participatory Democracy, the Korean Confederation of Trade Unions, and others issued a joint statement saying, "The indecisive steps of the Democratic Party ultimately led to an alignment with tax cuts for the wealthy," adding, "The political trust that gains vitality from 'tax justice' and 'principles and values' has come to an end." President Lee Jae-myung also noted, "I take the criticism of having abandoned principles and values to heart."
Another member of the Strategy and Finance Committee pointed out that the policy direction reflected in the tax reform bill, including the expanded taxation on capital gains, separation of taxation on dividends, and restoration of the corporate tax rate to 25% from 24%, clashes with each other. He stated, "The results of KOSPI at 5,000 are urgent, the country's treasury is running dry, so revenue must be collected, and the presidential office's explanations are bound to be inconsistent." This highlights the contradiction of raising corporate taxes while expanding the tax base, while simultaneously cutting taxes for those receiving high amounts of dividends.
He further stated, "It is the Democratic Party that vehemently opposed raising the criteria for major shareholders, and now if they revert it to 1 billion won, it lacks the philosophy by instigating fears that the market will collapse." The same applies to the separation of taxation on dividends. In fact, the Democratic Party had previously expressed an unacceptably negative stance on easing taxation on stock dividend income, claiming that it was "the ultimate tax cut for the ultra-wealthy" until the end of last year.
◇"There is no policy consistency, so there is no persuasive power over the public"
The point at issue regarding this tax reform bill is similar. President Lee stated that he aimed to revitalize the stock market and diversify investment funds concentrated in the existing real estate market. Promises like 'KOSPI 5,000 era' and 'strong commercial law reforms' also emerged in this context. Separation of taxation was launched as an incentive to increase dividend tendencies. On the other hand, regarding the strengthening of the criteria for capital gains tax, besides stating it was "to restore the situation", he has not provided any messages to convince the market. The presidential office stated that "we are closely monitoring the trends in the stock market and consumer reactions. We will listen to the discussions" on that day.
Yoon Tae-gon, head of the political analysis office at TheMoa, said, "The lack of a proper explanation regarding the policy direction from the perspective of consistency itself is a problem." He continued, "Policies may go in various directions, but there must be a consistent priority and direction to gain trust," stating that "although corporations opposed the reforms to commercial laws, they could be pursued because of the justification of 'protecting the rights of small investors'."
He added, "(The strengthening of the major shareholder criteria) does not comply with the long-standing principle of directing investments into stocks rather than real estate, so it will lead to a lack of consistency. The issue cannot simply transition into, 'The stock price did not drop because of the tax reform bill.' The government and ruling party have an obligation to establish priorities in their policies and offer convincing explanations."