"It was decided through a party-government consultation, so why should only the government be blamed?"
This is what an official at the Ministry of Economy and Finance said while watching the process of reverting the threshold for a major shareholder subject to capital gains tax on stocks from "1 billion won" back to "5 billion won." The point was that the ministry felt it was unfair to be at the center of the criticism while the policy stance swung sharply in response to demands from political circles. What happened?
The Ministry of Economy and Finance included in the July tax revision plan a measure to tighten the major shareholder threshold to 1 billion won. At the time, the ministry said the main goals were fairness in taxing capital income and expanding the tax base.
But the next day, the KOSPI plunged nearly 4%, and as investors pointed to the news of the threshold change for major shareholders as the main culprit for the plunge, the policy was thrust into the center of controversy. Political circles also criticized that it "does not match the government's market-boosting stance that aims for the KOSPI 5000 era."
The controversy was ultimately settled by the president's statement. President Lee Jae-myung said at a press conference on the 11th marking 100 days in office, "Revitalizing the stock market is one of the core elements of the new administration's economic policy, and if that (tightening the major shareholder threshold) would hinder it, I don't think there is any need to insist on it," and asked the National Assembly to reach a conclusion. The move effectively scrapped the plan to toughen taxation.
Along the way, markets and politicians repeatedly criticized the Ministry of Economy and Finance, which led the tax work, as "the ministry that pushed a wrong policy." Notably, even within the ruling Democratic Party of Korea, the ministry was blamed.
This is where the ministry feels aggrieved. The tax reform plan was not prepared by the ministry alone. According to the ministry, it was drawn up through sufficient consultations with the Democratic Party of Korea's policy committee. However, as confusion continued in the stock market and the policy committee chair shifted from Rep. Jin Sung-joon to Rep. Han Jeong-ae, the ruling party's stance reportedly flipped 180 degrees.
One working-level official said, "They overturned a matter decided together and are holding only the government accountable." Another official said, "The decision-making governance is too distorted. The government is always dragged by the National Assembly," adding, "Had it been a policy the government pushed to the fore, it would have felt less unfair."
Criticism over policy consistency is also emerging. Following the scrapping of the financial investment income tax, the withdrawal of the plan to tighten the major shareholder threshold has greatly shaken tax fairness and policy predictability. The government has also lost the grounds to strengthen taxation on financial investment income going forward.
There is also regret from a revenue perspective. According to the Ministry of Economy and Finance, the tightened major shareholder threshold would have secured about 200 billion won in annual tax revenue. With revenue shortfalls recurring, efforts to expand the tax base by strengthening capital income taxation have come to nothing, deepening the concerns of fiscal authorities.
Inside the ministry, there are even bitter, self-mocking remarks such as, "If a revenue shortfall occurs next year after all, won't they blame the ministry again." The ministry naturally bears responsibility for the zigzagging tax policies. But it also seems necessary to point out the faltering steps of the ruling party. Only with reflection can a recurrence of such episodes be prevented.