As the Strategy and Finance Committee's tax subcommittee begins full operations this month, concerns are emerging that various tax cut and deduction programs could grow again ahead of next year's local elections.
According to government and National Assembly officials on the 2nd, the tax subcommittee meeting on the 13th will focus discussions on tax expenditure items such as tax credits and tax reductions. The tax subcommittee is the stage that reviews and adjusts tax law amendments and various taxes bills, and it steers the direction of subsequent debates in the full Strategy and Finance Committee and the plenary session.
Tax expenditure is a system that relieves the burden on certain groups by temporarily exempting or reducing taxes. Although it does not spend the government budget directly, it has the effect of de facto fiscal spending and is called a "hidden subsidies." Representative examples include income deductions, tax credits, and preferential tax rates.
The problem is that the closer elections get, the higher the risk that tax expenditure will degenerate into "pork-barrel policies." Tax cuts offer immediate benefits without direct budget execution, making them tempting for politicians.
In particular, there is a possibility that items the government signaled would be reduced or abolished in the August tax reform plan will be revived during the National Assembly's deliberations.
For example, the agriculture and fisheries cooperatives and other industries are strongly opposing the measure to rationalize the tax exemption on deposits and investment at mutual finance institutions, citing concerns about deposit outflows. The plan to end the special value-added tax refund for cosmetic surgery for foreign tourists has also run into opposition from the medical community.
If such reduction items are revived, the scale of next year's tax expenditure will grow further. According to the Ministry of Economy and Finance's "2026 tax expenditure budget," next year's national tax reduction will be 80.5 trillion won, about 4 trillion won more than this year. This is the first time tax expenditure will exceed 80 trillion won.
The expansion of tax expenditure is cited as a long-term fiscal burden. According to an analysis by the Institute for Fiscal Studies, tax expenditure grew an average of 6.4% annually from 2010 to 2024, outpacing the 5.0% growth rate of national tax revenue over the same period. In other words, "shrinking taxes" are increasing faster than "collected taxes."
There is also criticism that the benefits of reductions are concentrated among high-income earners. According to data Kim Young-hwan of the Democratic Party of Korea received from the National Assembly Budget Office, among the top 20 tax expenditures in 2024, in 11 items for individuals (31.2 trillion won), those earning more than 60 million won a year accounted for nearly half, 15.1747 trillion won.
Based on next year's tax expenditure budget, the share of tax expenditure for low- and middle-income groups will fall from 65.2% this year to 64.9%, while the share for high-income groups will rise slightly from 34.8% to 35.1%.