Tax overhaul backlash tests policy control

The government’s tax reform plan — announced last week — is facing intense backlash. Thousands of public comments have been submitted to the government’s online legislative participation portal over proposed revisions to the Comprehensive Real Estate Holding Tax Act and Income Tax Act. Most oppose higher holding taxes on high-priced homes or shifting capital gains tax deductions from ownership duration to actual residence.

As expected, older residents of high-priced homes in Gangnam District and single-home owners who do not live in their properties are protesting strongly. Annual holding taxes on some ultraexpensive homes could rise by tens of millions of won, potentially becoming unaffordable for older retirees who bought their homes decades ago.

The government proposes capital gains tax relief for older single-home owners who sell homes in the Seoul metropolitan area and move elsewhere. But few would welcome a policy effectively urging them to leave longtime homes for unfamiliar places.

There are also complaints that exemptions for nonresident single-home owners are too restrictive. The government cites schooling, job changes and medical treatment as examples. But some people rent out their homes while living near their children to care for grandchildren, and others must remain abroad for years to study or work.

Deputy Prime Minister and Finance Minister Koo Yun-cheol eventually said that the government will consider applying the exemption requirements as flexibly as possible.

Other controversial measures include reduced tax-saving benefits for individual savings accounts, or ISAs, and relaxed provisions in legislation designed to prevent companies from deliberately depressing their share prices. President Lee Jae Myung criticized the lack of preparation and ordered a comprehensive review.

A president can certainly identify flaws in ministry policies and demand revisions. But the plan had already undergone consultations between the government and ruling party, making presidential criticism just days after its announcement highly unusual.

Even within the Democratic Party, some have told the ministry to “get its act together.” The package presumably had also been coordinated with the presidential office before government-party consultations. That inevitably raises questions about whether the presidential office is properly functioning as the government’s final policy control tower.

The public backlash against the tax overhaul stems largely from its failure to reflect the realities of housing. People who struggled to buy a single home but have no choice but to rent it out while living elsewhere, as well as older retirees without a steady income, risk being treated as speculators and subjected to punitive taxes.

The repercussions are already spreading to tenants in the rental market. The tax changes could trigger broader turmoil in the housing market. The government and ruling party should return to the drawing board and reconsider the tax overhaul from scratch.