Presidential Office unveils tax cuts and cash support in bid to secure votes

The South Korean government has recently announced more than 20 measures, including tax cuts, cash handouts, and deregulatory actions, all within just one month. Every three days, the government introduces bold surprise measures through 'debates on improving people’s livelihoods,' which take the form of work reports from ministries, or high-level government-party consultations. While the estimated cost of these programs exceeds 10 trillion won, no corresponding measures are in place to ensure sufficient tax revenues. There are concerns that it might be merely a pre-election attempt to secure votes, focusing only on words over actions.

During the fourth debate on improving people’s livelihoods at the Korea Exchange in Yeouido, Seoul on Wednesday, President Yoon Suk Yeol announced that the government would expand eligibility for individual savings accounts (ISAs) and more than double the limit on the non-taxable amount. He also formalized the elimination of income tax on financial investments while maintaining measures to reduce the securities transaction tax. The reduction in the securities transaction tax was contingent on introducing the income tax on financial investments, but he indicated a continuous decrease in tax rates rather than their recovery. These measures are expected to reduce tax revenues by more than 3.7 trillion won annually.

Earlier, the government announced tax credits for national strategic technologies, including semiconductors, an extension of the temporary investment tax credit for facility investment, and a comprehensive review of 91 charges. In addition to these measures, there are reductions in electricity bills, health insurance premiums, and interest refunds from commercial banks aimed at improving people’s livelihoods. Given items that have not yet been accurately estimated in terms of size, the total cost of tax cuts and cash support exceeds 10 trillion won. This figure could be even higher.

The issue lies in the insufficient means to secure tax revenues. Last year, there was a tax revenue shortage of 59 trillion won, and due to a sluggish economy, it is challenging to bolster tax revenue this year. In this scenario, if reckless tax cuts or cash handouts persist, the national debt is bound to increase. Another concern is that the presidential office improvises policies without sufficient consultation with each ministry. The presidential office claims that lowering taxes would increase consumption and investment, thereby boosting tax revenues, but it fails to provide specific solutions to address the tax revenue deficit.

The recent spate of vote-catching policies by the government contradicts its emphasis on sound fiscal health. In June last year, President Yoon referred to the opposition's demand for a supplementary budget as 'fiscal addiction,' stressing that it was typical of plundering future generations and must be rejected once and for all. “A political power that truly loves the nation and its people should go on a budget diet for the sake of the country, even if it means losing the election,” President Yoon said.