Major candidates running in the 6·3 presidential election are successively unveiling their tax reform pledges. Kim Moon-soo, the candidate for the People Power Party, proposed a income tax cut aimed at workers and the middle class, while Lee Jae-myung, the candidate for the Democratic Party of Korea, promised various tax benefits, including the expansion of grant-in-aid (non-earmarked tax) and tax credits for communication costs and private education expenses. Lee Jun-seok, the candidate for the Reform Party, revealed plans to convert part of the corporate tax into local government tax to strengthen local autonomy.
However, experts noted that most of the pledges, except for Lee Jun-seok's, are largely reiterations of previously discussed content, lacking freshness. While there were criticisms stating that Lee's proposal to convert corporate taxes into local government taxes lacks “rationality and persuasiveness,” there is growing concern among all three candidates that they should not only emphasize tax cuts but also present measures to address the resulting tax revenue reductions.
◇ Lee Jae-myung candidate proposes widespread tax cuts for rent, communication fees, and education expenses
According to the Democratic Party of Korea on the 15th, Lee Jae-myung announced a comprehensive tax benefit pledge. He first proposed a tax cut on income and corporate taxes for individuals and corporations investing in national high-tech strategic industries. He is also promoting the introduction of a tax system to encourage domestic production in strategic industries to enhance the core manufacturing sector.
He pledged to expand grant-in-aid (non-earmarked tax) to promote balanced local development and promised to increase tax credits for rent and communication fees for ordinary citizens. Moreover, to address low birth rates and an aging population, he suggested increasing credit card income tax deduction rates and caps proportional to the number of children, and including tax credits for the usage fees of arts and physical education facilities for elementary students.
Among the pledges announced by Lee, the tax credits for elementary student education expenses and communication fees have been discussed in the National Assembly, but the Ministry of Economy and Finance has raised objections. Earlier, the ministry expressed concerns that promoting tax credits for elementary student education expenses could encourage private education and that the tax cut benefits might concentrate in high-income households.
In fact, according to 2023 data, the average monthly private education expense per student in households with a monthly income of over 8 million won is 670,000 won, which is more than three times that of households earning less than 3 million won (180,000 won). The communication fee tax credit also faced opposition from the Ministry of Economy and Finance due to expected tax revenue losses exceeding 1 trillion won and equity issues with other items.
The pledge to increase credit card income tax deduction rates and caps in proportion to the number of children also places a burden on finances. The credit card tax credit, which began in 1999 as a tax exemption system, has consistently received suggestions for long-term reduction, abolition, or redesign in previous in-depth evaluations but has continued to this day due to opposition from workers. Last year, the estimated tax reduction from this credit was 4.1 trillion won.
◇ Kim Moon-soo proposes to introduce the inflation indexing system for income tax; experts say it is premature
Kim Moon-soo pledges to introduce an inflation indexing system to the comprehensive income tax. This system automatically adjusts the tax base, tax rates, and deduction standards according to inflation and is adopted by 22 out of 38 OECD countries.
Experts agree with the intention of the system but point out that normalizing Korea's income tax system is a priority. The proportion of tax-exempt individuals among domestic earned income earners was 33.6% as of 2022, which is relatively high compared to the United Kingdom (5.9%), Canada (10.1%), and Australia (12.6%). Analysts warn that if tax cuts continue in such a high tax-exempt environment, securing tax revenues will become increasingly difficult.
The National Assembly Budget Office analyzes that implementing the inflation indexing system could reduce tax revenues by over 30 trillion won in the next five years. The Ministry of Economy and Finance is also concerned that if the inflation indexing system is introduced, taxes paid by high-income earners would decrease and the proportion of tax-exempt individuals would increase.
Kim Woo-cheol, a professor at the University of Seoul, stated, “The minimum income tax rate in our country is 6%, which is the lowest among OECD countries, and the proportion of income tax in total tax revenue is not particularly high,” adding that “the actual increase in the tax burden of the comprehensive income tax is effectively acting as 'a silent tax increase' and is helping to normalize the income tax structure.”
Sung Myung-jae, a professor of economics at Hongik University, also pointed out last year that “It is understandable that presidential candidates find it difficult to mention tax increases or measures to secure tax revenue due to electoral reasons, but concrete measures are still needed,” emphasizing that “presidential candidates should show a responsible attitude considering national finances.”
Kim Moon-soo included in his top 10 pledges an increase in the basic deduction on income tax (150,000 won per person), which has been maintained for 16 years, to 3 million won, and the tax reform on inheritance tax previously promoted by the Yoon Suk-yeol administration. Key components include ▲ abolishing the inheritance tax between spouses ▲ shifting from estate tax to inheritance acquisition tax ▲ reducing the highest tax rate from 50% to 30% ▲ abolishing the major shareholder premium system ▲ introducing capital gains tax on inheritance. The transition to inheritance acquisition tax alone is expected to result in a tax revenue decrease of approximately 2 trillion won.
◇ Lee Jun-seok proposes to convert 30% of corporate tax into local government tax; experts express concerns over central government financial deterioration
Lee Jun-seok proposed to strengthen financial autonomy for local governments by suggesting the conversion of 30% of corporate tax into local government tax. His plan is to allow each local government to autonomously decide and operate corporate local income taxes, thus encouraging competition among regions.
However, experts evaluate that “it is not appropriate to give local governments corporate tax at a time when the central government itself lacks fiscal capacity.”
Kim Woo-cheol, a professor at the University of Seoul, criticized the proposal by stating, “Given that local consumption taxes already exist, adjusting those rates would be more realistic,” and added that “the proposal to convert corporate taxes is not only unusual in its approach but also lacks sufficient justification.”
O Moon-sung, a professor of tax accounting at Hanyang University, also warned that “the plan to transfer 30% of corporate tax to local governments is excessive,” stating that “if corporate tax is also given away while parts of value-added tax are already distributed to local governments, the central government’s finances could deteriorate significantly.”
◇ Only tax cuts exist, and measures to preserve tax revenue are missing
A commonality among the three candidates is that they are continuously presenting tax cut pledges while failing to propose specific measures to cover the reduced tax revenues. After a tax revenue shortfall of 87 trillion won over the past two years, concerns about tax revenue loss are growing this year due to the impact of global economic downturns, yet there are no alternatives. Against the backdrop of government debt nearing 50% of GDP, outlooks predict that the deterioration of fiscal soundness is inevitable.
Kim Moon-soo announced tax cut policies for income tax and inheritance tax in his top 10 pledges, claiming that “there is no fiscal need, and tax revenue can be increased through economic growth via tax reform and regulatory easing.” Lee Jae-myung stated that he would cover this with “structural adjustments to government expenditure and the increases in total revenue from 2025 to 2030,” but he has received criticism for lacking specificity. Lee Jun-seok asserted that “operations are possible without additional financial input,” yet he made no mention of decreased tax revenue for the central government.
Professor O Moon-sung noted, “While it is understandable that presidential candidates hesitate to mention tax increases or securing tax revenues due to voter sentiments, nevertheless, concrete measures are necessary,” emphasizing that “presidential candidates should demonstrate a responsible attitude considering national finances.”