Government Debates Tax Hike’s Impact on Public Sentiment and Elections
As apartment prices in Seoul show a sharp increase, particularly in the Han River belt area, the Ministry of Economy and Finance (MOEF), the control tower of economic policy, finds itself in a dilemma. This centers around the property tax increase card, considered one of the most effective measures to control housing prices.
According to government sources on the 10th, the MOEF is reviewing whether to increase the comprehensive real estate tax rate and raise the fair market value ratio (public announcement rate) for the comprehensive real estate tax. However, there is currently a strong negative sentiment towards tax increases. A high-ranking MOEF official stated, “Even just touching the fair market value ratio, let alone raising the comprehensive real estate tax rate, would lead to considerable backlash from the middle class and centrists in Seoul,” adding, “It’s an area that requires political decision, making it burdensome for the government to directly pursue.”
In fact, if the current public announcement rate of 60% is raised to 80%, the annual comprehensive real estate tax for an 84㎡ Banpo Xi apartment would increase by about 6 million won.
Within the MOEF and the ruling party, there are concerns that tampering with real estate taxes could significantly sway public opinion ahead of the local elections in June next year. Cautious views still prevail within the ruling party. One Democratic Party lawmaker said, “I believe the increase in comprehensive real estate tax during the Moon Jae-in administration was a decisive factor in losing Seoul’s public sentiment, leading to the change of government,” adding, “The adjustment of the comprehensive real estate tax rate should be kept as the last card.”
However, the Ministry of Land, Infrastructure and Transport (MOLIT) is effectively pressuring the MOEF to increase the comprehensive real estate tax. MOLIT Minister Kim Yun-deok stated in a press conference just before the Chuseok holiday, “From a personal standpoint, I think property taxes should be increased.” Tax discussions were also a major agenda item at a recent vice-ministerial meeting, where the MOLIT indirectly pressured the MOEF by mentioning tax measures. Another government official said, “It seems that non-tax measures such as expanding loan regulations, additional designation of land transaction permit areas, and expansion of overheated speculation zones should be employed first, with taxes to be used later.”
However, the MOEF faces the burden of potential criticism if housing prices continue to rise after not including any tax cards in this follow-up real estate measure. Additionally, there is a sense of crisis that the MOEF may be relegated to a department that merely attends policy announcements without playing a policy coordination role in this administration, which is also acting as a factor pressuring the announcement of real estate tax measures.