Government should not use public forums to legitimize preordained property tax hike

It is noteworthy that the government plans to hold a series of public forums on real estate policy this week to solicit opinions from experts and the public.

According to reports, the Ministry of Land, Infrastructure and Transport will discuss housing supply measures Tuesday, the Financial Services Commission will hold a forum on loans and other financial measures Wednesday, and the Ministry of Finance and Economy will address tax policy Thursday.

Next week, on July 23, President Lee Jae Myung is scheduled to preside over an open forum on the government's real estate policy.

Because real estate has such a profound impact on people's lives and the national economy, broadly gathering the views of stakeholders is a great asset in formulating and implementing policy. However, the public views these forums with more concern than expectation.

The government says the forums will discuss policy directions, but given the importance of the issues, the time allotted is far too short.

In a post on X, President Lee identified several key issues for discussion, including the appropriate level of property holding taxes, whether such taxes should vary depending on the form of ownership, and the relationship between holding taxes and transaction taxes. Although housing supply and financial policies are also up for discussion, it is clear that the government's likely increase in property holding taxes will be the main agenda item.

Real estate tax policy has far-reaching implications for the market. A considerable amount of time is needed to consider a broad range of views, reconcile the interests of stakeholders and thoroughly assess the likely effects of the policy.

However, while announcing its plan to hold the forums, the government also said it would unveil a tax reform plan in late July or early August. If the announcement date is already fixed, it is hard to dispel concerns that the outcome has already been decided and that the forums are nothing more than a formality.

Real estate issues have been a difficult challenge for every administration. The Park Geun-hye administration faced difficulties stemming from a slump in the real estate market. The Moon Jae-in administration unveiled 28 sets of measures to tame property prices, but its approach was overwhelmingly centered on regulation. Repeated regulations produced the opposite of the intended outcome. The Lee administration has also announced several measures, but they have failed to gain traction in the market.

Most of the Lee administration’s measures have been focused on restraining demand, while supply-side efforts have barely been evident. The government tightened loan regulations, pressured multiple-home owners and imposed regulatory restrictions on numerous areas in Seoul and the capital region.

But Seoul apartment prices have continued to rise for 74 straight weeks, while the shortage of jeonse and monthly rental housing is only getting worse. Jeonse is a system in which tenants pay a large upfront deposit instead of monthly rent, usually recovering the full amount at the end of the lease.

Even with a shortage of suitable sites, the focus of housing policy must remain on increasing supply. Regulations on reconstruction and redevelopment projects, which make up 80 to 90 percent of Seoul's housing supply, must be significantly relaxed.

The Lee administration appears to be turning to higher property holding taxes as a last resort, but it should consider the lessons of the past, when similar tax hikes by previous governments failed to reduce prices.

What must be most carefully avoided in convening a public debate is justifying a policy on the grounds that it has been endorsed through public discussion.

That was precisely what happened with the Moon Jae-in administration’s nuclear phase-out policy. The policy was somewhat justified based on publicly debated opinion, but it can be seen as a failure because of Korea’s energy supply and demand conditions both at the time and today.

Even if a majority of opinions expressed at a forum favor raising the property holding tax, it is difficult to guarantee that the policy will achieve its objectives.

We must avoid the mistaken belief that the majority opinion is always right. Public forums must not be used as a mere fig leaf for tax increases.


khnews@heraldcorp.com