Yoon's calls for tax cuts, austerity face challenges after DP win

The Democratic Party's victory could spell trouble for economic initiatives pushed by the Yoon Suk Yeol administration, including those related to cryptocurrency, R&D funding and renewable energy.

A person walks by the stock board at the Korea Exchange in Yeouido, western Seoul on Jan. 17, the day when the Yoon Suk Yeol administration announced the abolition of a planned capital gains tax on stock trading gains. [YONHAP]

With victory of the main opposition Democratic Party (DP), economic initiatives that were pushed by the Yoon Suk Yeol administration — lower tax rates and fiscal austerity — will likely lose momentum.

Views on taxation and the supplementary budget remain sharply divided while the opposition and government share common ground in their support of increased spending on research and development (R&D), welfare and financial support for small merchants and marginalized communities.

Taxation or not? Yoon’s pledge to abolish a planned capital gains tax will likely face gridlock, led by the DP and other smaller opposition parties, at the National Assembly.

The proposed capital gains tax — first introduced by Former President Moon Jae-in, who was previously affiliated with the DP — was scheduled to take effect in 2025, but Yoon had vowed to remove it altogether.

Under the proposed plan, retail investors would owe 20 to 25 percent on gains from domestic stock trading valued above 50 million won ($38,000).

When President Yoon Suk Yeol announced the decision in January in a bid to boost investor sentiment, a DP spokesperson slammed the promise as “a populist policy.”

“President Yoon Suk Yeol made it official to abolish the tax levied on stock trading gains, saying that it would resolve the ‘Korea discount’ and make the stock market meet global standards,” said Lim O-Kyeong, then-floor spokesperson of the DP.

“People are baffled because the proposed capital gains tax, in fact, fulfills the global standards,” Lim said.

A number of DP lawmakers expressed concerns about scrapping the planned tax, claiming that it would only slash the tax burden of high-income individuals and criticizing the drop in projected revenue that would result.

Tax reforms in relation to Yoon’s value-up program, a set of measures aimed at boosting undervalued stocks, are also likely to face challenges. The administration had pushed to cut taxes on inheritance and dividends gains, believing the moves could push up the value of corporations.

Austerity vs. stimulus Falling government revenue has caused another rift. In order to improve the government's fiscal health, the Yoon administration has tightened its purse strings by capping this year's budget growth at its lowest level since 2005.

The opposition party, however, has called for supplementary budget or other additional funds to be put toward stimulating the economy.

DP leader Lee Jae-myung suggested that the Yoon government utilize supplementary budget in order to implement his proposal of giving every Korean a one-time allowance of 250,000 won. The party estimated that the subsidy would require 13 trillion won of government funding.

“We urge the government to enter discussions of supplementary budget right away,” Lee said during his campaign activities in Jamsil, southern Seoul, last month.

Lee added that the cost is only a fraction of the anticipated expenditures required to carry out Yoon's other proposed policies without detailing the methodology of that assessment.

The opposition also pledged 100 million won of state-guaranteed loans to newlyweds in an effort to prop up the country's low birthrate without specifying the source of those resources.

Crypto ETFs on the horizon The DP showed a more relaxed stance on cryptocurrency assets, which are often considered a ladder of wealth for young traders in a country with one of the largest volumes of cryptocurrency trading.

The DP pledged to lift curbs on exchange-traded funds (ETFs) that directly hold tokens, including U.S. Bitcoin products. It promised to allow the issuance and listing of Bitcoin ETFs on the exchange, saying the decision aligned with global trends and calling the groundwork of digital asset ecosystems essential infrastructure.

After the U.S. Securities and Exchange Commission approved Bitcoin ETFs in January, Korea's regulator said that brokering such products could violate domestic laws.

The majority party pledged to raise the deduction limit on gains from cryptocurrency trading from its current 2.5 million won to 500 million won.

The People Power Party (PPP), on the other hand, had pledged to delay taxes on gains from digital asset trading, currently scheduled to take effect at the start of next year, until the legalization of virtual assets was complete.

The DP also vowed to strengthen the monitoring of illegal short selling as some global investment banks are being probed over the illegal practice.

The party pledged to mandate that major shareholders and executives of listed companies return their earnings to their employers if they failed to turn a short-term profit within six months.

It also proposed adopting fair funds for investors, designed to compensate traders victimized by unfair and illegal practices.

Korea imposed a full ban on short selling in November, which will be in effect through the end of June.

R&D expansion R&D was a major focus for both parties. With the DP's resounding victory, next year's budget for such projects is likely to increase to at least its previous level of 30 trillion won ($22 billion).

President Yoon cut this year’s budget for R&D by 14.7 percent to 26.5 trillion won. That was the first budget cut for the sector since 1991, and it drew harsh backlash from the public, including scientists and researchers.

The DP vowed to stably spend 5 percent of the government's total budget on R&D every year and build governance for the development of scientific technologies to increase support for young talent in the area.

The R&D budget for startups and small- and medium-sized enterprises (SME) will also see a boost, according to DP’s pledges. That comes as Korea’s aggressive spending in R&D — among the top five nationwide, in recent years — continues to bolster its prowess in science and technology.

Kim Sun-woo, head researcher at the SME and entrepreneurship center at the Science and Technology Policy Institute, called R&D funding an important method “to foster Korea's small businesses with technological capacity.

“Beyond the one-dimensional subsidy way, the country should implement a mix of policies that gives support in various ways, like investment and incentive plans,” Kim added.

DP leader Lee visited Daejeon, considered Korea's R&D hub, on Election Day to encourage scientists and researchers and promise a budget boost. Daejeon is the home of KAIST, Korea's most prestigious university specializing in science and technology.

In response to the public criticism, President Yoon announced in early April that he would set the R&D budget to its highest level next year.

Renewed renewable energy push President Yoon’s energy policy is also at a major crossroads as DP pushes hard for the shift to renewable resources.

In the short term, the Yoon government’s plan to construct nuclear power plants will likely meet harsh opposition from DP lawmakers.

The DP vowed to increase the use of renewable energy threefold by 2030 as part of the global movement to achieve carbon neutrality. It aims to raise shares of renewable energy to 40 percent by 2035.

BY PARK EUN-JEE, JIN MIN-JI, SARAH CHEA [park.eunjee@joongang.co.kr]