Posted December. 13, 2004 22:38,
At a meeting held yesterday by Finance and Economy Minister Lee Hun-jai, Minister of Government Administration and Home Affairs Huh Sung-kwan, and Minister of Construction and Transportation Kang Dong-suk, the capital gains tax, which imposes heavy taxes on single households possessing three houses or more, has been determined to start January next year, as scheduled before. The three ministers are reported to also agree on putting in efforts to make laws regarding reformed possession taxes, including a comprehensive real estate tax system, pass the National Assembly within the next year. The laws are currently under consultation by the concerned standing committee.
The heavy capital gains tax has been disputed among the Finance and Economy minister and the presidential office advisers almost for about a month. Minister Lee has now undermined his own leadership and reputation by withdrawing the postponement of the heavy taxation. The minister, who is supposed to take substantial responsibility for managing the national economy, has proved that he is not powerful enough to wield influence on the decision-making process, costing him the trust of the economys actors. Some analysis already says that the government has first addressed the issue of postponing the heavy taxation as a bargaining chip so as to put down the opposition partys objections against adopting a comprehensive real estate tax system, and soon dropped it when they found it unnecessary. If true, the governments decision would deserve criticism for neglecting its people. This is because those who believed in the words of the minister and put off selling their houses will have to pay more taxes next year that they would not have had to if they sold this year.
This decision is the classic example that the government is one-eyed, only minding restraining speculation, not paying serious attention to realistic necessities such as the soft landing of construction business and more jobs. It is true that sharp increases in house prices and speculation must be controlled. However, every policy must be carried out in due time, and over attention is not better than less attention. As the minister has pointed out, speculation has cooled down, even making all trades stop. Under such circumstances, increased possession taxes and capital gain taxes would shrink the house market even more, leading to a supply shortage and prices soaring in the long term.
As the tax standard has actualized, the possession tax is likely to go up accordingly without any intervention. Therefore, the government should lower the acquisition tax and registration tax substantially and then control the timing of the heavy taxation so that it would at least bring the real estate market out of the glacier state. Also, the comprehensive real estate tax system should not be rushed without sufficient administrative preparedness.