As semiconductor-driven economic growth brings in record tax revenues, the South Korean National Assembly’s tax law reviews have sparked intense debate over how to allocate these funds and reform property taxes. While the government pushes to establish a massive 162-trillion-won "Future Response Fund," critics question the wisdom of funding recurring expenditures with temporary tax spikes. Meanwhile, real estate tax revisions face ongoing disagreements regarding comprehensive real estate holding tax deduction thresholds and long-term holding special deductions.

According to the National Assembly Budget Office’s (NABO) report titled "2027 NABO National Tax Revenue Forecast 2026–2030" released on the 15th, next year’s national tax revenue is projected to hit a record high of 593.7 trillion won. Corporate tax revenue alone is expected to surpass 200 trillion won for the first time, reaching 221.1 trillion won, largely driven by surging operating profits among semiconductor giants.

To leverage this financial windfall, the government plans to create a 162.3-trillion-won Future Response Fund. Out of this total, 45.4 trillion won will be funneled into youth support, growth engines, regional development, and talent incubation, while 104.4 trillion won will be reserved as a buffer against potential tax shortfalls. An additional 12.5 trillion won will be used to scale back new government bond issuances.

Sustainability of Tax Surges and Allocation Controversies

The core controversy lies in whether the additional tax revenue is sustainable. NABO projected that tax revenues funding the program could peak at 57.3 trillion won by 2028 before potentially drying up entirely by 2029. Consequently, concerns are mounting over whether it is prudent to launch recurring public spending initiatives—such as basic child allowances and youth savings programs—on the back of temporary revenue spikes. NABO suggested that the government establish rigid legal standards for fund accumulation and withdrawals while curtailing the executive branch's discretionary spending adjustments.

Another major flashpoint is the priority between national debt repayment and fund accumulation. Opposition lawmakers argue that setting aside massive financial buffers makes little sense while the national debt continues to climb. Conversely, the government maintains that a safety net is essential to compensate for potential local share tax and education grant reductions should an economic downturn trigger tax shortfalls.

Yang Joon-seok, an economics professor at Catholic University of Korea, advised caution. "We should not view the tax increase driven by the semiconductor boom as a permanent fiscal cushion," Yang noted. He explained that the apparent reduction in national debt burdens could be an illusion stemming from GDP growth outpacing the increase in government bonds. "Once the semiconductor cycle dips and economic growth returns to normal, the debt-to-GDP ratio could surge again," he warned.

Regarding fund allocation, Yang argued that debt repayment should take precedence. "Since purchasing government bonds all at once could overwhelm the financial market, utilizing the fund to pay them down step-by-step over several years is preferable," he said. "Lowering borrowing costs by reducing national debt rather than injecting funds into specific regions or industries will ultimately benefit the entire economy."

Debates Over High-End Single-Home Taxation

Property tax reforms are another critical agenda item in the legislature's subcommittee. The government proposed differentiating the comprehensive real estate holding tax basic deduction for single-home owners, setting it at 1.4 billion won for owner-occupants and maintaining the current 1.2 billion won for non-occupants. While the ruling party demands raising the threshold to 1.4 billion won for non-occupant single homeowners as well, the government stands firm on keeping the current rule to favor actual residents. Depending on the threshold, tax burdens for owners of homes valued between 1.2 billion and 1.4 billion won could shift significantly.

The overhaul of the long-term holding special deduction is another pivotal issue impacting high-end single homeowners and housing transactions. Under the current system, a single-home owner with a property valued over 1.2 billion won who has held and resided in it for 10 years can deduct up to 80% of their capital gains with no separate ceiling. The government’s revision aims to replace this with a "long-term residence income deduction" starting in 2029, abolishing the holding-period deduction entirely and granting an 8% deduction per year of residency, up to an 80% cap. Deduction ceilings have been set at 2 billion won for 2028 and 1 billion won thereafter.

According to Hana Bank's Hana The Next, if a house purchased for 2.5 billion won and sold for 7.5 billion won after 10 years of ownership and residency is taxed, the calculated tax would surge from 316 million won under the current system to 1.373 billion won by 2029. The government argues that the revision is designed to rein in excessive tax benefits for ultra-luxury homes by curbing the current structure where larger capital gains yield larger deductions. National Tax Service Commissioner Lim Kwang-hyun also underscored the necessity of the reform, citing instances where individuals received over 20 billion won in deductions through the current system.

Critics point out that the debate over the special deduction should go beyond merely adjusting rates or caps. The existing deduction framework conflates two distinct functions: hedging against inflation-driven capital gains and encouraging long-term property retention. The government's proposal, focused primarily on shifting from holding-period to residency-period calculations and setting caps, fails to fundamentally separate these distinct policy objectives.

Kim Hyun-dong, a professor of business administration at Paichai University, explained, "As the function of compensating for inflation merged with the incentive for long-term holding, the identity of the system became ambiguous. These two distinct goals need to be separated and designed into independent frameworks."

He added, "Long-term resident single-home owners can still receive up to an 80% deduction under the revised plan, which remains excessively generous. A structure that grants outsized tax privileges to specific single-home owners needs to be reformed."

[ⓒ Global Economic Times. 무단전재-재배포 금지]