Candidates Pitch Tax Cuts as Voters' Savior, But Details Fall Short

Presidential hopefuls have vowed to alleviate the financial strain on taxpayers by increasing the basic income tax exemption, which has not been adjusted in 16 years. However, experts caution that this step might exacerbate South Korea’s budget shortfall unless accompanied by a clear strategy for generating additional revenue.

The governing Democratic Party of Korea (DPK) has proposed legislation to increase the yearly deduction from 1.5 million won to a range of 1.8 million won to 2 million won for each individual. On the other hand, Kim Moon-soo, who is running as a presidential candidate for the conservative People Power Party (PPP), has suggested raising this limit even higher to 3 million won.

Such commitments may resonate with salaried employees and independent professionals yet could substantially diminish governmental funds precisely when fiscal conditions are already strained. According to projections from the National Assembly Budget Office (NABO), increasing the deductible amount to 2 million won would decrease yearly income tax collections by approximately 5.2 trillion won—equivalent to around 1.6% of anticipated taxes for 2024—which would result in an accumulated deficit totaling 26.4 trillion won across a half-decade beginning in 2026.

No proposals have been made by either side to compensate for the lost revenues. Critics argue that the promised tax cuts are merely populist strategies designed to attract voters without much consideration of long-term financial stability.

The DPK bill proposed by legislator Cho In-cheol aims to broaden the criteria for dependency deductions—such as for children, siblings, and grandchildren—to include those up to the age of 24 instead of just under 20. Additionally, the annual income limit for qualifying dependents would be increased to 2 million won; however, this cap rises to 7 million won should their sole source of earnings come from employment.

As stated by NABO, the suggested modifications would lead to a decrease in annual labor income tax revenues by approximately 3.1 trillion won and a reduction in earnings from self-employed individuals and those working multiple jobs by 2.1 trillion won.

In 2023, approximately 25.4 million South Koreans—nearly half of the country’s total population—are estimated to have taken advantage of the present basic deduction, with this group comprising 13.95 million individuals who earn their living through labor and another 11.47 million classified as general income tax payers. Broadening access to these deductions could influence a significant number of potential voters, which makes such an initiative appealing for political platforms despite possible economic hazards associated with it.

Since 2009, the standard deduction has stayed constant at 1.5 million won after being increased from 1 million won. Over this period, taxable earnings have surged almost fourfold — rising from 15.6 trillion won in 2008 to an estimated 61 trillion won in 2024 — bringing it close to the amount generated through corporate taxes. In the latest figures, earned income tax comprised 18.1% of all collected taxes, compared with just 9.3% back in 2008.

The surge in tax receipts has led some experts to call for easing the burden on workers. “The stagnation in basic deductions over the past 16 years has significantly increased the tax load on individuals,” said Yoo Ho-rim, a professor at Kangnam University. “There is a clear need to reduce that burden in some form.”

However, the lack of a strategy to tackle the revenue gap has sparked worries. In 2023, the nation experienced tax shortfalls totaling 56 trillion won, followed by 31 trillion won in 2024. Facing an anticipated decline due to challenging global economic conditions and diminishing exports, experts fear that larger budget gaps might compel the administration to take on additional debt, thereby eroding financial stability.

Experts in taxation assert that rather than offering brief respite, the income tax framework requires fundamental restructuring. "For an extended period, the administration has piled up provisional allowances—such as those for educational costs and credit card expenditures—on top of one another," stated Professor Kim Woo-chul from the University of Seoul. "It would be more prudent to simplify this system while concurrently increasing the standard deduction cohesively."

Some warn about pre-election handouts devoid of financial prudence. "As the election approaches within a month, candidates are emphasizing sweetened promises such as tax reductions," stated Oh Moon-sung, who teaches taxation at Hanyang Women’s University. "However, neglecting to account for the expenses associated with these policies does not demonstrate leadership grounded in responsibility."

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