A tax gone bad

The tax on owners of expensive houses, known as the composite real estate tax, is expected to skyrocket this year. Housing prices announced by the government, which are used as a basis for taxes, have increased by up to 80 percent. The tax on people who own a house worth more than 600 million won ($635,000) will, in some cases, triple. Housing prices have gone crazy and we desperately hope they will be stabilized. However, we wonder whether the current level of taxation is legitimate.
The goal of the tax on the owners of expensive or multiple houses was to stabilize housing prices. But the tax has become an overly punitive measure and, by the end of this year, many people will not be able to pay. When the government introduced the tax in 2005, it said the measure would only affect 180,000 people, a mere 1.7 percent of all households.
But the number of people who are required to pay the tax will rise to between 600,000 and 700,000 this year, and it will increase to 1 million next year. Most of them are salaried workers or retired people. Some have little or no income. Many of them have no intention of making a fortune by selling their overpriced houses. They have lived frugal lives in order to own a house of their own.
Politicians talked about adjusting the tax last year but now they have gone silent. They probably find it hard to oppose public opinion, which is overwhelmingly in favor of the tax. In a presidential election year there will be few politicians who are brave enough to point out how foolish the tax has become.
The composite real estate tax must be revised in order to prevent social division. Those who have long had one house and particularly elderly citizens without an income must be exempt. Last year, among the people who had to pay the tax, just 29 percent had only one house. The number of people who have lived in the same house for a long time must be even smaller. It is reasonable to make an exception for these people.
The base for the composite real estate tax must be increased from 600 million to 900 million won because crazy house prices are causing the number of people subject to the tax to snowball. The Organization for Economic Cooperation and Development has expressed concern about the Korean government’s real estate policies. The government must heed this criticism.
It should try to control the prices of houses, not their owners. And that can only be done by increasing the supply of homes through the free market.