Populism prevails at AssemblyThe National Assembly passed the 2013 budget of 342 trillion won ($322 billion) on Jan. 1 without the usual ritual of physical clashes and railroading. But it set a poor precedent of approving the budget bill long past the deadline.
The 19th legislature, which was elected in April, neglected the public interest by wasting time wrangling over the construction of a naval base on Jeju. But it reached a bipartisan agreement on nullifying a plan to issue more government debt and lowering the threshold on taxable income from 40 million won ($34,647) a year to 20 million won.
Calls for a balanced budget prevailed, despite the need for tax hikes to finance increased welfare benefits.
However, the Assembly approved other controversial bills, including one that includes taxis as a form of public transportation, and other scaling back the business hours of major supermarkets and discount stores. The legislature abused its power by ignoring the general consensus and government advice on a number of issues, but it won’t be able to escape criticism for favoring its own interests.
The Assembly should be heavily censured for failing to extend cuts to the real estate acquisition tax, which were introduced in September to reinvigorate the sluggish real estate market. They will now roughly double to between 2 and 4 percent. Apartment prices in Seoul plunged more than 4 percent last year to hover at their lowest level since the Asian currency crisis in the late 1990s. But if it becomes more expensive to buy homes, the market will take another hit.
Lawmakers say they can’t turn a deaf ear to local governments, which argued in favor of a real estate tax hike to increase revenues. The real estate acquisition tax provides local governments with a key revenue stream, and they stand to lose another 2.9 trillion won this year if the tax benefits are extended. They have long demanded compensation for their losses from the central government, to little avail. But as President-elect Park Geun-hye pledged to extend the tax cuts, they may be reintroduced after she takes office in February.
If the Assembly really had the public interest at heart, it should have reviewed the issue ahead of time. Both the ruling and opposition parties will now have to work with the government to revise real estate taxes. These, coupled with other financial policies, are needed to help stabilize the real estate market. The government should consider revising some taxes it shares with local government so the latter can secure stable revenues while allowing the central government more room to maneuver.