Drastic shift needed for housing

June 1 is the basis for levies of our property tax and comprehensive real estate holding tax. Any property owner by that date is liable to annual tax. The ruling Democratic Party (DP) has placed Rep. Kim Jin-pyo in charge of amending the taxation threshold with just two weeks left before the levy base goes into effect. Kim, who served as the deputy prime minister for economic affairs, is an expert on tax.

To balance the levies when ownership taxes — property and comprehensive real estate taxes — are too heavy, the charges on trade — capital gains and acquisition taxes — should go down. Taxation needs to be simple. Under the common principle, the ruling party must adjust the current penalizing taxation system on property ownership.

Although there is not much time left, the Moon Jae-in administration cannot make up its mind. It should admit to the policy failures over the last four years and shift its direction. But it cannot move on as it sticks to the existing framework. It has only raised the ceiling for exempting property tax to 900 million won ($800,000) from 600 million won. But that cannot change much.

Under the government, the appraisal value of homes has jumped by double digits annually over the last four years. No one can endure such a jump. Apartment value in northern Seoul surged by more than 30 percent. One out of every four apartments in Seoul is now subject to the real estate tax targeting the rich.

Korea has one of the highest property tax rates in the world. Tax revenue from property and real estate tax in 2018 exceeded 4 percent of gross domestic product (GDP), more than two times larger than the 1.96 percent average of member countries of the OECD. The ratio is estimated to have shot up to 4.4 percent of the GDP under Moon.

People are pained by the jump in housing prices and rental rates. The government has promised to supply 830,000 new apartments, but they cannot offer immediate relief. It is considering allowing young singles and newlyweds to mortgage up to 90 percent of home value, but that idea is the same as asking the young to seek out heavy loans.

To make amends for policy failures, tax burdens must be eased. Property tax on single home-owners must be reduced and transaction tax lowered starting this year. A more fundamental approach and solution is needed.