Stop property tax politicsAs many as 1 million people would be receiving comprehensive property tax bill this year. The National Tax Service is sending out the bill to 947,000 this year, sharply higher than 760,000 the ruling Democratic Party (DP) had estimated while seeking toughened taxation on the real-estate rich. The bill amounts to 5.7 trillion won ($4.8 billion), more than tripling the 1.8 trillion won last year. The concern of a steep tax hike fanning housing prices has become a reality — and the surge of heavy tax subjects could stoke a strong backlash.
Taxes must be predictable, and their rise must be gradual to lessen resistance. Any hike must consider the affordability of the payers and draw social consensus. But the Moon Jae-in administration raised the property taxes steeply as soon as it took off in 2017. The appraisal value of properties that become the basis for taxes has been hoisted up sharply.
All property-related taxes went up — say, on acquisition, ownership, capital gains, gift and inheritance, not to mention comprehensive real estate tax. It is the rule of the thumb that if taxes go up, so would prices. If owners are under heavier tax dues, they raise rent charges as cost is translated into the prices in the balloon effect.
The comprehensive property tax bill will only grow fatter. Under the government scheme to rationalize appraisal value annually, the appraisal value of apartments would go up to 90 percent of the market value (or sale price) in 2030 from the current 69 percent.
The fattened tax bill has fanned not just home prices, but jeonse (long-term deposits) and monthly rents. Homeowners will be pained by the burden, while homeless people will find it harder to find a place to live in. Small companies with properties would have to cut employees or run into a management crisis to pay for the heavy property tax.
The negative ramifications on the economy could be huge. When housing prices go up, consumption increases due to the so-called “wealth effect.” But the middle class will be heavily burdened by the steep rise in taxes and become house-poor.
As many as 132,000 with a single home without any speculative motive would have to pay taxes for unreceived profit. The result cannot be congruous to the design of the rich tax. President Moon Jae-in during his TV debate with the people on Sunday said the housing market was stabilizing. Few viewers would have agreed. The harsh real estate politics must stop before it wreaks havoc on the economy.