[2022 election] Campaign platforms on economics aren't very sturdy
The Korea JoongAng Daily looked into six key economic issues important to the presidential campaign - main economic goals, real estate, tax, energy, the stock market and IT innovation - in a two-part series. Three are discussed in this installment and three will be published tomorrow.
With the presidential election less than a month away, candidates are making plenty of campaign pledges on all sorts of issues.
But rarely has a presidential race seen the two leading candidates so close on general economic promises.
The differences are slight -- and only found in the fine print.
Both leading candidates -- the Democratic Party's Lee Jae-myung and People Power Party’s Yoon Suk-yeol -- agree on the need for aggressive building of residential real estate supplies to bring down apartment prices.
They share a common desire to lower Korea's carbon emissions and promise strong support for innovative new industries especially fourth industrial revolution technologies like the Internet of Things, 5G and 6G connectivity and the building of Korea's digital infrastructure.
The two candidates are trying to appeal to younger voters by promising to boost the equity as well as virtual asset markets.
But neither candidate has a grand economic vision -- and they know it.
In past elections, candidates campaigned on aggressive economic goals such as Lee Myung-bak's "747" plan in the 2007 race, which signified that Korea would achieve 7 percent economic growth (represented by the first numeral 7), per capita income of $40,000 (the 4), and become the world’s seventh-largest economy (the second 7) -- all by 2017 In 2012, Park Geun-hye promised economic "democratization," which included expansion of welfare benefits without an increase in taxes.
In the last election in 2017, the key promise by Moon Jae-in was a complete overhaul of Korea’s economic structure: to lessen its dependence on export and drive growth through domestic factors like an increase in the minimum wage.
This cycle's main candidates are focused on micro promises from the populist grab bag, such as having hair loss treatment and dental implants covered by national health insurance (as vowed by Lee ), the government paying for protective plexiglass shields for taxis (Yoon)) as well as installing food waste disposers in newly built apartments (Yoon).
“The election is shifting from major agendas to micro policies,” said Lee Jun-han, a professor of political science and international studies at Incheon National University. “While there was micro-targeting in the past, it was always under a major discussion such as welfare policy or how to achieve balanced development."
Lee said the two leading parties are only trying to win votes with their pledges.
“Campaigns that propose a future vision for the country and invigorating discussions of key issues are needed,” he said.
Although the DP Lee has been touting his decade-long experience as Seongnam city mayor and Gyeonggi governor, neither candidate actually has a strong background in economics.
Lee is a lawyer-turned-politician while Yoon is a career prosecutor.
While the ruling party has been campaigning on Lee’s experience, the candidate’s management of both Seongnam city and Gyeonggi province -- including the accusation of using taxpayer’s money for personal groceries -- raises more questions than assurances.
Yoon showed his lack of economic knowledge during the first debate, when he was puzzled at the mentioning of RE100 -- a global renewable energy initiative among leading global companies including Google, Apple and Korea's SK Group -- as well as EU taxonomy, or a classification system that informs investors if a business activity is green or not.
The DP has argued that Yoon should have learned about EU taxonomy considering the PPP candidate has been campaigning for reinvigorating the nuclear energy industry.
The two candidates both emphasize their plans to boost economic growth and to secure the funding needed for welfare and other promises.
Lee recently introduced his "555" plan.
It is an echo of Lee Myung-bak's 747 plan from 2007. Lee's goals are for Korea to become one of the world’s top five global powers in terms of business, politics, culture and military might, to have per capita above $50,000 and for the benchmark Kospi index to rise above 5,000.
Lee rejects comparisons to the 747 plan from the 2007 campaign, saying policy goals often use numbers in a catchy way.
While he has not provided details on how he plans to achieve the goal, the DP candidate said he will follow the principles of working fast, increasing government investments, quickly making changes if needed and encouraging cooperation over competition.
“It is not a goal that is to be achieved within my term but rather a goal that we aspire to,” Lee said.
Adding massive investment and innovation in education, he said, would help Korea reach the goals.
The PPP's Yoon promises to raise Korea’s potential growth rate -- the maximum growth an economy can achieve without generating excess inflation -- from the current 2 percent to 4 percent.
The former prosecutor said he wants to change Korea's economic structure, which is heading toward chronic low-growth caused by a shrinking and aging population, which will profoundly affect productivity and the domestic market.
However, Yoon has not provided details of how he would achieve his goals either.
Real estate has been one of the hot potato economic issues of the campaign. Both candidates have been emphasizing that the policies by the incumbent administration failed to cool real estate prices and frustrated many voters.
Real estate prices soared under the Moon government despite tightened regulations on mortgages and higher taxes. There was also a controversy over employees of the government's Land and Housing Corp. profiting on real estate investments using inside information.
Both Lee and Yoon have promised to solve the real estate mess.
They agree on the need to increase supplies of apartments to lower prices.
They are split on how to do it.
Lee emphasizes the government’s role, while Yoon focuses on the private sector. He says the government's involvement should be limited to easing regulations on redevelopment and reconstruction.
Lee has pledged to increase apartments by 3 million units -- an increase from an earlier pledge of 2.5 million.
However, Lee recently stipulated that his plan was long-term and extended beyond the five-year term of the next president.
While 2 million units have already been promised by the Moon administration, Lee plans to add an additional 1 million.
Among the apartments Lee has promised, 1 million are supposed to be long-term rental units developed and provided by the government. These apartments are usually reserved for low-income families, and Lee plans to expand the eligible tenats to middle-income families.
These renters will be allowed to live in the same apartment paying low rents for 30 years.
Lee promised to build public housing units in prime real estate areas near public transport. Public housing usually is in less convenient areas.
The DP is planning to raise the ratio of such long-term, low-rent housing units from 5 percent of all housing units to 10 percent.
Yoon pledges to increase apartment supplies by 2.5 million units, of which 500,000 will be public housing.
The public housing, however, will not be in the form of long-term leases but apartments that will be sold at affordable prices, and located in prime areas.
Someone living in public housing will be allowed to take 70 percent of the increased value of the apartment when selling the apartment back to the government after five years.
The profit can be used to move to a better apartment.
Another type will be located near major public transportation hubs for first-time home buyers.
Yoon plans to increase the number of apartments through deregulation, which will offer business to private construction companies,
Deregulation will include raising the floor area ratio, which means companies will be able to build more and make more money.
Additionally, Yoon plans to exempt buildings that are 30 years old to be inspected before getting government approval for reconstruction to speed up the process and significantly reduce cost to existing owners.
The areas most likely to benefit are the nation’s first generation of New Towns, built more than 30 years ago, including in Bundang and Goyang.
However, last month Yoon said the redevelopment of the first New Towns might take longer than the next five years considering the development of a third generation of New Towns, now underway, will take time.
“There is no disagreement between the candidates that they plan on controlling real estate prices through increase in supplies,” said Park Won-kap, a senior real estate researcher at KB Kookmin Bank. “But there are real issues such as securing the budget and the land [for development] that need to be addressed.”
Other experts have raised doubt as to whether such aggressive plans work considering that in the last 10 years, the annual increase in residences has been around 500,000. Some are worried that the sudden surge in supply could actually lead to oversupply and drive down property prices.
Taxes is the only area in which the two candidates really differ, especially when it comes to real estate taxes.
Lee proposes creating a new tax category in which anyone who owns a piece of land has to pay tax based on its value.
Anyone who owns an apartment would have to pay tax on the land the structure is built on.
Current property taxes levied by local governments had different rates for different properties depending on their value.
However, under the new proposed tax, a property owner will be taxed based on the combined value of all of properties he or she owns.
That is likely to reduce the tax burden for people who own a single residence.
There are concerns that the new tax could be double taxation: once by local governments and by the central government through its comprehensive real estate holding tax.
Lee's campaign is proposing either lowering currently existing taxes or getting rid of the comprehensive real estate holding tax.
Under his basic income plan, Lee wants to give 250,000 won annually to every young person starting in 2023 and 250,000 won to everyone else. He plans to raise the basic income to 2 million won for young people and 1 million won for the rest at some point in the future.
Lee estimates that the land tax will collect 30 trillion won annually. He says 80 to 90- percent of the public will benefit from the basic income funded through the new property tax.
Lee's new land tax is based on the belief that all land is common property and profits generated from common property should not be pocketed by an individual but should serve the public interest.
Yoon is pushing reforms of property taxes, arguing that property taxes imposed by both the local and central government is a form of double taxation.
Yoon said his government will conduct a complete reevaluation of the comprehensive real estate tax, including the possibility of excluding single home owners.
Additionally, he plans to reduce the ratio of assessed value on a property, used for property taxes, which would lower tax burden of homeowners especially for those who owns a single apartment.
There have been growing frustration among single-aparment owners against the Moon's tax increase.
Yoon is planning to lower the tax levied when buying an apartment. The PPP candidate is also considering exempting first-time home buyers from that tax.
The capital gain tax will be lifted for multiple homeowners temporarily to encourage people to sell apartments and lower real estate prices.
BY LEE HO-JEONG [firstname.lastname@example.org]