Wrong prescription

Government's tax overhaul punishes owners of high-priced single homes

The Lee Jae Myung administration said it would gather a wide range of market views through five rounds of public debates on real estate policy.

Yet the tax reform package the government unveiled on Monday following the debates ultimately amounted to a tax hike.

Lee's pledge not to use taxation as a tool of housing policy has vanished into thin air.

The government announced a package that would sharply raise both the holding tax (the Comprehensive Real Estate Tax) and the transaction tax (the capital gains tax) even on owners of a single home if they do not live in the property or if the home is worth more than a specified amount.

Previous Democratic Party of Korea governments, including those of Presidents Roh Moo-hyun and Moon Jae-in, were criticized for fueling the trend toward owning a single high-value home by imposing heavier taxes on owners of multiple homes.

Yet the Lee administration has made even that single home subject to punitive taxation.

The government has not previously treated single-home owners as real estate speculators. Yet its abrupt policy reversal to impose punitive tax hikes even on them could create numerous innocent victims.

Above all, if the government intends to raise holding taxes, it should overhaul the entire tax rate structure. Effectively targeting only single-home owners in certain socioeconomic groups or regions runs counter to the principle of tax fairness.

This is why critics accuse the government of pursuing a tax hike based on an "us-versus-them" division among taxpayers in an attempt to cover up its failure in real estate policy.

The surge in housing prices is the result of the government's policy failures and inflation, yet the Lee administration is holding owners of high-priced homes responsible.

The government is also making it harder for people to buy and sell their homes.

A basic market principle is to sharply lower capital gains tax, a transaction tax, when holding taxes are increased. Yet the government ignored this principle and scaled back the capital gains tax deduction system.

In Korea, single-home owners are eligible for a capital gains tax deduction when they sell their homes after holding them or living in them for an extended period.

This system was introduced to reduce the excessive capital gains tax burden faced by long-term homeowners when selling their homes, as inflation has increased their capital gains. That way, homeowners can sell their homes more easily and move with a lower tax burden.

However, those who have held their homes for decades in reliance on this system now face massive capital gains tax bills as a result of reduced deductions.

After selling their homes and paying huge capital gains taxes, homeowners would find it virtually impossible to move to a similar living environment or a more desirable area.

The government claims that the two-year transition period included in the plan to reduce capital gains tax deduction provides homeowners with a window to sell their properties.

However, even when homeowners put their properties up for sale, expanded land transaction permit zones and tighter lending regulations are dampening transactions.

Additionally, it is doubtful how many people can realistically afford to buy Seoul's ultraexpensive apartments — about 4.5 billion won ($3.2 million) or more at market price — the primary target of this tax hike package.

One cannot help but ask whether it is reasonable for a tax policy to force retirees who cannot afford to pay the taxes out of the single homes they have lived in all their lives.

Tax hikes are more likely to distort the market than stabilize home prices, as the prior experience of the Roh and Moon administrations has shown.

Trying to suppress demand through higher taxes while failing to supply enough homes in areas where people want t

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