Acting President Choi Sang-mok, Deputy Prime Minister and Minister of Strategy and Finance, is announcing this year’s economic policy direction on the 2nd. Photo = Yonhap News
The government is increasing tax benefits and supporting income growth in order to alleviate consumer sentiment that has hit rock bottom. To this end, the individual automobile consumption tax will be temporarily lowered by 30% and an additional 20% of additional income will be deducted during the first half of the year. Incentives are also provided to companies that increase wages.
The government also decided to supply 100,000 public housing units this year and announce candidate sites for new housing sites for 30,000 households, mainly in the metropolitan area, during the first half of the year. For those who own multiple homes, it was decided to extend the exemption from heavy transfer tax for an additional year until May of next year, and expand the comprehensive real estate tax special treatment for local homes to the publicly announced price of 400 million won. The government announced this year’s economic policy direction on the 2nd. Here is a summary of the main contents.
◇ Stimulate consumption by increasing incentives for car purchases
First, the government plans to provide an additional 20% income deduction for additional consumption in the first half of the year that is 5% or more compared to the previous year. In order to promote the consumption of durable goods, it was decided to give priority to the purchase of automobiles, electric vehicles, and home appliances. Individual consumption tax will be temporarily reduced by 30% for cars shipped from the 3rd to the end of June. We are also pursuing a plan to temporarily reduce individual consumption tax when replacing an old car.
For electric vehicles, subsidy standards are quickly implemented. It has been decided to temporarily apply the additional subsidy policy until June for corporate discounts provided by automobile manufacturers or dealers. For an electric car priced at 44 million won, if the automaker provides a 4 million won discount and the government subsidy of 1.2 million won is added, a discount of 5.2 million won is created.
Regarding home appliances, it was decided to increase the refund support rate when purchasing high-efficiency home appliances to ease the purchase burden on vulnerable groups. It was decided to increase the refund support rate from 20% to 30% for people with disabilities, people of independent merit, and basic livelihood security, and from the current 10% to 15% for people with multiple children, households with childbirth, and large families.
◇ Supply of 100,000 public housing units ‘New Home’
First, the government will supply 100,000 units of ‘New Home’, public housing, this year. Construction of 138,000 units of public housing and publicly supported private rental housing will begin. During the first half of the year, it was decided to establish a reorganization and remodeling roadmap for 158 old public rental complexes and to promote a pilot reorganization project for permanent leases over 30 years old. New construction purchase and lease will supply 150,000 households by next year, of which more than 30,000 households will be supplied early by signing an agreement in the first half of the year.
It was decided to first spend 450 billion won in the first half of the year for public-supported private rental REITs jointly invested by the Housing and Urban Fund and private businesses, with an additional 300 billion won to be spent later. Regarding housing in the metropolitan area, we plan to announce new housing site candidates for 30,000 households in the first half of the year. It is planned to complete district designation for 50,000 households in the already announced new housing sites, including Seoul Seoripul, within the first half of next year. In the third new city, it was decided to start construction of 12,000 households within the year and promote sales of 8,000 households.
◇ Exclusion of heavy transfer tax for multiple homeowners extended for an additional year
The capital gains tax exclusion for multiple homeowners, which was originally extended once until May of this year, has been extended for one more year and will apply until May of next year. This applies to multi-homeowners who transfer their homes in areas subject to adjustment. This is a measure to promote housing transactions by reducing the burden of transfer tax.
It was decided to also apply the comprehensive real estate tax imposed on public rental housing owned by Korea Land and Housing Corporation (LH) or local housing and city corporations, regardless of value or area. For businesses that build, purchase, and supply more than 30 private rental homes, the comprehensive real estate tax exclusion standard will be raised. It was decided to lower the tax burden by adjusting the publicly announced price of the construction type from less than 900 million won to less than 1.2 billion won, and the purchase type from less than 600 million won to less than 900 million won.
This year, development charges for new development projects will be reduced by 50% for the metropolitan area and 100% for non-metropolitan areas. To ensure that public housing land can be supplied on time to businesses with the ability to carry out business, restrictions on resale of apartment land will also be temporarily relaxed for one year. It was also decided to lower the rate of late payment damages, which is equivalent to interest on late payments that accrues when business implementation of a business that has purchased LH land, etc., is delayed.
◇ Special provisions for local comprehensive real estate tax… Applies up to 400 million won
Homes subject to the comprehensive real estate tax exemption for single homeowners will be eased from the publicly announced price of 300 million won or less to 400 million won or less. This is a measure to stimulate local real estate activities. Accordingly, if an existing homeowner acquires a new home in a local area with a publicly announced price of 400 million won or less, he or she will be considered as a single homeowner and receive tax benefits.
The standard for local housing excluded from heavy acquisition tax will also be adjusted from 100 million won or less to 200 million won or less. In order to resolve unsold housing in local areas, if an existing homeowner purchases an unsold house after completion in a local area, he or she is considered to be one home per household for tax purposes. If a home construction business uses an unsold home as a rental home after completing a home in a local area, the original acquisition tax (tax paid when first acquiring real estate) will be reduced by up to 50%.
In order to realize construction costs, improvements are being made to the system, such as subdividing construction cost correction standards. We plan to analyze the impact of the ‘direct purchasing system’, in which public construction owners purchase materials through competition between small and medium-sized businesses, and come up with a plan to coexist with small and medium-sized businesses. It was decided to raise the price standard from 100% of the standard construction cost to 110% of the standard construction cost when LH and other companies purchase some of the private apartment houses built on public land as public rental housing.
◇ Dual-income weekend couples are promoting monthly rent tax deductions for each other.
A plan is being promoted to apply monthly rent tax credits to dual-income weekend couples who live separately. Currently, if the head of the household receives a monthly rent tax deduction, the spouse cannot receive a monthly rent tax deduction. The limit per household is set at 10 million won. The government plans to review the current status of weekend couples and reflect it in the 2025 tax law amendment.
It was decided to provide public rental housing that has not been rented for more than one year to workers at small and medium-sized businesses. A plan to expand special supply points for long-term employees of small and medium-sized businesses is being considered for employees in root industries. We plan to expand the scope of application of the income deduction so that the income deduction is maintained even if the jeonse lessee repays the jeonse loan. In the future, the tenant’s income deduction will be applied even if repayment is made from financial institution to financial institution.
Financial support measures were also included. Policy finance worth 11 trillion won, the largest ever, will be provided to the common people. The loan limit for policy finance products such as employee sunshine loans will be adjusted upward. The Credit Recovery Committee’s special provisions for rapid and advance debt restructuring will be extended by one year, and low-interest loans will also be expanded for young people with low income and low credit, such as unemployed college students. The government plans to prepare specific additional support measures for low-income finance in the first quarter of this year.
◇ Debt adjustment support for small business owners… Expansion of New Start Fund targets
The government decided to expand the scope of the ‘New Start Fund’, a debt adjustment program for small business owners, and consider additional repayment deferrals for vulnerable borrowers who have completed employment and re-startup training. In addition to debt restructuring that allows for long-term installment repayment of up to 10 years, the bank also decided to promote customized support measures for small business owners in the banking sector, such as win-win guarantees and loans for faithful repayers or small business owners who can improve competitiveness.
The ‘three sets of financial support for small business owners’, including policy fund repayment extension, conversion guarantee, and low-interest refinancing loan, will also be strengthened. The size of the conversion guarantee loan will be expanded from 5 trillion won to 10 trillion won. It was decided to expand the scope of repayment extensions and refinancing loans, and to strengthen incentives such as additional loans and guarantees for faithful repayers. Emergency management stabilization funds for small and medium-sized businesses will be provided as much as possible within the first half of the year, but will be expanded further if necessary.
The preferential commission rate will also be reduced for small and medium-sized card merchants. Credit card commission rates were decided to be lowered by 0.10 percentage points for annual sales of less than 1 billion won and by 0.05 percentage points for annual sales of 1 billion to 3 billion won. Check card prices go down by 0.10%. The mobile gift certificate commission was also decided to be lowered from 5-14% to 5-8% and the settlement cycle was shortened from 60 days to 30 days.
In order to reduce the burden of business closure on small business owners, we will also seek to expand the number of people supporting store demolition and the amount of support. In order to help small business owners expand their sales base, we plan to temporarily double the credit card income deduction rate used by small business stores from 15% to 30%. The discount rate for digital Onnuri gift certificates will be increased from 10% to 15% only during the Lunar New Year peak season (January 10 to February 10).
◇ Expansion of jobs for senior citizens to 1.1 million… Living allowance for vulnerable workers increased by 118,000 won per month for a family of four
The government has decided to push for the enactment of the Labor Disadvantaged Support Act (tentative name) to systematically support the underprivileged. We are also pursuing a plan to change the employment insurance standard from ‘working hours’ to ‘income’. In order to stabilize the lives of workers with industrial accidents, it was decided to establish a new child support fund within the related fund, temporarily increase the limit from 20 million won to 30 million won, and temporarily lower the interest rate from 1.25% to 1%.
When evaluating the income of basic livelihood recipients, a plan is also being promoted to differentially apply earned and business income deduction rates depending on labor market participation, etc. The budget for the welfare sector to support the underprivileged, such as low-income people, the elderly, and the disabled, was decided to increase by 4.7% compared to last year. In the case of living allowance, the plan is to increase it by 118,000 won per month for a four-person household, and to relax the criteria for property and support obligations to expand the recipients.
There are plans to expand the number of jobs for seniors to 1.1 million. It was decided to increase the basic pension to guarantee retirement income from 335,000 won to 343,000 won per month. We plan to expand the scope of support for disabled people and establish two new emergency care centers for people with severe developmental disabilities for pilot operation.
Reporter Lee Eui-hyeon yhlee@viva2080.com
2025-01-02 12:46:00