정책 이슈

Last year, domestic banks recorded 60.4 trillion won in interest income, exceeding 60 trillion won for the first time in history. A significant portion of bank profits still comes from interest. Around the same time, a complaint emerged from a rural area where an octogenarian, who had entrusted five 'majigi' (a unit of land) of rice paddies to someone else, was suspected of speculation. This happened as the government conducted a full survey of all agricultural land nationwide for the first time since its establishment. Placing these two scenes side by side, one cannot help but ask: Who is the target of this government's reform efforts?

The Vanished Windfall Tax

In November 2023, Democratic Party leader Lee Jae-myung proposed imposing a windfall tax on banks and oil companies that had made record profits due to high interest rates. This was a valid point. Banks' profits came not only from good management but also from public decisions like the benchmark interest rate and the credit creation structure, and the burden was entirely passed on to indebted households and small business owners. In fact, bank loans have aspects similar to currency issuance, and a large part of their profits comes from the trust system built by society. A considerable portion should rightfully be recovered as public wealth. However, the bill introduced four days later had already retreated from a 'tax' to a 'contribution.' After the general election the following year, the Democratic Party adjusted the pace of the windfall tax and shifted towards tax cuts.

After becoming president, the education tax rate on profits exceeding 1 trillion won for large financial institutions was doubled. However, 1.3 trillion won is only about 2% of 60 trillion won in interest income, and it is a general tax that goes into education finance. The true meaning of the windfall tax lay in its principle: that excess profits generated from public conditions like interest rates do not belong solely to banks, and that the financial structure of accumulating wealth by collateralizing land and houses needed to be changed. That question faded from the president's lips. Even the education tax was adjusted by the government after the financial sector submitted an opinion against it.

Property Tax, Despite Good Alternatives

Property taxes were no different. The value of land and houses, which increased due to the community's efforts, should be returned to society at an appropriate rate, commensurate with the increase. It is the shared wealth of the community. The President stated that property taxes in our country are low, and in July, after disclosing the issues in advance, he directly presided over a national debate. However, the reform plan to reduce the basic deduction for comprehensive real estate tax on non-resident single-home owners from 1.2 billion won to 900 million won on August 3rd was restored to its original state in just 29 days. There is a reason why property tax reform has repeatedly failed for over 30 years. It is the complaint, “The tax is right, but I don't have the cash.” Asking retirees, for whom a single house is their entire asset, to pay millions of won in cash every year is effectively telling them to sell their house and leave. So far, the answer has been reductions such as deductions for the elderly, long-term ownership deductions, and special provisions for single-home owners. The more they were cut, the less tax revenue was collected, and fairness collapsed.

There is another way. Instead of cutting taxes, defer them. In a column for the citizen media outlet Mindlle last September, I proposed post-payment of property taxes. The idea is to record the annually assessed property tax in an account and settle it all at once upon sale or inheritance, and to offer a discount equivalent to the national bond interest rate to those who pay in advance. Massachusetts, Texas, and Illinois in the US, British Columbia in Canada, Denmark, and Ireland already use this method for the elderly and others. This way, since there is no immediate cash outflow, tax rates can be properly raised. The effect of curbing speculation actually increases, because the more land that is not used and only waits for its value to rise, the more debt accumulates to be settled. For the suffering of those who own assets, there are sophisticated alternatives that can alleviate the burden without cutting taxes. Nevertheless, the government did not choose that path. It merely backed down when there was opposition.

Drones came first for farmers.

Farmland was the exact opposite. After the President's directive was issued at a cabinet meeting on February 24, an investigation began in May. In the basic survey in July, 2.84 million parcels, or 27% of the 10.13 million target parcels, were classified as suspected violations. The in-depth investigation will continue until December, and if a violation is confirmed, a disposal obligation may be imposed. If the disposal order is not followed, an enforcement fine amounting to 25% of the land value may be levied.

Those who entrusted their land because they were too old to farm, and those who inherited land from their parents, were suddenly classified as suspected violators. Even if they wanted to sell, there were no buyers, and applying to sell to the farmland bank resulted in long waiting lists. The weakest link is the tenant farmer. If landowners stop renting to avoid disposal, tenant farmers who have already sown seeds risk having to abandon their crops without harvesting. Therefore, what should be asked is not who the owner is, but whether farming continues on that land. Land left idle for speculative purposes should be strictly dealt with. However, if land where farming continues, entrusted to neighbors, is forced into disposal, driving out cultivators, then the investigation aimed at upholding the principle of 'farmers owning their land' would ironically end up disrupting cultivation.

The president's initial response to this anxiety was that the principle of 'farmers owning their land' is a constitutional mandate, and he would push through to the end. He also stated that speculative forces were spreading false propaganda. The policy for a special measures act to protect well-intentioned farmers only emerged on October 8th. It stated that inherited farmland, customary leases by the elderly, land difficult to farm, and farmland with complex ownership relations would be excluded from disposal. Then, on October 26th, the president explained that the scope of the full investigation had been broadened at the minister's suggestion, and clarified that there was no intention to seize farmland or impose disadvantageous dispositions. He added that the original intent was to identify speculative farmland near the Seoul metropolitan area, and to look into cases where people declared they would farm but did not, rather than inherited land or land farmed for generations. While he initially declared a direct breakthrough as his own decision, the impression remained that it became the minister's suggestion when opposition grew. Retirees with property taxes and elderly farmers with farmland are in the same situation. Their assets are tied up in land, and they have no cash on hand. However, for the wealthy, they considered ways to reduce or defer taxes and then backed down when faced with opposition, while for farmers, although exceptions were made with a special measures act, the investigation and suspicion classification came first. This shows that the direction of reform has wavered.

Sand and concrete

The nature of the three policies is different. The windfall tax and property tax involve creating or amending taxes, while the farmland survey is about enforcing existing laws. It cannot be immediately called a double standard to be cautious about introducing new taxes and resolute in enforcing laws. However, there is a point of comparison. Does the government amend systems in response to some groups' opposition, while upholding principles without change for others' circumstances, only to belatedly create exceptions? The financial sector's opinions led to adjustments in the tax base, and the opposition from high-priced housing owners resulted in the restoration of the original reform plan. The anxieties of elderly farmers and tenant farmers were initially met with accusations of 'incitement,' but were later partially addressed by a special measures act. As the President said, vested interests are united like concrete, while the vulnerable are scattered like grains of sand. Yet, the government retreated in the face of that concrete and started resolutely on the sand, only to make belated adjustments.

In 1430, why did King Sejong stop?

Even 600 years ago, there were reforms concerning farmland. King Sejong tried to change the Dapheomsonshilbeop (a tax system prone to manipulation by officials) to the Gongbeop (a fixed-rate tax system). In 1430, when the Ministry of Taxation proposed a plan to collect 10 du per gyeol of land, King Sejong ordered officials to ask for opinions from both officials and poor citizens. Over five months, 172,806 people responded, with 98,657 (57%) in favor, which was a majority. However, King Sejong did not implement it. While fertile regions like Jeolla and Gyeongsang supported it, barren areas like Pyeongan and Hamgil overwhelmingly opposed it. King Sejong did not view this opposition as an enemy but as information. It was a signal that a uniform fixed tax ignoring differences in land quality was problematic.

In 1436, the Jeonjesangjeongso was established for further review, and in 1437, when a new proposal met opposition, it was halted. It was first tested in Gyeongsang, Jeolla, and Chungcheong provinces. Fourteen years later, in 1444, the Gongbeop was completed, classifying land quality into six grades and the year's farming conditions into nine grades. Of course, the survey at the time heavily involved officials and was different from today's one-person, one-vote system. However, the spirit is clear. King Sejong did not use public opinion as a license for implementation but as a question to understand the reasons for opposition. He even interpreted the opposition from the most barren lands as a blueprint for improving the system.

The wisdom of 'later' for farmland too

The problem with farmland also stems from uniformity. Speculative farmland in the Seoul metropolitan area and inherited farmland in depopulated areas are not the same land. The neighbors in the village know the difference better than a drone from the central government.

First, standards come first. We need to establish standards to distinguish bona fide farmers through a special act, and until then, the disposal process should be halted.

Second, judgment should be left to the local level. Let the city/county/district farmland committee and village-level deliberation decide whether to dispose of the land. Just as Sejong divided land into six grades, a differentiated design is needed to distinguish between speculative purposes and customary leasing.

Third, let's choose settlement instead of disposal. Even if farmland cannot be directly cultivated but actual cultivation continues, do not force disposal; instead, transfer it to the farmland bank for lease entrustment to protect the cultivators. Instead, for every year the owner does not directly cultivate, a certain percentage of the publicly assessed land value is recorded as a non-cultivation burden. This burden is settled all at once during sale or inheritance and transferred to the farmland management fund. Elderly farmers do not need to pay cash immediately or sell their land at a low price, and tenant farmers continue to farm. On the other hand, the longer the land is idle, the more the settlement amount accumulates, thus curbing speculative expectations. We neither reduce nor expel, but postpone and settle.

Such wisdom comes not from a bureaucrat's desk but from deliberation in a citizens' assembly. That is exactly what Sejong did over 14 years.

Leaving the money supply untouched

A fundamental question remains. Where does the money for farmland speculation come from? As revealed during the LH scandal, speculative funds came from loans secured by land. Banks create money using land as collateral, and that money, in turn, pushes up land prices. Investigating farmers who own land while leaving the financial institutions that provide money for land untouched is like draining water from a puddle while leaving the water source intact. To eradicate speculation, the focus must be on the financial structure that earns 60 trillion won in interest. The windfall tax that party leader Lee Jae-myung advocated was right at that doorstep.

I ask again. Where is the party leader who advocated for a windfall tax? He remains silent in the face of the banks' structure, backs down in the face of opposition from homeowners, and, after initially pushing through against an octogenarian farmer's rice paddies, belatedly created an exception. If the tip of the sword that dulls against the strong and sharpens against the weak is meant to resolve issues, then it is reform that has lost its way. Sejong stopped in the face of 57% approval. This government started without even asking the farmers, only to amend its plans after facing backlash. What a government of popular sovereignty can learn from Sejong is not grand. It is to listen to the opposition of the powerless first.

Cheong Wa Dae as seen from Inwangsan. What could President Lee Jae-myung be thinking? Photo by Lee Won-young.