Home Indo-Pacific How South Korea Election May Reshape Yoon’s Policy Agenda

How South Korea Election May Reshape Yoon’s Policy Agenda

South Korea, korea
Yoon Suk Yeol (Photo: Reuters)

South Korean President Yoon Suk Yeol pledged to renew his administration after his party suffered a big defeat in legislative elections, with the result increasing the risk that more of his policy priorities might be blown off course.

Yoon, who took office in May 2022, was not up for election this time but his ability to pass legislation is likely to be further inhibited after the opposition led by the Democratic Party increased its majority after a poor showing by Yoon’s conservative People Power Party.

Here are some policy areas that may be impacted:

Tax on investments

Yoon’s pledge to scrap planned capital gains tax on income from financial investments will probably flop, analyst say, as it will be difficult to persuade parliament to amend the bill.

The tax, aimed at boosting investor sentiment and stock values, is designed to levy at least 20% if annual capital gains from stock investments exceed 50 million won ($36,700). Those making more than 2.5 million won in other financial assets are also subject to the tax.

It was due to be introduced in 2025, but the government in January said it should be abolished as the levy would seriously hurt the appetite among local investors for local stocks.

Value-up programme

Momentum for Yoon’s campaign to boost the stock market, dubbed the Corporate Value-Up Programme, will weaken, analysts say.

The plan, announced in February, seeks to correct a tendency for listed South Korean companies to have lower valuations than global peers due to factors such as low dividend payouts and poor corporate governance.

Finance Minister Choi Sang-mok recently said the government plans to reduce corporate taxes on a portion of increased shareholder returns, but the proposal could face opposition in parliament if it is deemed to benefiting cash-wealthy conglomerates, analysts said.

Renewable vs nuclear energy

The election result may provide a boost to some industries, including sectors such as renewable energy, electric vehicles and batteries, analysts said.

The Democratic Party wants to increase the portion of renewable energy in South Korea’s energy mix to 40% by 2035 from less than 10% now, create a belt of wind and solar power farms, and consider a law similar to the U.S. Inflation Reduction Act (IRA) which aims to boost investment to tackle climate threats.

The party also pledged to provide “half-price” electric vehicles by promising subsidies linked to marriage and childbirth.

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But the Yoon government’s plans for South Korea to become the “strongest in nuclear power” may be disrupted by resistance from the opposition.

Shares in nuclear power plant parts maker Doosan Enerbility and plant engineering firm KEPCO Engineering & Construction fell 6.9% and 9.2% respectively in afternoon trade, versus a 0.2% rise in the wider market.

Defence sales, chips not likely to be affected

Analysts said the election was unlikely to change South Korea’s ambitious plans to boost defence exports.

Although the Democratic Party did not include the defence industry in its campaign pledge book, it did mention the need to expand trade finance which has been an obstacle to overseas defence orders, NH Investment & Securities said in a note.

As for the semiconductor industry, which accounts for nearly a fifth of South Korea exports, both the opposition and ruling parties appear to have agreed on the need for continued support.

Existing tax breaks for investment in semiconductor facilities in South Korea will end this year. While the Democratic Party may stonewall the government’s push to ease taxes in some fields, many of its members are likely to back extended tax breaks for chip investments, analysts said.

Medical reform plans

Yoon has taken a hardline against doctors who oppose a major healthcare reform plan, the centre piece of which is to increase the number of new medical students by 2,000 a year to make up what the government says is a severe shortage of physicians.

The plan, which also includes incentives for doctors to practice in areas other than Seoul, the capital, has broad public support but there has been increased public concern over the long standoff between the government and doctors.

The walkout by trainee doctors since Feb. 20 did not play significantly during the campaign and it was unlikely for Yoon to agree to a compromise and change course, given the public support for the initiative itself, analysts said.

Foreign policy

Taking a tougher line on North Korea, Yoon has made it a top priority to strengthen security alliances with the United States and Japan.

Foreign policy did not play a significant role on the campaign trail and some analysts said Yoon might even focus more on his overseas agenda now, though those plans could also be at risk if the opposition seeks to cut budgets with its majority.

Source: Reuters