🚨 2026 Budget & Tax Review Begins
Today Korean Economic News for Beginners | 2025.11.11
0️⃣ Ruling Party "Raise Corporate Tax for Fiscal Recovery" vs Opposition "Cut Spending First"
📌 Revenue Increase vs Spending Cuts Clash…Agreement on Inheritance Tax & Dividend Tax Relief
💬 The National Assembly has launched a full review of the 2026 budget and tax reform bills, sparking intense debate between the ruling and opposition parties. The Special Committee on Budget and Accounts has begun reviewing budgets by government department, and the Finance Committee's tax subcommittee has also started examining tax reform proposals. The ruling party argues that raising corporate taxes and increasing revenue is necessary to restore fiscal health, while the opposition insists the government must first cut wasteful spending. However, both parties are finding some common ground on expanding inheritance tax deductions and broadening the scope of separate taxation on dividend income, suggesting possible agreement. Particularly noteworthy is the allocation of 10 trillion won for artificial intelligence (AI) industry development, making the balance between securing future growth engines and maintaining fiscal soundness the key issue.
1️⃣ Easy Explanation
The National Assembly has started serious discussions about how to manage the country's finances next year. The biggest debate is: "Should we collect more taxes, or should we spend less money?"
First, let's understand what a budget is. A budget is a plan showing where the government will get money from (revenue) and where it will spend money (expenditure) for one year. It's like when a family gets a paycheck and plans how to spend it on food, education, housing, and other needs.
The government submitted the 2026 budget plan to the National Assembly, and now lawmakers are reviewing and modifying it. But the ruling party and opposition party have very different ideas.
Ruling Party's Position: "We need to collect more taxes"
The ruling party says, "The government spent a lot of money responding to COVID-19 and stimulating the economy in recent years, and as a result, our fiscal situation has gotten worse. Now we need to collect more taxes to restore fiscal health."
They especially propose raising corporate tax as their main card. Corporate tax is tax on the profits that companies make. Korea's current maximum corporate tax rate is 25%, and they want to raise it to 27-28%.
Let me give you an example. Suppose Company A made 10 billion won in profit in one year. With the current 25% corporate tax rate, they must pay 2.5 billion won in taxes. But if the rate rises to 27%, they must pay 2.7 billion won. From the company's perspective, that's 200 million won more to pay.
The ruling party argues, "Big companies are making good profits, so they should pay a bit more in taxes to contribute to national finances." Indeed, major companies like Samsung Electronics and Hyundai Motor have recorded good results in recent years.
Opposition Party's Position: "Cut spending first"
On the other hand, the opposition argues, "Before raising taxes, the government should cut its spending first." They say, "Looking at the government budget, there are many unnecessary or duplicate projects. We should eliminate such waste first before talking about taxes."
For example, like the local currency project we discussed in previous news, there are cases where over 1 trillion won is allocated even though the effectiveness is unclear. The opposition criticizes, "If we eliminate such projects, we can save trillions of won in budget, so why are you only trying to collect more taxes from citizens and companies?"
To use a household analogy: Imagine your monthly salary is 3 million won but you spend 3.5 million won every month, running a deficit. The ruling party says, "We should get a side job to increase income," while the opposition says, "We should cut unnecessary expenses first."
Areas of Possible Agreement: Inheritance Tax and Dividend Tax
Fortunately, they don't disagree on everything. Both parties are finding some common ground on easing inheritance tax and adjusting dividend income tax.
First, let's look at inheritance tax. Inheritance tax is paid when children receive assets from their parents after they pass away. Korea's inheritance tax is currently high by global standards. The maximum rate is 50%.
For example, if parents leave behind assets worth 1 billion won, even after various deductions, substantial taxes must be paid. This becomes especially problematic when inheriting small and medium-sized businesses. If a company is valued at 10 billion won, 5 billion won in inheritance tax must be paid, and without cash available, the company may need to be sold.
Both parties agree "this needs to be eased." However, they're still coordinating how much to ease it and who should benefit.
Dividend income tax is similar. Dividend income is profit distribution that stock owners receive from companies. Currently, if financial income exceeds 20 million won per year, it's combined with other income and taxed up to 45%.
Both parties somewhat agree on "raising the separate taxation limit to encourage investment." For example, currently a low tax rate (15.4%) applies only up to 20 million won, but they're proposing to increase this to 50 million won or even 100 million won.
Why do they want to do this? When companies pay more dividends, shareholders benefit, and then more people invest in stocks. When stock investment becomes more active, companies can raise funds more easily, which leads to economic activation. They want to ease dividend income tax to create this positive cycle.
The Meaning of 10 Trillion Won AI Budget
What's particularly notable in this budget plan is that 10 trillion won has been allocated for artificial intelligence (AI) related spending. This is a significantly increased amount compared to the previous year.
AI is the core of future industries. With the emergence of generative AI like ChatGPT, the whole world has jumped into AI competition. The US and China are pouring huge amounts of money into AI development, and Korea is also increasing investment to keep up.
The 10 trillion won will be spent on various projects including AI semiconductor development, data center construction, AI talent training, and AI startup support. For example, the government will support companies like Samsung Electronics and SK Hynix in developing AI semiconductors, invest in university programs to train AI experts, and provide funding to startups using AI.
However, there's controversy here too. As we covered in previous news, some AI projects proceeded without preliminary feasibility studies. The opposition points out, "AI is important, but spending 10 trillion won without verification is risky."
Why Does This Debate Matter?
The results of this budget and tax review will directly affect our lives.
First, if corporate tax rises, companies' investment may decrease. Since they have to pay more taxes, they'll have less money to build new factories or spend on research and development. This could also slow job creation.
Second, if inheritance tax is eased, business succession will become easier. If it becomes easier for children to inherit small and medium-sized businesses their parents operated, companies will continue and jobs will be preserved.
Third, if dividend income tax is lowered, stock investment may become more active. This especially helps middle-aged and elderly people preparing for retirement to earn living expenses through dividend income.
Fourth, if the AI budget is spent well, Korea can leap forward as an AI powerhouse. But if it's wasted, it just squanders taxpayers' money.
Ultimately, this review is a process of finding balance between 'fiscal soundness' and 'economic vitality.' If we raise taxes too much, the economy shrinks; if we spend too much, finances collapse. Finding that balance point is the key.
2️⃣ Economic Terms
📕 Corporate Tax
Corporate tax is tax on the profits that companies earn.
- Korea's maximum corporate tax rate is currently 25%, and the ruling party proposes raising it to 27-28%.
- When the corporate tax rate rises, companies' net profits decrease, and funds available for investment or dividends may decrease accordingly.
- On the other hand, raising corporate tax increases government revenue, which helps improve fiscal soundness.
📕 Inheritance Tax
Inheritance tax is paid when inheriting assets from a deceased person.
- Korea's maximum inheritance tax rate is 50%, which is high by global standards.
- The deduction limit is low, creating a burden even for the middle class, and it's especially problematic when succeeding family businesses.
- Both parties are forming some consensus on expanding the deduction limit to ease the inheritance tax burden.
📕 Separate Taxation on Dividend Income
Separate taxation on dividend income is a system where stock dividends are taxed separately without being combined with other income.
- Currently, financial income up to 20 million won per year is separately taxed at a low rate of 15.4%, and amounts exceeding this are combined with comprehensive income and taxed up to 45%.
- Both parties are considering raising the separate taxation limit to 50 million won or 100 million won.
- The purpose is to encourage dividend investment and activate the stock market.
📕 Fiscal Soundness
Fiscal soundness means maintaining the national finances in a stable and sustainable state.
- Fiscal soundness is considered good when there's balance between revenue (money the government collects) and expenditure (money the government spends), and national debt is not excessive.
- Recently, Korea's fiscal soundness has deteriorated due to significantly increased spending on COVID-19 response and economic stimulus.
- When fiscal soundness worsens, the national credit rating falls and the burden on future generations increases.
3️⃣ Principles and Economic Outlook
✅ Conflict Between Tax Increases and Economic Growth
Raising corporate tax increases revenue in the short term, but may negatively impact corporate investment and economic growth in the long term.
First, raising corporate tax has an immediate revenue increase effect. According to government estimates, raising the corporate tax rate by 2 percentage points is expected to increase tax revenue by about 8-10 trillion won annually. This helps reduce fiscal deficit and slow the pace of national debt growth. Especially given that fiscal spending has greatly increased due to COVID-19 response and economic stimulus in recent years, expanding revenue is essential for restoring fiscal soundness. Major developed countries are also considering various tax increase measures for fiscal normalization after the pandemic.
Second, however, raising corporate tax reduces companies' investment capacity. Since they must pay more taxes, companies have less money to spend on investment or research and development. For example, if a company that made 10 billion won in profit pays 25% corporate tax, 7.5 billion won remains, but if they pay 27%, only 7.3 billion won remains. The difference of 200 million won may seem small, but it can force them to give up hiring a few new employees or one research and development project. Especially in a situation of fierce global competition, companies' reduced investment can lead to declining national competitiveness in the long term.
Third, international comparison of corporate tax rates is also important. The OECD average corporate tax rate is about 23%. Korea's current 25% is already higher than average, and raising it further to 27-28% would place it in the upper ranks among OECD countries. Since global companies tend to invest in countries with lower tax rates, if corporate tax is too high, there's a risk that foreign direct investment (FDI) may decrease. In fact, Ireland attracted European headquarters of global companies like Google and Apple with its low corporate tax rate of 12.5%.
Tax increases are necessary, but their timing and magnitude must be carefully determined, and spending efficiency improvements must be pursued simultaneously.
✅ The Need for Spending Efficiency
Before raising taxes, improving the efficiency of government spending should be prioritized.
First, Korea's fiscal spending growth rate is very fast. The government budget was about 470 trillion won in 2019, but exceeded 680 trillion won in 2025. That's an increase of over 45% in just 6 years. During the same period, nominal GDP only increased about 25%, so the spending growth rate is much faster than economic growth. If this trend continues, no matter how much we raise taxes, the fiscal deficit won't be resolved.
Second, reducing inefficient spending can secure considerable resources. For example, the local currency project costs over 1 trillion won annually but controversy over its effectiveness continues. Also, multiple government departments often pursue similar projects in duplicate. For AI projects alone, the Ministry of Science and ICT, Ministry of Trade, and Ministry of Education each operate similar programs. If we eliminate such duplication and waste, we can save trillions of won in budget and use that money where it's more needed.
Third, a performance-based budget management system is needed. Currently, once a budget is allocated, it often continues even if ineffective. Budgets are set inertially by adding a certain percentage to last year's budget. However, we need to establish a culture of strictly evaluating project performance and boldly eliminating ineffective projects. Private companies restructure unprofitable business units, and the government should apply the same principle.
Spending efficiency is not simply about spending less money, but about achieving greater results with the same money.
✅ Economic Effects of Inheritance Tax & Dividend Tax Reform
Easing inheritance tax and dividend income tax can contribute to capital market activation and smooth business succession.
First, Korea's current inheritance tax burden is excessive. The maximum rate of 50% is among the world's highest, along with Japan (55%). The US is 40%, Germany is 30%, and the UK is 40%. The bigger problem is that the low deduction limit means even the middle class must pay inheritance tax. For example, even an ordinary family with one apartment in Seoul and some financial assets can be subject to inheritance tax. Expanding the deduction limit would tax only the truly wealthy and reduce the burden on the middle class.
Second, succession of small and medium-sized family businesses will become smoother. When passing a small business to children, many must sell the company due to inheritance tax burden. Companies that parents spent their lives building end up in others' hands because of inheritance tax. This damages business continuity and makes jobs unstable. If inheritance tax is eased, family businesses can grow through generations and help the economy in the long term. In countries like Germany and Japan, there are many small businesses that have continued for 100 or 200 years, partly thanks to reasonable inheritance tax systems.
Third, easing dividend income tax encourages stock investment. Currently, if financial income exceeds 20 million won, it's comprehensively taxed at up to 45%. This is a heavy burden for investors who receive large dividends. If the separate taxation limit is raised, more people will make long-term investments and become interested in dividend stocks. Companies also have incentive to increase dividends. When they pay more dividends, shareholders are happy and stock prices rise. When this positive cycle is created, the stock market becomes active, companies can raise funds more easily, and the entire economy gains vitality.
Reforming inheritance tax and dividend tax is not simply tax reduction, but a strategic measure to improve economic structure.
4️⃣ In Conclusion
The 2026 budget and tax review is an important process that will determine the future direction of Korea's economy. While intense confrontation between the ruling and opposition parties continues, ultimately the goal should be to catch both rabbits of 'fiscal soundness' and 'economic vitality.'
The ruling party's argument for raising corporate tax makes sense from the perspective of fiscal normalization. If we don't expand revenue in a situation where government spending has greatly increased in recent years, fiscal deficits will continue to accumulate, and eventually national debt may reach an unmanageable level. Especially as aging progresses rapidly, welfare spending will certainly increase further. If we don't strengthen the fiscal foundation now, future generations will bear a greater burden.
However, as the opposition points out, it's also true that spending efficiency must come first. If we just raise taxes while leaving inefficient projects as they are, only the burden on citizens and companies increases while fiscal problems are not fundamentally solved. Eliminating waste and duplication in government budgets is as important as tax increases.
Since both parties are forming consensus on easing inheritance tax and dividend income tax, it would be desirable to reach agreement quickly and implement it. This can bring practical effects of capital market activation and smooth business succession. However, careful system design is needed to ensure benefits don't go only to high-income earners.
The 10 trillion won AI budget is meaningful as future investment, but transparent verification and efficient execution must be prerequisites. Projects that were exempted from preliminary feasibility studies need even stricter performance management. AI is certainly important, but pouring huge budgets without verification is risky.
Individuals should also carefully watch the results of this review. If corporate tax rises, it will affect companies' investment and job creation; if inheritance tax is eased, estate succession plans can be reconsidered; if dividend tax is adjusted, investment strategies may need to change.
Most importantly, we must monitor to ensure taxpayers' money is not wasted and is efficiently spent where truly needed. The budget is not just numbers but a blueprint for creating our future. We hope that beyond political confrontation, rational decisions truly for the people and economy will be made.
Ultimately, fiscal normalization and economic activation must be harmonized, not opposed. When wise tax increases, thorough spending efficiency, and strategic investment for the future achieve balance, Korea's economy can move toward the path of sustainable growth.
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