SEOUL (Reuters) – South Korean President Yoon Seok-yeol has vowed to extend his administration after his party suffered a major defeat in legislative elections, raising the risk that many of his policy priorities could be thrown off course.
Yun, who took office in May 2022, did not run in the election this time, but his ability to pass laws is likely to be further limited after the opposition led by the Democratic Party increased its majority following a poor showing by the conservative People Power Party Yuna.
Here are some policy areas that may be affected:
INVESTMENT TAX
Yoon’s promise to scrap a planned capital gains tax on financial investment income is likely to fail, analysts say, as it will be difficult to convince parliament to amend the bill.
The tax, aimed at boosting investor sentiment and stock prices, is designed to levy at least 20% if annual capital gains from stock investments exceed 50 million won ($36,700). Those who earn more than 2.5 million won in other financial assets are taxed.
It was due to be introduced in 2025, but in January the government said it should be scrapped because the levy would seriously undermine local investors’ appetite for local shares.
VALUE INCREASE PROGRAM
Analysts say the momentum of Yun’s campaign to boost the stock market, dubbed the Corporate Value Program, will wane.
The plan, announced in February, aims 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 cut corporate taxes on some of the increased shareholder gains, but the proposal could face opposition in Parliament if it is seen as benefiting cash-rich conglomerates, analysts said.
RENEWABLE ENERGY VERSUS NUCLEAR ENERGY
Analysts say the election results could provide a boost to some industries, including sectors such as renewable energy, electric vehicles and batteries.
The Democratic Party wants to increase the share of renewable energy in South Korea’s energy mix to 40% by 2035 from less than 10% today, create a belt of wind and solar power plants and consider legislation similar to the US Inflation Reduction Act. IRA), which aims to increase investment in combating climate threats.
The party also promised to provide electric cars “at half price”, promising subsidies related to marriage and childbirth.
However, the Yoon government’s plans to make South Korea “the strongest in nuclear power” could be thwarted by opposition opposition.
Shares of nuclear power plant parts maker Doosan Enerbility and engineering and construction company KEPCO Engineering & Construction fell 6.9% and 9.2%, respectively, in afternoon trading, compared with a 0.2% rise in the broader market.
DEFENSE SALES, CHIPS PROBABLY WILL NOT HURT
Analysts say the election is unlikely to change South Korea’s ambitious plans to increase military exports.
While the Democratic Party did not include the defense industry in its campaign pledge book, it did mention the need to expand trade finance, which has been a barrier to foreign defense orders, NH Investment & Securities said.
When it comes to the semiconductor industry, which accounts for nearly a fifth of South Korea’s exports, both the opposition and ruling parties seem to agree on the need for continued support.
South Korea’s existing tax breaks for investment in semiconductor businesses will end this year. While the Democratic Party may block government efforts to cut taxes in some areas, many of its members are likely to support expanded tax breaks for chip investments, analysts say.
MEDICAL REFORM PLANS
Yun has taken a hard line against doctors who oppose a major health reform plan, the centerpiece of which is to increase the number of new medical students by 2,000 a year to fill what the government says is a dire shortage of doctors.
The plan, which also includes incentives for doctors to practice in areas other than the capital Seoul, has broad public support, but there is growing public concern about a long standoff between the government and doctors.
The trainee doctors’ strike, which began on February 20, has not played a significant role in the election campaign, and it is unlikely that Yoon will compromise and change course given public support for the initiative itself, analysts say.
FOREIGN POLICY
Taking a tougher stance on North Korea, Yun has made strengthening security alliances with the United States and Japan a top priority.
Foreign policy has not played a major role in the election campaign and some analysts believe Yun may now be even more focused on his overseas agenda, although those plans could also be in jeopardy if the opposition tries to cut budgets while in its majority.
($1 = 1,363.5300 won)