The stock prices of banks and nuclear power companies have plummeted following the general election. The drop is due to projections that the victorious opposition will introduce a windfall tax on banks, negatively impacting bank stocks. The Yoon Suk-yeol administration has opposed the proposed tax over concerns about tax equity. The Democratic Party of Korea (DPK) has pledged to increase the share of renewable energy from the current 10% to 40% by 2035, triggering memories of past “nuclear phase-out” nightmares and dragging down the stock prices of nuclear-related companies.
Economic policy uncertainty is growing amid worries that the opposition may implement policies reflecting their preferences. The abolition of the “financial investment income tax,” announced by President Yoon earlier this year, is likely to be abandoned as the DPK opposes it under the pretext of a “tax cut for the rich” and has vowed to implement the tax as originally planned starting next year.
The DPK has expressed its intention to reintroduce the Grain Management Act and the Yellow Envelope Bill, which the president vetoed. The Grain Management Act is a controversial law that proposes spending over 1 trillion won annually to support rice prices despite more than 100,000 tons of surplus rice being disposed of each year for use as fodder and distillation. The Yellow Envelope Bill has been criticized as an “illegal strike encouragement law” because it requires companies to calculate and submit damages per union member in lawsuits for strike-related damages, and allows subcontractor employees to demand collective bargaining and strike against their main contractor, a large company.
In its general election pledge, the DPK promised to pay 250,000 won per person as a recovery support fund. The policy chairman of the main opposition party said, “We will promptly distribute this through a supplementary budget.” But at least 13 trillion won will be needed, likely resulting in the issuance of deficit bonds. In 2020, the Moon Jae-in government distributed a 1 million won disaster relief fund per four-person household during the coronavirus crisis, but according to an analysis by a national research institute, only 30% was used for consumption, with the rest saved or used to repay debts. Among its top 10 pledges, the DPK promised to create 1 million basic housing units as their first pledge. Even estimating a cost of 200 million won per unit would amount to 200 trillion won. How will they secure such funds?
The Constitution of South Korea is based on the separation of powers, giving the government budget authority and the president veto power to prevent legislative overreach by the parliament. Just because the opposition won a sweeping victory in the general elections, driven by anti-Yoon sentiment, does not mean they have a license to push through outrageous policies unchecked.
