Factbox: How South Korea election may reshape Yoon's policy agenda

Doosan Enerbility Co

11/04/2024 07:10

SEOUL, April 11 (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. 
    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
 052690.KS  fell 6.9% and 9.2% respectively in afternoon trade,
versus a 0.2% rise in the wider market  .KS11 . 
    
    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's exports, both the opposition and ruling
parties appear agreed on the need for continued support. 
    South Korea's existing tax breaks for investment in
semiconductor facilities 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 centrepiece 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.
($1 = 1,363.5300 won)

 (Reporting by Joyce Lee, Cynthia Kim and Ju-min Park
Compiled by Ed Davies
Editing by Lincoln Feast.)
 ((joyce.lee@tr.com;))