Ministry of Finance and Economy shifts tax breaks to budget support

The Ministry of Finance and Economy said it will shift several tax-backed benefits, including childbirth and marriage credits, to direct budget support, arguing the model can better reach people who receive little or no help through income-tax deductions. The ministry said tax credits can exclude people who pay no income tax and leave low-income taxpayers with small tax bills unable to receive the full benefit. Direct support can instead define recipients using such criteria as income, local conditions and policy goals, and can be paid when the need arises rather than after annual tax settlement.

The shift, announced in the government's 2026 tax reform plan on Aug. 3, does not end the programs. The ministry is preparing childbirth and adoption support that will at least match current credits: 300,000 won for a first child, 500,000 won for a second and 700,000 won for a third or subsequent child. It is also reviewing a broader beneficiary base than the current one-time 500,000 won credit available to each spouse in the year their marriage is registered. The ministry said integrating childbirth tax credits and the budget-funded First Meeting Voucher could allow one application rather than separate applications at birth and during annual tax settlement.

The transport measure would replace the additional income-tax deduction for public-transport spending, limited to wage earners, with an expanded fare-refund program for all citizens. Tax relief for electric and hydrogen electric vehicle purchases will also become budget support. The existing individual consumption tax reductions reach 3 million won for electric vehicles and 4 million won for hydrogen vehicles; detailed support will appear in the 2027 budget plan.

The ministry is also reviewing ways to support more young people without homes through tax-exempt interest on preferential housing-subscription savings accounts. For rural and fishing household savings, the government and Bank of Korea will fully offset reduced income tax so actual returns do not change.