Labor-friendly steps, higher taxes feared to weaken corporate competitiveness
By Lee Hyo-sik
President Moon Jae-in, who campaigned on promises of giving more to workers, has introduced an array of labor-friendly policies and placed a heavier burden on businesses, according to analysts, Tuesday.
The Moon administration, among others, has been pushing to impose a higher income tax on corporations, reduce working hours and raise minimum wages to force employers to pay more to workers and add more to their payrolls.
This approach has made it more difficult for Korean companies, which have been struggling to deal with the prolonged domestic consumption slump, to generate earnings, expand investments and hire workers here, the analysts said.
Outside the country, things are not any better as Korea Inc. has been facing growing trade protectionism across the globe.
Exporters have been facing higher U.S. trade barriers erected by the Donald Trump administration, which has been preaching an America-first policy. Korean firms have also been withering in China, the nation's largest export market, amid Beijing's escalating retaliation against Seoul's decision to deploy a U.S. missile shield.
"These days, there has been way more bad news than good for Korean businesses both at home and abroad," said an analyst at one of the country's major business associations, who declined to be named.
"Exporters, except for Samsung and several other chipmakers, have been coping with deteriorating business conditions overseas as the United States, China, India and other major economies introduced more protectionist policies to curb imports of foreign goods," the analyst said.
"Retailers and other companies have also been grappling with continued sluggish spending. Against such a backdrop, the government should unveil more corporate-friendly policies to keep the economy going, but the Moon administration has been doing the opposite," he said.
Policymakers must refrain from resorting to populist policies to appease the masses but instead they should be willing to swallow the bitter pill, the analyst said.
He added "The government should drastically remove regulations and promote innovation to ensure businesses can do what they are good at."
The liberal Moon administration has unveiled a revised tax code to increase the corporate income tax to 25 percent from the current 22 percent, despite strong protests from the corporate world. It plans to collect more taxes from businesses and use the money to finance social welfare programs for the poor.
The government also raised the hourly minimum wage by 16.4 percent to 7,530 won ($6.7) for 2018, which will increase labor costs by 16.2 trillion won, according to the Korea Federation of SMEs. Working hours will be slashed to 52 hours a week from 68 hours, incurring about 12.3 trillion won in additional costs.
Companies have also been pressed by policymakers to turn irregular workers into regular employees, and directly hire workers currently dispatched by outsourcing companies.
The government recently scrapped guidelines adopted during the previous Park Geun-hye administration, which aimed at enabling businesses to easily lay off underperforming workers and change employment rules.
Employers now cannot fire underachievers, and introduce the performance-based wage system and the peak wage system without workers' consent.
In addition, the Ministry of Environment plans to impose a new tax on vehicles with combustion engines to encourage the use of more electric and other eco-friendly cars.
However, this is widely seen as benefiting Mercedes-Benz, BMW and other European car brands because Hyundai, Kia, Renault Samsung, GM Korea and Ssangyong have few eco-friendly vehicles.
By Lee Hyo-sik
President Moon Jae-in, who campaigned on promises of giving more to workers, has introduced an array of labor-friendly policies and placed a heavier burden on businesses, according to analysts, Tuesday.
The Moon administration, among others, has been pushing to impose a higher income tax on corporations, reduce working hours and raise minimum wages to force employers to pay more to workers and add more to their payrolls.
This approach has made it more difficult for Korean companies, which have been struggling to deal with the prolonged domestic consumption slump, to generate earnings, expand investments and hire workers here, the analysts said.
Outside the country, things are not any better as Korea Inc. has been facing growing trade protectionism across the globe.
Exporters have been facing higher U.S. trade barriers erected by the Donald Trump administration, which has been preaching an America-first policy. Korean firms have also been withering in China, the nation's largest export market, amid Beijing's escalating retaliation against Seoul's decision to deploy a U.S. missile shield.
"These days, there has been way more bad news than good for Korean businesses both at home and abroad," said an analyst at one of the country's major business associations, who declined to be named.
"Exporters, except for Samsung and several other chipmakers, have been coping with deteriorating business conditions overseas as the United States, China, India and other major economies introduced more protectionist policies to curb imports of foreign goods," the analyst said.
"Retailers and other companies have also been grappling with continued sluggish spending. Against such a backdrop, the government should unveil more corporate-friendly policies to keep the economy going, but the Moon administration has been doing the opposite," he said.
Policymakers must refrain from resorting to populist policies to appease the masses but instead they should be willing to swallow the bitter pill, the analyst said.
He added "The government should drastically remove regulations and promote innovation to ensure businesses can do what they are good at."
The liberal Moon administration has unveiled a revised tax code to increase the corporate income tax to 25 percent from the current 22 percent, despite strong protests from the corporate world. It plans to collect more taxes from businesses and use the money to finance social welfare programs for the poor.
The government also raised the hourly minimum wage by 16.4 percent to 7,530 won ($6.7) for 2018, which will increase labor costs by 16.2 trillion won, according to the Korea Federation of SMEs. Working hours will be slashed to 52 hours a week from 68 hours, incurring about 12.3 trillion won in additional costs.
Companies have also been pressed by policymakers to turn irregular workers into regular employees, and directly hire workers currently dispatched by outsourcing companies.
The government recently scrapped guidelines adopted during the previous Park Geun-hye administration, which aimed at enabling businesses to easily lay off underperforming workers and change employment rules.
Employers now cannot fire underachievers, and introduce the performance-based wage system and the peak wage system without workers' consent.
In addition, the Ministry of Environment plans to impose a new tax on vehicles with combustion engines to encourage the use of more electric and other eco-friendly cars.
However, this is widely seen as benefiting Mercedes-Benz, BMW and other European car brands because Hyundai, Kia, Renault Samsung, GM Korea and Ssangyong have few eco-friendly vehicles.
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