2 YEARS IN OFFICE Yoon's economic policies divide public opinion

Shoppers pass by boxes of fruit on display at a traditional market in Seoul's Mapo District, April 10. Yonhap

By Yi Whan-woo

• Published May 8, 2024 4:12 PM KST
• Updated May 8, 2024 5:25 PM KST

President Yoon Suk Yeol’s economic revitalization policies are the subject of heated debate over whether they are faithfully serving the goal of stabilizing the public livelihood over the past two years since he took office in May 10, 2022.

Yoon’s economic drive is characterized by ideas of private sector-driven growth and improvement of fiscal soundness, under a belief that relevant policies will create synergies and have a spillover effect on the public.

But this economic strategy is drawing a sharply divided reaction from critics, lauded on the one hand for being “on the right track in restoring order against populism” and receiving criticism on the other hand for “deepening inequality by only benefitting conglomerates and wealthy individuals.”

“I would give credit to the president for putting Korea’s economy on the right track, despite risks in and outside the country that make it tough for the economy to execute a soft landing,” said Lee Seung-suk, a research fellow at Korea Economic Research Institute.

He called on the government “to speed up deregulation,” saying, “The pace of regulatory reform is too slow to spur corporate investment and private spending as the government intended.”

Deregulation is a part of efforts to achieve market-driven growth. It includes eased tax rules across a range of sectors.

For instance, the maximum corporate tax rate was lowered to 24 percent from 25 percent, and the minimum threshold for capital gains tax for large shareholders was raised to 5 billion won ($3.67 million) from 1 billion won.

In the housing market, the ratio which is used to determine the tax base for the controversial comprehensive real estate holding tax was lowered to 60 percent of the official price, after peaking at 95 percent under the previous Moon Jae-in administration.

The comprehensive real estate holding tax has been disputed because it is regarded as a punitive measure against owners of expensive homes.

Regarding improvements to fiscal soundness, Lee assessed Yoon’s belt-tightening policy as also a step in the right direction amid a snowballing national debt that exceeded 1,110 trillion won for the first time in 2023.

The amount accounts for more than 50 percent of Korea’s GDP, which was also unprecedented.

The Yoon administration attributed such worsening debt-to-GDP ratio to the previous Moon Jae-in government’s expansionary fiscal policy, which was often criticized as a populist policy.

Speaking on condition of anonymity, a top economist at a major economic research institute also spoke highly of Yoon’s economic drive with reference to the surprising GDP growth in the first quarter of this year.

The GDP advanced 1.3 percent quarter-on-quarter, marking the fastest pace of growth in more than two years despite multiple risks here and abroad, such as the war in Ukraine, Middle East conflicts, ongoing inflation and costly borrowing rates in Korea.

“The president should be given credit for leading the economy this far against all uncertainties, and he should stick to his economic initiative in his remaining term,” he said.

Concerning the debt-to-GDP ratio, the economist acknowledged that it is a “worrisome level.”

Nevertheless, he viewed the GDP will grow to a sufficient level for the ratio to fall below 50 percent and “return to normal in the long term.”

Asked about why the public feels little effect of economic growth, he said it is related to “years-long chronic problems mainly stemming from external risks that remain out of the government’s control.”

“For example, high oil prices are due to international geopolitical unrest and high borrowing rate and volatile currency rate are closely linked to the U.S. Federal Reserve’s monetary policy,” he explained.

The critics who are against Yoon's economic reform addressed the government's unwanted outcome of a record shortage in tax revenue in the wake of softened tax rules.

"I'd say the government only has pleased conglomerates and the rich in return for greater pain suffered by most of the people," said Kwon Oh-in, director of economic policy at Citizens' Coalition for Economic Justice, a civic activist group. "The government must realize the idea of positive spillover arising from large businesses is outdated and therefore enhancing welfare through taxation is key to enliven the people's livelihood."

The director referred to the country's tax revenue at 344.1 trillion won in 2023, which was 56.4 trillion won short of the government's budget plan and marked the record tax revenue shortfall.

Kwon said the government is negligent in cracking down on collusion and unfair business practices, which he argued are behind the recent surge in the price of apples and other fresh produce.

"Climate change certainly was a reason for the price increase, but the government could still control the prices if it carefully monitored how the transportation cost of goods are determined by a handful of logistics companies," he said.

In a rally held outside the presidential office in Seoul, Tuesday, another civic group denounced the Yoon administration for "deepening inequality while turning a blind eye to its bungled economic policies."

"In the name of a small government, Yoon and his economic policymakers are insisting on deregulation and reckless tax cuts while it has no clue how to make up the 56.4 trillion won shortfall in tax revenue," People's Solidarity for Participatory Democracy said.

"We ask the government to prioritize improving the welfare of the people from now on by scrapping tax benefits for the haves," it added.