Income & jobs: Moon's top economic priorities

Tax hike plans to be revealed next week

By Nam Hyun-woo

The government’s economic policy roadmap is focused on carrying out President Moon Jae-in’s election pledges of bringing growth led by improved income and a redistribution of wealth.

With Moon describing the roadmap “a paradigm shift” in the Korean economy, the roadmap is in stark contrast with those released by previous administrations.

The roadmap means a departure from the country’s pursuit of the so-called trickle-down effect -- a belief that financial benefits to large businesses and entrepreneurs will stimulate economic growth.

The roadmap has its gist in a hike in income for the public through raising the minimum wage and lowering the costs of living. Also, it indicated the government will focus on creating jobs, as well as guiding the public sector to play a leading role as an exemplary employer.

State-led support for temporary workers and employees of small and mid-sized enterprises will increase and social welfare coverage will also be extended through government spending.

The roadmap did not included policies for promoting conglomerates’ investments and deregulations for businesses.

Instead, it promised to enhance benefits for businesses when they shared profits with suppliers or created jobs, while reducing tax benefits for investments.

The government plans to introduce a regulation to make it difficult for companies to hire temporary employees. Also in the pipeline is a revision of the law to improve the corporate structure of conglomerates and regulations on owner families’ expedient control over companies.

“Korea’s economy is facing a structural and complex crisis of low growth and polarization,” Deputy Prime Minister Kim Dong-yeon said. “After the global financial crisis in 2008, the world is changing its economic paradigm of seeking harmony between distribution and growth.”

“In order to overcome the crisis a big shift in the economic paradigm, focusing on humans, not businesses, is necessary,” he said.

How to finance

The government said that it will expand government spending for the next five years for those plans, and will keep the government’s fiscal prudence “through restructuring expenses.” Kim said the size of expense restructuring would be worth 60 trillion won.

Securing more budget through reducing unnecessary expenses is not a new solution by the Moon administration.

Previous administrations have relied on reducing unnecessary expenses for their economic policies but ended up being unsuccessful.

The Park Geun-hye administration pledged to reduce unnecessary spending worth 80 trillion won during her term, but failed to accomplish the goal.

The Lee Myung-bak and Roh Moo-hyun administrations also tried expense restructuring as a solution to finance their economic policies but saw those schemes fizzle out.

At issue is the government’s plan to implement a tax hike to finance its economic policies. Though the roadmap did not include any tax hike plan, the government will release its plan to increase taxes for the super rich and big businesses next week.

“The issue of a nominal tax hike has been raised at a series of government meetings,” said Kim. “It should be dealt with in an extra cautious manner and the government will announce plans in next week’s tax code revision.”

The ruling Democratic Party of Korea has been calling for a tax hike on the super rich and large businesses so that the government can finance its welfare policies.