Value context and insight. lkm@koreatimes.co.kr
Korea's expansionary fiscal policy to prioritize containment
Deputy Prime Minister and Finance Minister Hong Nam-ki, second from right, speaks during a press briefing at the Seoul Government Complex, Thursday. Yonhap
By Lee Kyung-min
Consumption, social safety net strengthened
By Lee Kyung-min
The government's top priority in 2021 will be the containment of COVID-19, the continued spread of which will weigh heavily on the local job market and consumption, hurting the prospects of a much-needed economic recovery.
The Ministry of Economy and Finance announced its economic policy directives for 2021, Thursday, defined by increased emphasis on strengthening the social safety net to limit the fallout of the pandemic-induced massive job losses. The directives offer tax incentives to bolster consumption, which has stagnated due to the repeated rise of social distancing rules.
Experts say the overarching directive is a step in the right direction, but it lacks countermeasures in the event of further spread of the virus that shows no signs of immediate containment.
Also absent are measures to help small- and medium-sized enterprises (SMEs) which are in tatters due to repeated shutdowns amid the pandemic, which is set to become far worse with the number of new infections in the hundreds over the past few weeks, reaching as high as 1,000 per day.
The government seeks to restore economic vitality by measures to bolster consumption over investment and export, since the latter reported a better-than-expected performance, providing rare hope for the export-reliant country.
About 63 percent of the 558 trillion won ($511 billion) budget will be frontloaded in the first half of next year, to promptly implement its fiscal policy.
Financial Services Commission (FSC) will oversee a steady inflow of liquidity in the market, with policy financing to reach 494.8 trillion won.
In store are greater tax deductions on credit card spending, extension of individual tax cuts for car purchases and tax refunds for “high-efficiency” home appliance purchases mostly concerning expensive electronic goods such as TVs and refrigerators.
Employers will be granted greater tax incentives for hiring new workers, a measure the government says will bolster job creation coupled with 500,000 new job openings in the public sector in January 2021.
Efforts will be made to create a business environment spurring innovation and next-generation growth engines, a step toward a green, low-carbon economy. This is intended to narrow the gap between the haves and have-nots in the pandemic, backed by the expansion of the social safety net.
“The year 2021 will be a critical time to fully overcome the pandemic and for us to lead in the post-COVID-19 era,” Deputy Prime Minister and Finance Minister Hong Nam-ki said during a press briefing at the Seoul Government Complex.
“Consumption and employment, which are directly related to the people's livelihood, will be the key area of policy focus, especially given the operation restrictions involving in-person service providers.”
Seoul National University economist Kim So-young said tax incentives for credit card users and electronic goods purchases will have little desired outcome.
“Rather than helping a few electronic goods manufacturers, and a small group of relatively well-to-do people, the policy should have been more about ways to draw spending involving SMEs. Also concerning is a lack of preparatory measures against the third and fourth waves of the virus in the months to come.”