The economy is expected to achieve more than 3 percent growth for the first time in three years in 2017, although the growth was led by some sectors and unemployment has been rising.
In 2018, this recovery momentum will continue amid strong global economies and improving domestic consumption. However, there are uncertainties as to rising interest rates, protectionism and growing competition in global trade due to narrowing technology gap among manufacturers. In addition, challenges arising from changing industries and demographics make it more complicated to find jobs, and some of the country’s major industries, such as shipbuilding and car-making, have been slowing down without services and new industries, which can replace the role of those industries, properly developing. The economy also needs to encourage SMEs, prepare for low birth and ageing population, and increase woman employment.
The 2018 economic policies were devised to cope with those challenges, focusing on improving income and pursuing ‘growth through innovation’.
Framework for the 2018 policies
- Create jobs and improve income
- Pursue ‘growth through innovation’
- Promote fairness
- Work for macroeconomic stability
- Work to address mid- to long-term challenges
2018 economic policies
1. Create jobs and improve income
The government will work for decent job creation and stronger welfare, pushing towards income-led growth.
- Revise support to simulate decent job creation in the private sector: Reform the incentives for foreign investment and reshoring businesses in a way to promote employment and stimulate new industries, and introduce tax breaks for SMEs that hire more, including women trying to return to work after maternity leave
- Improve employment services for young adults: Launch various kinds of programs to match young job seekers to SMEs, such as building up DBs for SME employers and job seekers, and launching job training programs for vocational school graduates, and help find jobs overseas
- Work to increase public sector jobs as fast as possible through front-loaded budget spending
- Work to improve income
1) Minimum wage increase: Successfully carry out the minimum wage support , which should be temporary, work to refine the minimum wage system, and revise the EITC and other welfare benefits to reflect the effect of the minimum wage support
2) Protect employees: Revise regulations on unpaid wages to make it easier for employees to collect their unpaid wages (employees can claim unpaid wages two months after the payment delay, a cut from the current seven months), and increase the supervision of such unfair practices
3) Promote cooperation between large conglomerates, SMEs and employees: Develop models for cooperation and profit sharing, work on tax and other incentives to promote cooperation, increase the large conglomerate-SME cooperation fund , encourage large conglomerates to expand cooperation to SMEs that are not their affiliates, come up with a mid- to long-term roadmap to phase out promissory notes, and improve the evaluation system and give corporations increased incentives if they provide a good example
4) Work on a performance-based pay system: Develop different performance-based evaluation standards for different jobs, as well as a guideline to ensure equal pay for men and women
- Ensure work-rest balance: Gradually introduce reduced working hours and expand support for the wage cut that may follow, and promote taking annual leave, such as taking two-week summer vacation
- Reduce the burden of living expenses in five areas of housing, healthcare, education, transportation and communications
1) Housing: Increase public housing for rent
2) Healthcare: Expand the range of treatment covered by the National Health Insurance
3) Education: Expand a 50 percent tuition cut and improve student loan programs to reflect the borrower’s future income as well as to ease the repayment burden
4) Transportation: Work to reduce public transportation costs
5) Communications: Introduce a new mobile plan with reduced costs
- Expand support for low-income households: Strengthen social safety nets by increasing entitlements, such as unemployment benefits (50% → 60% of the average wages received), housing benefits (up 6.5%), education benefits (up 70%) and increased opportunities to get into law schools and school of medicine graduate programs (5% of the total getting into the programs to be set aside)
2. Growth through innovation
The government will promote ‘growth through innovation’ across all areas of the economy, and will work to achieve fast and tangible outcomes through projects designed to lead ‘growth through innovation’.
- Produce outcomes felt by the Korean people through projects designed to lead ‘growth through innovation’: Increase spending on R&D and other financial support to develop projects that will lead ‘growth through innovation’, which will range from establishing infrastructure, such as building big data centers and networks, to developing fintech and driverless cars
- Promote innovation in science and technology: Work on promoting big data industries, intelligent network development and R&Ds on AI
- Pursue innovation across industries
1) Financial sector: Develop the KOSDAQ market to support innovative SMEs more efficiently than the KOSPI market and encourage pension funds to increase their investment in KOSDAQ shares, and promote technology-based lending rather than asset-based lending
2) Services: Promote innovation in cultural content development, tourism, education, environmental technology, healthcare and public services
3) Agriculture, livestock production and fishery: Work on building a cluster where producers and distributors are connected through smart devices, make technology-based lending available, provide the same level of startup support as given to startups in the manufacturing sector
4) New businesses: Develop ICT-based, or other new technology-based, business models, such as smart logistics, IoT home appliances, smart transportation and tourism, customized healthcare and shared economy
5) SMEs: Increase financial support through state-owned banks and encourage cooperation among SMEs
6) Create an environment that encourages innovative startups: Launch an innovative venture fund worth around 2.7 trillion won, promote the KOSDAQ market as well as innovative financing, such as technology-based lending, and support those failed when they re-try by easing their financial burden
7) Strengthen major industries: Find a way to increase competitiveness of the shipbuilding, marine and automobile industries by the end of the first quarter
- Grow human resources: Introduce new programs to secondary schools, which are aimed at encouraging creative learning, revise the country’s job training system and introduce a joint training program led by the industrial cluster, and increase job training support for novice workers, small self-employed businesses, young adults and women trying to return to work
- Reform the labor market and improve regulations: Work for increased cooperation between management and employees, adopt a regulatory sandbox, and lift or revise regulations that seem to discourage innovation after looking them over one by one
- Encourage businesses to expand into new markets: Work on new trade policies to cope with changes in global trade, increase support for SME exporters, and provide financial support to companies building infrastructure overseas
3. Promote fairness
The government will work for the outcomes of growth to be felt by every household, small businesses and provinces by correcting unfair practices, promoting cooperation and boosting local economies.
- Get rid of unfair practices: Increase penalty for unfair practices, and introduce measures to get rid of unfair treatment of contractors providing goods or services, franchisees and subcontractors
- Work to improve corporate governance: Work to introduce a stewardship code and set out stewardship by the national pension fund and other institutional investors
- Boost local economies: Work to develop industrial clusters nationwide, and work to reform local governments’ fiscal systems to be less dependent on the central government
- Protect small businesses: Reduce the burden of credit card transaction costs, and work to help them avoid being victims of gentrification
- Seek fairer taxation: Work on tax revision in mid- to long-term perspectives, impose tax on rental income and examine the revising of property taxes, and increase the EITC and other support for the working class
- Work for a social economy: Establish infrastructure necessary, such as statistics, financial system and distribution channels
- Reform the public sector to be more responsible, voluntary and innovative: Revise evaluation standards, introduce a ‘same pay for same job’ system, and work to get rid of cronyism
4. Work for macroeconomic stability
The government will work for the economy to maintain growth momentum, and will strengthen its risk management.
- Increase investment: Increase spending on housing, public safety and urban renewal
- Boost consumption: Promote tourism, including the 2018 Pyeongchang Winter Olympics, and revise the anti-graft act
- Prepare households and corporations for interest rate hikes: Work to increase fixed rate loans and expand financial consulting services, launch workout programs for mortgage borrowers, such as sale and leaseback, and expand corporate bond purchase programs if necessary
- Strictly manage external risks: Closely monitor global financial markets, expand IR meetings to investors in Hong Kong, Singapore and Shanghai, and cope with protectionism and other trade related issues, such as those concerning Korea-US FTA and Korea-China FTA
5. Address mid- to long-term challenges
The government will work to prepare for changes in the future, such as low birth rates and ageing population.
- Make mid- to long-term plans along with fiscal spending plans: Include the four tasks in the plan, which are 1) coping with demographic changes, 2) pursuing innovation in industries, science & technology and education, 3) successfully responding to changes in global trade, and 4) improving distribution, and increase fiscal spending to respond to social issues, such as a growing income gap
- Work to increase birth rates by providing support which reflects different need in different time: Provide affordable housing for the newly married and make various kinds of daycare services available
- Promote woman employment: Work to raise the female employment rate to the OECD average by 2022, such as by promoting the use of maternity leave, encouraging women to return to work after maternity leave and outlawing discrimination against women in workplaces
- Work to ease senior poverty: Increase national pension benefits given to poor seniors and reduce the number of seniors left out of the national pension plan, promote private pension plans by giving tax incentives, expand basic pension benefit recipients, and promote reverse mortgage pension schemes
- Growth: Around 3.0 percent growth is expected with a nominal growth rate projected to be 4.8 percent. A slowdown in the nominal rate is due to the slowly growing GDP deflator amid low consumer price inflation and export prices.
- Employment: A total of 320,000 jobs, the same level as 2017, are expected to be added to the economy.
- Inflation: The annual consumer price inflation is projected to be 1.7 percent with steady oil prices and fresh food prices.
- Current account balance: The current account surplus is expected to decline to US $79 billion, as exports are projected to increase 4.0 percent and imports to rise 6.0 percent.