Economic Bulletin | KDI 경제교육·정보센터

Policy Issue

New Administration’s Economic Policies

I.Paradigm shift Background The economy has rapidly lost growth momentum since the 1995 Asian financial crisis . The economy is in a complex situation where low growth continues and income inequality worsens due to structural problems. It is time to shift the country’s growth paradigm from large production and fast follower-led growth to sustainable growth. New growth paradigm -Wage-led growth: Increased household income will be a new driver of growth. -Economy creating more jobs: The virtuous cycle of employment-distribution-growth will be restored -Fair competition: Economic participants will be rewarded more fairly according to what they contribute -Growth through innovation: The economy will be able to maintain 3 percent growth potential as regulations are changed in favor of fair competition and innovative SMEs II.New administration’s economic policies 1.Wage-led growth Work to increase households’ disposable income -Work to achieve a 10,000 won per hour minimum wage with the Minimum Wage Discussion Group: Discussions will include financial support for small merchants -Work to reduce basic living costs, such as housing, healthcare, transportation, communications and education expenses: Provide as many as 50,000 public housing units downtown, and introduce a new type of reverse mortgages, sale leaseback, in which home owners can sell their homes and continue to live in their homes by leasing them backSecure the income of the vulnerable group by strengthening social safety nets -Work to improve income distribution to the OECD average by expanding the eligibility for basic social security recipients and increasing EITC-Increase unemployment insurance: Make unemployment insurance mandatory for all employees and raise the unemployment insurance benefits to the OECD averageIncrease education investment to provide every Korean child with opportunities to grow qualified professionals -Reform public education in a way to develop creative human resources and help them prepare for their future careers -Increase public education support for it to cover the entire period from daycare centers to colleges-Introduce a system in which the socially vulnerable can have opportunities, such as through special admissions and increased educational support for low-income families2.Make the economy work for job creationPursue growth through job creationThe government will redesign its policy tools, including budgets and taxes, in a way to promote job creation.-Job creation to be the top priority in allocating budgets: Stricter job creation evaluation standards will be adopted and the outcomes will be reflected in planning budgets-Tax codes to be revised in a way to promote job creation: Increased tax incentives will be given when companies increase employment, shift temporary positions to permanent positions and raise wages.-Companies creating jobs, regardless of their nationalities, will receive prioritized supportPromote decent employment-Work to reduce temporary workers: Announce types of jobs which cannot be done by temporary workers, and increase burdens of hiring temporary workers-Achieve the 1,800 annual work hours, such as by lowering the legal limit on weekly work hours from 68 to 52Expand job markets-Budgets for expanding job markets will be increased at a faster pace than the total budget increase-Introduce innovative job training programs, such as work place job training to educate high quality workforce, job training programs specified to self-employed businesses and middle-aged job seekers, and job training for high tech workforce, designed to prepare themselves for the fourth industrial revolution-Strengthen tailored support: (Young adults) Public institutions will be obliged to fill more than 5 percent of their total positions with young adults, and SMEs will receive government’s extra incentives for hiring young adults, (Women) Woman job seekers will be able to use a total of 175 employment centers nationwide, mothers will be able to work reduced hours for an extended period of time, and entitlements during the maternity leave will be doubled for the first three months, (Middle-aged job seekers) The government will strengthen employment support for those wanting to change jobs as well as seeking jobs, and will increase social services jobs.3.Fair competitionRemove unfair practices-Work to get rid of unfair business practices between the owners and contractors, or buyers and suppliers-Get rid of unfair practices in the capital market, such as stock manipulation and accounting fraud, to make the market more transparent and to protect investorsEliminate price fixing and protect consumer rights-Strictly deal with price fixing, for example by introducing collective action and increasing finesImprove corporate governance to create a level playing field-Regulate transactions between parent companies and subsidiaries, and work to reduce cross shareholding in large conglomerates-Affiliates of insurance holding companies to be under stricter voting restriction-Small shareholders will be able to voice through multiple derivative actions, electronic voting and cumulative votingPursue shared growth and protect small merchants-Large shopping malls to be under business restriction, in addition to large supermarkets-Work on business models for shared growth: Promote profit sharing between large enterprises and SME contractors, and encourage large companies to share their distribution networks with SMEsPromote social economy-Lay the foundation for a social economy: Form an organization to work on policy development and implementation-Create an environment for a social economy to flourish-Establish a financial system which can better support a social economy-Prepare a roadmap to grow human resources4.Growth through innovationPromote cooperation and innovation to develop SMEs as the country’s growth engine-Support establishing networks to promote economies of scale for SMEs to enhance competitiveness-Introduce cooperative SMEs and remove barriers interrupting cooperation between SMEs Prepare for the fourth industrial revolution-Launch a presidential committee on the fourth industrial revolution in August-Promote demand-based RD programs, and work to develop the intelligence technologies, such as AI and IoT, to help them catch up with the most advanced as fast as possible Pursue opening to global markets and going to overseas market-Strengthen FTAs with ASEAN and India, and work on starting new FTA negotiations and striking new trade deals, to prepare for protectionism and move beyond China-Provide foreign companies with one trillion won worth of financing by the end of 2018 to encourage them to import products made by Korean SMEs, which is aimed at increasing the share of exports to total sales in SMEs to more than 40 percent-Promote young adult overseas employment: Improve K-Move centers and work to increase entry level professional jobs available to Korea’s young adults in international financial institutionsIII.Lay a solid foundation for economic policy implementation1. Risk managementHousehold debt management -Lower the household debt increase to single-digit growth within 2017-Promote the restructuring of mortgages in non bank financial institutions into long-term loans with an amortization scheduleWork for housing market stability-Work to avoid volatility in the housing market-Implement flexible and region-specific measures when necessary, and improve the eligibility standard for new home buyers to help the market work in favor of those who need a house to livePreemptive and strong restructuring-Carry out industrial risk assessment , liquidate potentially insolvent companies and work to improve competitiveness of the industryWork on external uncertainties, such as trade issues and Fed’s rate hikes-Seek to develop Korea-China services and investment FTA negotiations -Flexibly implement the macroprudential measures -Do our utmost to avoid being designated as a currency manipulator in the US currency report2. Seek policy innovation to support the new paradigmIncrease fiscal investment to help overcome low growth and income polarization-Study the effect of fiscal expenditures on distribution-Increase social expenditures taking into account ageing population, which were 10.4 percent to GDP in 2016-Taxation focusing on distribution : High income earners and large asset owners to be subject to higher taxes-Deliberately implement fiscal measures taking into consideration business cycles: Strengthen automatic stabilizers Public services and social responsibilities to be public institutions’ top priorities-Incorporate the pursuit of social value, such as job creation and business ethics, in evaluating public institutions-Raise the bottom line of project budgets for feasibility study, currently 50 billion won, and introduce indicators for social valuePromote venture capital through increased financing-Increase financing to encourage venture capital to invest at every stage of startup, growth and exitIV.Economic policies in the second half of 2017 and outlooks1. Economic situation in the second half-The global economy is expected to continue to grow as both advanced economies and emerging economies are recovering.-Risks linger, as oil prices continue to fall, major economies are likely to shift their monetary policy trends, and protectionism has been spreading.-The Korean economy is expected to continue to recover, but growth momentum will likely weaken.-Employment growth is expected to decelerate, and consumer prices will likely remain stable, but there are risks of prices becoming volatile if the weather conditions are unfavorable.2. Economic policies in the second half-Swiftly implement the supplementary budget: Work to spend 70 percent of the supplementary budget by the end of third quarter-Boost domestic consumption: Spend 100 billion won on replacing heating or cooling equipment at welfare centers with energy efficient ones, extend the VAT refund for foreign tourists’ plastic surgery expenses to the end of 2019, promote the use of tourist attractions for staging performance, work to introduce ‘Ch？que Vacances’ in which corporations and employees reserve funds for employees’ travel expenses and the government provides matching funds for the accumulation, and increase national holidays-Promote corporate investment: Revise ‘the tax on excess corporate cash reserves’ and the KDB to launch a 2 trillion won worth of corporate investment support program* For further details, please refer to the attached file.

Jul 2017