Moon's economic policies draw concern

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Moon's economic policies draw concern

By Yoon Ja-young

Despite favorable approval, the Moon Jae-in administration's ambitious plan to make a major shift in diverse economic and industrial policies faces a bumpy road strewn with a number of obstacles.

The economic policies of the Moon administration, which marks its 100th day Thursday, are in stark contrast to its past two conservative predecessors.

While the previous administrations sought quantitative growth, encouraging conglomerates to invest and the affluent to spend more through deregulation and tax cuts, the Moon government is focused on increasing the incomes of the working class to boost their buying and thereby leading to qualitative growth of the economy.

To increase household income, the administration has focused on creating jobs. His first order as President was to set up a jobs committee, a control tower for job policies. A few days later, he visited Incheon Airport to meet irregular workers, where he pledged to shift jobs to regular ones in the public sector. The minimum wage for next year will be raised by 16.4 percent following the presidential pledge that the minimum wage will be raised to 10,000 won by 2020.

While many experts agree that the previous export-led growth model is showing limitations, they also point out that there are constraints on an income-led growth strategy.

"Though the overall corporate performance is improving, there are many companies in marginal conditions and the ratio of the self-employed is also high. This means the wage hike can lead to fewer jobs," said Lee Geun-tae, an economist at LG Economic Research Institute, in a report.

He added that the huge household debt and structural contraction of consumption due to the aging population are also obstacles to income-led growth.

The new administration differs most with previous administrations in tax policies. While former President Lee Myung-bak slashed the corporate tax rate and his successor, former President Park Geun-hye, vowed there would be no tax hike despite social welfare policies, the Moon administration announced that it will raise taxes on conglomerates and high-income earners.

The main opposition Liberty Korea Party, meanwhile, says that the corporate tax hike is against the global trend and warns that it may prompt Korean businesses to move overseas.

"When businesses move overseas or start closing down, the country will fall into the worst situation where investment and employment deteriorate and tax revenue dwindles," said Kim Gwang-lim, the party's chief policymaker.

The opposition party is scheduled to hold a conference on problems of the Moon administration this week, starting from a review on its tax policies Thursday.

Those who support the tax hike say the Moon administration is being too timid, pointing out that its social welfare pledges will cost far more than the 178 trillion won estimated by the government for the next five years.

Tax experts also point out that nearly half of workers are exempt from paying taxes. "When considering that paying taxes is the constitutional duty of the people, the government should decrease the number of people who are exempt from taxes and make more people shoulder the burden," said Kim Jae-jin, a senior fellow at the Korea Institute of Public Finance.

The Moon administration also declared war against real estate speculators, unlike the former Park Geun-hye administration which deregulated the real estate market to help pull up economic growth. The new administration made it clear that economic growth from a real estate boom isn't healthy.

While prices of apartments in Seoul started to fall following the anti-speculation measures announced Aug. 2, analysts say it needs more cautious plans, pointing to the failure of the former Roh Moo-hyun administration.

"If investors become skeptical about the policies, they will lose trust. The market needs more concrete plans based on consistency, while inducing the liquidity in the real estate market to head toward a productive real economy," said Kim Cheon-koo, a researcher at Hyundai Research Institute.

By Yoon Ja-young

Despite favorable approval, the Moon Jae-in administration's ambitious plan to make a major shift in diverse economic and industrial policies faces a bumpy road strewn with a number of obstacles.

The economic policies of the Moon administration, which marks its 100th day Thursday, are in stark contrast to its past two conservative predecessors.

While the previous administrations sought quantitative growth, encouraging conglomerates to invest and the affluent to spend more through deregulation and tax cuts, the Moon government is focused on increasing the incomes of the working class to boost their buying and thereby leading to qualitative growth of the economy.

To increase household income, the administration has focused on creating jobs. His first order as President was to set up a jobs committee, a control tower for job policies. A few days later, he visited Incheon Airport to meet irregular workers, where he pledged to shift jobs to regular ones in the public sector. The minimum wage for next year will be raised by 16.4 percent following the presidential pledge that the minimum wage will be raised to 10,000 won by 2020.

While many experts agree that the previous export-led growth model is showing limitations, they also point out that there are constraints on an income-led growth strategy.

"Though the overall corporate performance is improving, there are many companies in marginal conditions and the ratio of the self-employed is also high. This means the wage hike can lead to fewer jobs," said Lee Geun-tae, an economist at LG Economic Research Institute, in a report.

He added that the huge household debt and structural contraction of consumption due to the aging population are also obstacles to income-led growth.

The new administration differs most with previous administrations in tax policies. While former President Lee Myung-bak slashed the corporate tax rate and his successor, former President Park Geun-hye, vowed there would be no tax hike despite social welfare policies, the Moon administration announced that it will raise taxes on conglomerates and high-income earners.

The main opposition Liberty Korea Party, meanwhile, says that the corporate tax hike is against the global trend and warns that it may prompt Korean businesses to move overseas.

"When businesses move overseas or start closing down, the country will fall into the worst situation where investment and employment deteriorate and tax revenue dwindles," said Kim Gwang-lim, the party's chief policymaker.

The opposition party is scheduled to hold a conference on problems of the Moon administration this week, starting from a review on its tax policies Thursday.

Those who support the tax hike say the Moon administration is being too timid, pointing out that its social welfare pledges will cost far more than the 178 trillion won estimated by the government for the next five years.

Tax experts also point out that nearly half of workers are exempt from paying taxes. "When considering that paying taxes is the constitutional duty of the people, the government should decrease the number of people who are exempt from taxes and make more people shoulder the burden," said Kim Jae-jin, a senior fellow at the Korea Institute of Public Finance.

The Moon administration also declared war against real estate speculators, unlike the former Park Geun-hye administration which deregulated the real estate market to help pull up economic growth. The new administration made it clear that economic growth from a real estate boom isn't healthy.

While prices of apartments in Seoul started to fall following the anti-speculation measures announced Aug. 2, analysts say it needs more cautious plans, pointing to the failure of the former Roh Moo-hyun administration.

"If investors become skeptical about the policies, they will lose trust. The market needs more concrete plans based on consistency, while inducing the liquidity in the real estate market to head toward a productive real economy," said Kim Cheon-koo, a researcher at Hyundai Research Institute.

Yoon Ja-young yjy@koreatimes.co.kr


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