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| Ruling Democratic Party of Korea leader Lee Hae-chan, right, shakes hands with Vice Finance Minister Kim Yong-beom at the Korea Exchange's Seoul office on Yeouido, Wednesday, before announcing a plan to launch the K-New Deal fund. Yonhap |
By Lee Min-hyung
The government's initiative to create "K-New Deal" funds raises some concerns over the possible lead-up to tax revenue loss, as managing the funds without tax-driven financing will be difficult, market insiders said Thursday.
The government and the ruling Democratic Party of Korea (DPK) proposed the vision for the fund, Wednesday. The funds guarantee the return of principal to investors with an estimated annual 3 percent profit.
The drive is part of the government's recently-announced New Deal drive under which it will invest up to 160 trillion won by 2025 for job creation and longer-term economic vitalization. The government will finance part of the capital from private sectors, such as the New Deal fund which will be used for investment in social overhead capital regarding the fifth-generation (5G) network, autonomous vehicles and eco-friendly-related projects.
But the key question is how the government can guarantee the principal return without resorting to using a state budget or tax revenue, some critics said. The annual profit of 3 percent is also twice as much as deposit interest rates from commercial banks, and few funds offer such a stable yet mid-level return.
"There are few funds with deposit guarantees on the market," said an official from a local investment company. "Bond funds are considered one of the most stable financial products, but almost all of them do not guarantee principal returns," the official said.
The government did not share any details over how to guarantee the principal return, saying that no specifics have been fixed over the drive. Unsurprisingly, opposition parties are also stepping up criticism of the New Deal funds, taking issue with the "two-faced" economic policies pushed by the government.
The major opposition party claimed that the government would have to offer the funds' benefits at the expense of taxpayer money.
"The government does not have any specific plans to secure financial resources while pushing for such a policy, and the authority is apparently seeking to fulfill the drive by wasting taxpayers' money," one source said.
The government attempts to cover up its real estate fiasco by hyping up the vision of the fund management and by seeking to draw liquid capital on the market into the funds after freezing the local property market through regulations, according to the party.
