South Korea will strengthen its current income-led growth policy after making some revisions to deal with shortcomings, with the goal of benefiting the country going forward, the country's top economic policymaker has said.
In an interview with Yonhap News Agency in Seoul on Friday, Finance Minister Hong Nam-ki said every effort is being made to speed up the process of getting the Moon Jae-in administration's main economic policy to bear fruit.
The stance comes as income inequality among South Korean households hit a record high in the fourth quarter of 2018, prompting calls for greater support to lower income earners and a review of current policies centered on such goals as raising the minimum wage, which some critics argue is exacerbating the situation.
Hong said that policymakers may have focused too much on adjusting the country's minimum wage.
He said that once related laws are passed by the middle of next month, the country will be able to set the minimum wage for next year based on the new rules, hinting that Seoul may reflect claims by small time businesses that argue a spike in wages is causing more of them to close their doors and make it harder to hire workers.
Next year the minimum wage should be determined around July.
The state-set minimum wage rose 10.9 percent to 8,350 won (US$7.51) per hour this year from 7,530 won last year and rose some 30 percent from 6,470 won in 2017, when President Moon came into office. He has vowed to increase the country's minimum hourly pay rate to 10,000 won by 2020, though he has hinted at a possible delay amid worsening economic conditions.
Hong added that while the wage increase may have been pushed forward at a slightly faster pace, and policymakers failed to predict some of the fallout, the goal itself should not be altered.
"Measures to provide more to workers and increase the social security net has been a consistent policy of all past administrations, and this should continue into the future," the top official emphasized.
The finance minister then said the government is committed to creating more jobs with its fiscal resources and will expand the Earned Income Tax Credit system and basic pensions for the elderly, as well as monetary assistance for young people.
He said that every effort will be made to create 150,000 new jobs for the whole of 2019, although making it clear that creating good-paying jobs can only be handled by the private sector.
"With the private sector moving to increase more positions, government increasing spending to make jobs and concerted efforts to help the underprivileged conditions will turn around in the second half of this year," he said.
Cars and containers awaiting shipment at the port of Pyeongtaek (Yonhap)
On the all important export front, Hong said it may be hard for a turnaround to take place for February, and that there will likely be fluctuations in the first half as a whole, with things likely to get better in the second half.
"The drop in semiconductor prices are taking place at a faster pace than anticipated, while a drop in crude prices impact the economy," he said.
Chips and refined petroleum products are key parts of the country's outbound shipments.
Exports for Asia's fourth-largest economy moved up 8.3 percent in terms of volume but dropped 13.1 percent in value. This trend has impacted other Asian countries, including Japan, Taiwan and Singapore.
The policymaker said that Seoul plans to announce a plan to breathe new life into exports on March 4 with an emphasis on providing more trade-related financial support to businesses.
Hong then said that the government is contemplating a lower securities transaction tax that can bolster the local stock market and vitalize the financial market.
"The government is comprehensively looking at the impact such a course will have on the financial and fiscal sectors," the top official said.
He, however, made clear that nothing has been decided on the scope and timing for such a move. Hong added that while there are rumors circulating that Seoul may scrap the tax altogether, these speculation are not based on facts.
The tax first introduced in 1963 levies dues on all stock transactions regardless of whether such a move generated profit. It was scrapped in 1971 but reinstated in 1978, with the tax rate standing at 0.3 percent, including the special tax for rural development.
In 2018, the government collected a record high 6.2 trillion won in securities taxes, up 1.7 trillion won more than the year before.
Policymakers have taken flak for holding onto the tax or not making adjustments that better reflect the times and ease the cost for investors that can breathe new life into the securities market.
On the issue of the transfer income tax for stocks, Hong said that the rate for levying dues will not be altered, but those subject to paying the taxes will be gradually expanded till 2021.
At present only people owning more than 1.5 billion won worth of securities is subject to the rule, but this will be lowered to 1 billion won in April 2020 and 300 million won in April 2021.
He added that at present, the government is not looking at revising the stock transfer tax plan, adding that a task force assigned to look into all related matters will release its findings in the middle of 2020. (Yonhap News)