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(News Focus) Economic policies to focus on income-led growth, long-term expansion

All Headlines 15:11 December 27, 2017

By Park Sang-soo

SEJONG, Dec. 27 (Yonhap) -- The economic policy plan for 2018, charted out Wednesday, heralds a paradigm shift toward boosting income and innovation-led growth for Asia's fourth-largest economy and laying the foundation to secure a mid-and-long haul economic expansion.

It marks a full-fledged move to realize President Moon Jae-in's slogan of "income-led growth," which calls for increasing household income and spending with the help of various policy tools to fuel sustainable economic growth.

Under such measures, the government hopes the economy will achieve a growth of over 3 percent in 2018 for two years in a row for the first time in seven years, and per capita gross domestic product (GDP) will surpass US$30,000 in 2018 on solid outbound shipments and firm domestic spending.

South Korea would become the third country in Asia to achieve the landmark after Japan and Australia, and ninth among the members of the Organization for Economic Cooperation and Development.

In the past, South Korea has been heavily reliant on exports, but the government wants to put more focus on domestic spending to secure sustainable growth. Among others, the government highlights a need to address the chronic polarization of wealth as the county has to seek balanced growth that allows both households and businesses to enjoy the fruits of economic development.

(News Focus) Economic policies to focus on income-led growth, long-term expansion - 1

Under the road map, the government will implement economic policies under three key principles: a job-creating economy, innovative growth and a fair economy.

The most urgent task facing the Moon administration is to offer quality jobs with good pay. In its initial step, South Korea decided in July to increase its minimum wage by 16.4 percent in the new year, marking the biggest jump in about two decades.

Although the minimum wage hike is one of the government's strategies to boost private consumption and narrow the income gap, small and medium-sized businesses expressed concerns about higher labor costs.

Earlier, the government said it will provide some 3 trillion won ($2.76 billion) in aid to help small businesses deal with the minimum wage hike.

The government is determined to further raise the minimum wage in Asia's fourth-largest economy to at least 10,000 won by 2020 on the belief that it is time to break the economy away from an export-dependent growth path.

In line with the income-led growth scheme, the government's new taxation policies and economic tools, including social welfare and education subsidies, will be redesigned to place priority on creating jobs and redistributing income in a way that reduces the gap between the haves and the have-nots.

The government will offer expanded financial support to people in accordance with the stages of their life cycle to help households have more income and spend more.

In order to secure long-term and sustainable growth, the government believes that local firms should brace for innovation, which means they seek cross-border technologies and the infusion of ICT technologies.

The government will help facilitate local firms' moves toward innovation through a series of measures, including taxation, according to the finance ministry.

To finance their innovative steps, the government will offer a variety of incentives to the Kosdaq-listed firms and state pension funds will expand their exposure to them, it added.

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The ministry said the government will take measures to root out unfair business practices among suppliers. Earlier, the Fair Trade Commission (FTC), the country's corporate watchdog, vowed to carry out sweeping reforms to root out unfair business practices and strengthen consumer protection.

The FTC said it would impose punitive damages of up to three times the actual losses incurred by illegal business practices, such as unfair payment, returns and cutting back supplied goods, that occur between large shopping mall operators and smaller partners.

Also, the government will work to improve the corporate ownership structure and beef up shareholders' rights, as well as curb a group owner's influence on affiliates.

The government will also take measures to tackle the country's low birthrate.

The low birthrate, which has lasted for decades in South Korea, coupled with an increased aging population, is feared to drag down the workforce in Asia's fourth-largest economy and drive up welfare costs, undermining the growth potential of the economy as a whole.

The South Korean government has announced a series of plans, including child subsidies and expanded maternity leave, to encourage people to have more babies, but most of them seem to have fallen short of expectations.

Last year, an all-time low of 406,300 babies were born, with the country's total fertility rate reaching a seven-year low of 1.17.

The government also attempts to expand bilateral trade pacts with Asian countries and other emerging nations to cope with growing trade protectionism.

In particular, the Seoul government is set to launch a series of talks on the renegotiation of the free trade pact with the United States next year, and follow-up free trade talks on the service and investment sectors with China as well.

The government said it would take stern measures against import regulations that run against international norms and provide support to local construction firms seeking to go overseas, the ministry said.

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