Moon seeks to boost economy through job creation, income hike
SEOUL/SEJONG-- President Moon Jae-in has championed job creation and increased household income as a way to put South Korea on the path of sustainable economic growth that can benefit all people.
Moon has vowed to create 810,000 "quality" jobs in the public sector during his single five-year term in office that ends in 2022.
Last month, the National Assembly, despite some objections, passed the 11.03 trillion-won (US$9.8 billion) supplementary budget bill that aims to create 2,575 central government jobs, giving a much-needed boost to Moon.
Asia's fourth-largest economy has been struggling to create more jobs for people, especially young people.
The unemployment rate for young people, aged between 15 and 29, stood at 9.3 percent in July, much higher than the overall jobless rate of 3.5 percent, according to government data.
The chief executive who came to office in May has also vowed to push to make public sector nonregular workers into regular employees with greater job security and higher pay. He has encouraged private businesses to follow suit and increase the number of regular workers on their payrolls.
In a move that demonstrated Moon's commitment to "income-led growth," the government and union representatives agreed on a 16.4 percent hike of the minimum pay to 7,530 won (US$6.73) for 2018, with an ultimate goal of reaching 10,000 before the president steps down from office.
Moon's economic policy showed that he is pursuing a so-called trickle-up effect, which means that strengthened welfare for low-income people could lead to rise in spending, which in turn could have positive on the overall economy.
The move underscored Moon's efforts to narrow the yawning gap between the rich and poor.
South Korea's total income distribution released by Statistics Korea reached 9.32 last year, meaning that the top 20 percent income bracket had nine times more earnings than those in the bottom 20 percent.
The liberal president's policy is a departure from measures advocated by past conservative government that pushed for "trickle down" economics, a theory that wealth trickles down from big firms to smaller firms, and to mom-and-pop stores and low-income people.
Big firms have made more money, though these gains have failed to benefit households as a whole. Many big companies have been accused of hoarding earnings instead of making investments and hiring more workers.
Still, some critics question income-led growth, which calls for, among other things, increasing household income and spending with the help of various policy tools to fuel sustainable economic growth.
Yun Chang-hyun, a professor of finance at the University of Seoul, said highlighting the good aspects of income-led growth is understandable, and believed it to be good intentioned, but cautioned that the policy is focused in a way that increases burden on employers and can weaken efficiency. He cited rise in minimum wage as a prime case that can lead to this problem.
The government has said it will raise tax rates for the "super-rich" and big money-making companies in an apparent move to finance Moon's pledges to create jobs and expand social welfare.
Moon's policy advisory panel has said the government needs 178 trillion won to boost welfare and carry out Moon's other key campaign promises.
Under its biannual tax revision plan, which is subject to parliamentary approval, the government said it will increase the income tax rate from the current 40 percent to 42 percent on people whose taxable income exceeds 500 million won per year.
It will also create a new income bracket for those making 300-500 million won with tax rates for these individuals set at 40 percent.
At the same time, the government will newly set the highest corporate tax bracket for businesses with taxable income of 200 billion won or more and impose 25 percent rates. Companies with income in the 20-200 billion won range will be subject to the current rate of 22 percent.
Separately, the government has vowed to keep a close watch on the real estate market and vowed to root out real estate speculation by taking additional steps, if necessary.
Tackling real estate speculation is important because even if personal income goes up, if people have to pay more to buy homes, they will have less money to spend, that will not be helpful in boosting the overall economy.
Earlier this month, the government designated all 25 districts in Seoul and two other cities as "overheated speculative districts" in a move to stabilize the country's overheating housing market.
The government has, moreover, adopted stricter rules, which require multiple-home owners to pay higher capital gains taxes when they sell their houses. The owners of two houses or more already pay a substantial sum when they sell their homes.
As for lending rules, that have been cited for the spike in household debt, the government has reduced the loan-to-value and debt-to-income ratios to 40 percent for home purchases in all the designated speculative and overheating speculative districts.
The government is set to unveil comprehensive measures later this month on how to tackle rising household debt.
As of end-March, South Korea's overall household debt came to a record high of 1,360 trillion won, up 11.1 percent from 1,224 trillion won a year earlier.
Observers have said the size in household debt has prevented people spending more money, which has hurt domestic consumption and growth.
Source: Yonhap News Agency