South Korean President Moon Jae-in presides over the Bleu House’s sixth emergency economic council meeting on June 1. (Blue House photo pool)
The South Korean government has decided to spend 31 trillion won (US$25.3 billion) over the next three years on a “Korean New Deal” that’s aimed at creating new growth following the COVID-19 crisis. The government’s plan is to strengthen the country’s data, networking, and AI ecosystem and build infrastructure for remote education and telemedicine while giving public facilities and leading manufacturers an eco-friendly makeover, a process that should create 550,000 sustainable jobs through 2022.
The government has also decided to prepare a third revised supplementary budget, the largest in the country’s history, to swiftly counteract the economic contraction likely to result from the coronavirus pandemic. The supplementary budget is supposed to focus on stimulating domestic consumption and investment and expanding employment and the social safety net. The government will also be bolstering tax breaks and on-site support for “reshoring” firms that bring overseas manufacturing operations back to Korea.
These and other measures were included in the economic policy plan for the second half of the year that was adopted by the government on June 1 in its sixth emergency economic meeting, presided over by President Moon Jae-in. “We will aggressively implement the Korean New Deal with our country’s future on the line. While transforming the temperament of our economy from a follower to a leader, we will create a large number of jobs that will bring us new opportunities,” Moon said.New Deal’s 2 main components: green and digital
There are two major components to the Korean New Deal, which the government hopes to initiate in the second half of the year: a Digital New Deal based on data, 5G, and AI and a Green New Deal that will include “green remodeling” of public spaces to eliminate carbon emissions.
Seoul also intends to include measures to bolster the employment safety net. The government plans to invest 76 trillion won (US$62.1 billion) in the Korean New Deal through 2025. By the end of Moon’s term in office, in 2022, the government will have spent 13.4 trillion won (US$10.9 billion) on the Digital New Deal, 12.9 trillion won (US$10.5 billion) on the Green New Deal, and 5 trillion won (US$4.1 billion) on bolstering the employment safety net, representing 31.3 trillion won (US$25.6 billion) altogether, with the goal of creating 550,000 jobs. In July, the government will release a comprehensive plan for the Korean New Deal that will include specific figures and schedules.
Seoul has set its sights on stimulating spending and investment to engineer an economic recovery in the second half of the year. First, the government intends to distribute 168.4 billion won (US$137.5 million) worth of coupons in eight areas — accommodations, exhibitions, sightseeing, sports, concerts, eating out, movies, and agro-fisheries — to 16.18 million Koreans in order to promote 900 billion won (US$734.9 million) of spending. In order to encourage companies to engage in facility investment, the government will also be rolling 10 facility investment tax credit programs into one simplified program and greatly increasing the range of activities eligible for the tax credit.Reshoring companies allowed to construct factories within Seoul Capital Area
Companies that reshore their operations (called “U-turn companies”) will be provided with factory sites in the Seoul Capital Area (SCA) as permitted by zoning regulations. While the government had restricted corporate tax and income tax breaks to reshoring companies that reduced output in overseas operations by more than 50%, it will now be eliminating that restriction and providing tax breaks proportional to the amount of reduced output. Furthermore, the government plans to look into ways for conglomerates such as SK and LG, which are currently organized around holding companies, to set up venture capital firms as subsidiaries or sub-subsidiaries so as to energize the venture capital sector. In addition, the government intends to allow the use of dual-class stocks with the goal of supporting the growth of start-ups.
The government said it hopes to use this expansion of fiscal spending and easing of regulations to maintain economic growth for 2020. On Monday, the government sharply lowered its yearly economic growth rate forecast from 2.4% (the forecast made in December 2019) to 0.1%. Since both the International Monetary Fund (-1.2%) and the Bank of Korea (-0.2%) have forecast negative growth, the government’s figure reflects its strong determination to mobilize all available fiscal resources to prevent an economic contraction.
By Lee Jeong-hun and Lee Kyung-mi, staff reporters
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