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Myriads of March campaign agendas and promises still linger, as a set of fresh policy directives (the directives, hereafter) of the incoming administration was recently released, expected to guide this government’s economic policy for five years. Although the presidential transition committee had announced its own version of policy recommendation containing 110 major projects just a few weeks ago, it was a set of mere suggestions of the committee to the President, having little binding effect upon the government. However, this time, the set of the new policy directives are manifested by the deputy prime minister, and strongly supported by the President, it was thus made the most forceful policy guidelines so far of the cabinets. Of course, many of the transition committee’s suggestions were absorbed in the directives, and could be introduced in the future as the economic situation shifts.
Above anything else, the most crucial element in the directives was a set of programs geared to achieve vibrant economic growth through private leadership. As the antithesis to the previous government’s income-led growth policy, the new administration put a great emphasis on the private sector’s leadership in investment, spending, and technological advancement. If the previous government had put the grandest policy emphasis on the complete removal and cleansing of the old evils and corruption, the incoming president underlines the importance of the people’s economic livelihood through providing more jobs and opportunities. While the old administration had tried to achieve almost everything under the auspice of the government, the new ministries are dedicated to provide much more freedom and autonomy to create jobs, economic growth and investments. The new government realizes that it is the private sector, not the government or the public sector, that creates growth, jobs, developments, and advancement. In this respect, the shift of the government could be epoch-creating and monumental.
To secure maximum autonomy in the private sector, it becomes ever more evident to remove all sorts of outdated, ineffective, and hidden regulations and red tape. So, the new government came to a conclusion that the removal of regulations has to be the most crucial and urgent task to guarantee private sector-led growth and job-creation.
This is why deregulation has been put to the very top of the list of more than 100 policy programs. To that specific purpose, the directives set forth a new governance scheme to put a permanent anchor on the deregulation procedure. The directive first promises to set up a new task force, especially for innovative economic deregulation, under the leadership of the deputy prime minister with numerous ministers and business leaders. This task force will be the most active, powerful and vigorous body to conduct deregulation operation under this government. This task force will be strongly supported by another important body of deregulation process, which is called the strategic committee of innovative deregulation under the leadership of the President. This strategic committee will be the supreme body directing the deregulation process of the government. With this task force and the strategic committee, individual ministry or public regulatory body will set up its own team of innovative deregulation which will conduct deregulation procedures at the floor level. In sum, this government’s innovative deregulation process will be executed by three key bodies: the strategic innovative deregulation committee, the task force, and the floor-level deregulation team.
Overwhelmed by such drastic shift of spirit on the part of the government, the business sector, full of hope and anticipation, reacted with the pledges that the Korean economy has never experienced. The top ten corporations promised to invest more than thousands of trillions of won in investment in the coming five years. The sheer size of investment equals about the half of total national investment between 2017 and 2021, and bigger than the total infrastructure investment of 865 trillion during that period. This will definitely boost economic growth and job opportunities.
The directives also include various audacious tax cut plans, designed to help encourage the entrepreneurial spirit. First of all, the corporate income tax rate for companies with annual revenues more than KRW 30 billion will be reduced from 25% to 22%. Second, the tax exemption rate for infrastructure investment for big corporations with total assets greater than KRW 10 trillion will be raised from 10% to 12%. Third, successors of small firms will get tax deferment for a certain period, and the characteristic of a small firm will be expanded from sales of less than KRW 400 billion to less than KRW 1 trillion won. With this audacious deregulation policy, monumental investment by the private sector, and an emergency care program for sluggish sectors, the hope is that the Korean economy could take a leap forward for the betterment for all. Of course, this is not without challenges. Global inflation will not come down in the immediate future, nor will the interest rate stabilize at least for the coming months. Many over-exposed to debt will suffer greater pain and toils to get through this dark tunnel of stagflation. An ever increasing number of people and firms have to rely on emergency income and financial programs to survive. The government fully realizes the potential multi-faceted risks surrounding the economy. If necessary, the government will be ready to propose a supplementary budget during this year as it has in the month of May.
Now, more than ever before, the economy has to depend on the private sector for economic growth, vigor, and vitality. The business sector has been in need of fundamental breathing room for operation, planning, and international engagement. If the previous government has been keeping a tight rein on the business sector, this government dares to reverse its course entirely, allowing greater freedom and autonomy, not for the sake of its own, but for the entire economy. Now, it depends upon the complete reversion of the bureaucrats’ attitudes.
Without a change in the behavior of the authorities, especially on the floor, the top level commitment for deregulation will not reach the business sector at the bottom. Without the willingness of thousands of government officials on the field to actually allow greater breathing room for the business, even the revisions of the laws or the ordinances by the authority could have little, if any, significant effects on the economy.
By Professor Se Don Shin
Professor Emeritus, Sookmyung Women’s University
The opinions expressed in this article are the author’s own and do not reflect the views of KOTRA