Desperate measures for near-desperate times. China is not the only one that manipulates its currency. The US, South Korea and others do the same. How fairly each country does so is largely in the eye of the beholder and longer-term economic/political considerations. But below you have it in terms of current ROK economic policy and action.
Government Unveils 5.9 Trillion Won Stimulus Measures
Samsung Economic Research Institute
Sept. 17, 2012
The Ministry of Strategy and Finance announced on September 10 a new stimulus package in an effort to revitalize the lackluster domestic economy. The ministry said that it will provide a total of 5.9 trillion won worth of fiscal support; 4.6 trillion won for this year and 1.3 trillion won for next year. This move came after the government’s announcement in June to inject 8.5 trillion won for the second half of 2012.
Currently, the Korean economy is facing weak domestic demand and exports amid the prolonged eurozone debt crisis and global economic slowdown. Furthermore, business and consumer sentiment are decelerating at a faster pace than the actual reality of the domestic economy. It is also worrisome that the country’s real estate market has hardly recovered from the long stagnation.
Above all, the additional fiscal support can be characterized by tax cut policies. According to a report released by the Ministry of Strategy and Finance, the government will slash real estate acquisition taxes by 50% for home purchases for the rest of this year and will exempt capital gain taxes for unsold houses for five years. Under the plan, individual consumption taxes on large home appliances such as TVs and automobiles will be lowered 1.5 percentage points. In addition, withholding taxes for earned income will be cut by 10% on monthly average to boost disposable income of wage earners.
The government also came up with measures to boost investment. According to the government plan, the private sector will be encouraged to expand its investment in social infrastructure projects, and the government’s investment in state-owned companies will also increase. The government will also provide stronger support for small and medium-sized enterprises and venture businesses by increasing the amount of venture capital to be financed for them.
Meanwhile, the government is planning to spend 400 billion won on facilitating the relocation of major government organizations to provincial cities. Furthermore, it will increase local government budget spending by 1.6 percentage points compared to the previous year. The new stimulus package also includes measures to enhance the social security net for low income families. The government said that it will increase the number of families who are eligible for emergency social security benefits provided by the government and increase financial support for employers so that they can maintain business and hire more workers.
“We came up with these measures to improve the shrinking consumer and business sentiment and boost growth momentum. This time, we tried to harness every possible fiscal and administrative option and focused on areas where the effect can be materialized within this year,” the Ministry of Strategy and Finance said. In the meantime, some critics say that the measures could be only stopgaps in helping revitalize the economy. Some voice concerns that the additional stimulus package could prevent the government from achieving a balanced budget next year due to increased expenditures and decreased tax revenue.