The South Korean government unveiled economic measures for the second half of the year focused on supporting debt-ridden small and medium-sized business owners as the economic recovery remains uneven.
President Yoon Seok-yeol announced a 25 trillion won ($18 billion) aid package for debt-stricken small and medium-sized business owners and the self-employed at a meeting at the Blue House on Wednesday to discuss the direction of economic policy for the second half of the year, and called for structural measures.
“Although macroeconomic indicators are improving, it is unfortunate that this has not yet translated into economic revitalization in people's lives,” he said.
The package includes extending loan repayment terms by up to five years and cutting interest rates for up to 800,000 people, as well as regulatory reforms to reduce fixed costs such as rent and utilities.
Yoon listed recent signs of economic recovery, including exports increasing for the ninth consecutive month in June, consumer prices stabilizing with inflation at the 2% level, and economic growth of 1.3% in the first quarter.
The Finance Ministry on Wednesday raised its growth forecast for 2024 to 2.6 percent from 2.2 percent in January, buoyed by rising exports due to a recovery in the global economy and a rebound in the semiconductor market.
The government has laid out its economic plan for the second half of the year, emphasizing that policy efforts will prioritize a broader economic recovery, extending to sectors that have been less affected because of weak domestic demand and an uneven recovery.
The president expressed concern about rising debt defaults among small business owners hit hard by the COVID-19 pandemic and said a one-time cash handout was merely a populist stopgap measure.
“We will provide sufficient support tailored to small and medium-sized business owners who are in dire need of assistance and promote structural measures,” he said.
The government presents its economic outlook every six months and sets out the major economic policy agenda it will pursue over the next six months.
At Wednesday's meeting, the government also unveiled what it called a “dynamic economic roadmap” that includes medium- to long-term agendas for implementing structural reforms declared by the Yoon administration to achieve the goal of restoring economic vitality for sustainable growth.
Below are key points from the economic policy plan for the second half of the year and the roadmap for making the economy more vigorous.
“Value-up” tax incentives
Authorities aim to address the “Korea discount” issue through shareholder returns and improved corporate governance, offering tax incentives to companies that increase dividends and promoting the separation of income tax for shareholders.
The corporate tax rate for companies that participate in the “Corporate Value Improvement Program,” which allows companies to voluntarily propose measures to increase their corporate value such as increasing dividends or canceling their own shares, will be reduced by 9 to 14 percent from the second half of this year.
This reduces shareholders' tax burden on dividend income.
Under current tax law, dividends earned from domestic stock investments are subject to a 14% dividend income tax. If dividend income exceeds 20 million won per year, it becomes subject to a comprehensive financial income tax, with the tax rate rising to a maximum of 45%.
For shareholders of companies that are increasing their dividends, separate taxation on dividend income will be applied, reducing the 45% tax rate by up to 20%.
AI chips, quantum technology
The government has selected artificial intelligence semiconductors, quantum technology and biotechnology as key areas for productivity innovation, and pledged to fully support these sectors in terms of investment and taxation.
A cross-government task force will be formed to develop AI semiconductors and establish related laws and governance systems.
Financial support worth 18.1 trillion won is expected to be provided to the entire semiconductor ecosystem in the second half of this year.
The national research and development budget for quantum technology next year will increase by more than 30 percent from last year, and strategic research and development will be promoted by setting short-term and long-term goals such as commercialization and securing cutting-edge technology.
Increasing number of foreign workers
To address the labour shortage, the government is looking to increase employment of foreigners in key areas, including by expanding employment opportunities for E-9 non-professional visa holders in the restaurant sector, which is currently limited to kitchen assistants in Korean restaurants in certain regions.
The government also announced it would move forward with a 5,000-person pilot project to allow spouses of international students and foreign workers to work as domestic workers.
Meanwhile, the government is currently promoting the hiring of foreign caregivers and domestic workers, launching a pilot program for 100 foreign workers this year, aiming to increase the number of domestic workers to 500 next year.
In parallel with the expansion of early permanent residency for science and technology professionals, efforts are underway to attract highly skilled engineers through special visas for cutting-edge fields such as AI technology.
Revitalizing industry and consumption
The government plans to bolster the domestic sector by investing 27 trillion won in capital investment for companies that export promising products and 192 trillion won in trade finance support.
In the automotive sector, industry discounts and proportional subsidies currently limited to electric passenger cars will be extended to electric freight vehicles. Plans are underway to reintroduce a temporary reduction in individual consumption tax when replacing old cars, and tax exemptions for eco-cars will be extended until 2026.