June 8 (Bloomberg) -- South Korea's government said it will provide 10.5 trillion won ($10 billion) in tax rebates and subsidies to help consumers and businesses cope with surging energy costs.

The announcement comes after oil posted its biggest dollar gain on June 6, and touched an all-time high of $139.12 a barrel in New York trading. The world's biggest energy consumers, including South Korea and the U.S., issued a statement yesterday from a Japan summit expressing ``serious concern'' over record oil prices and urged a shift to alternative sources of fuel.

``We're facing great difficulty as the world's fifth- largest oil consuming nation while we don't produce a drop of oil,'' Prime Minister Han Seung Soo said at a briefing in Seoul today. ``The government will do its best to help reduce the burden from rising oil prices on consumers.''

Oil prices have doubled over the past year, raising living costs for South Korea's consumers and production expenses for businesses. The nation's inflation rate accelerated to a seven- year high of 4.9 percent in May and economic growth slowed to the weakest pace in more than a year in the first quarter as households and companies curtailed their spending.

``The government step is very positive in that it stepped up to prevent the economy from slowing further,'' said Kim Jae Eun, economist at Hana Daetoo Securities Co. in Seoul. ``I don't think the measures themselves will help boost demand at home but they will certainly help protect the economy from sliding further.''

Tax Rebates

The government will provide income-tax rebates to the 78 percent of the nation's workers who earn less than 36 million won a year. Owners of self-run businesses with incomes less than 24 million won will also get a tax rebate. That will benefit about 13.8 million people together, the government estimates.

South Korea will pay 50 percent of the increase in oil costs for bus drivers, truckers, farmers, fishermen and those on lower incomes. Owners of trucks smaller than a metric ton will also receive tax rebates, the government said.

Truckers have threatened to strike if the government doesn't take measures to reduce energy costs, according to the Web site of unionized truckers in the country. The union will vote on June 9 whether to launch a general strike.

``The government's announcement is beyond disappointing and makes us angry,'' the truckers' division of Korean Transport Workers' Union said in a statement today. ``The government will have to provide more efficient measures including a cut in diesel prices.''

South Korea's government said it will spend 1.3 trillion won to pay half of the accumulated losses stemming from a freeze in electricity and gas prices. The government will expand to 20 percent tax breaks to companies investing in energy- conservation-related facilities, from the current 10 percent.

Policy Change

The government plans to use 4.9 trillion won from last fiscal year's unused tax revenue and 5.2 trillion won from increased receipts stemming from oil-related taxes. The measures will be effective from July this year until June 2009.

Economic policy for the second half of this year will ``reflect'' the change in oil prices, Finance Minister Kang Man Soo said today at a briefing in Seoul. Oil surged to $130 a barrel, more than the $90 the government forecast when it set economic policy earlier this year, Kang said.

The rise in oil prices is likely to ``add a burden'' to the $970 billion economy and will further damp consumption and corporate investment through next year and on, by reducing purchasing power, the government said.

South Korea said today it will consider further measures, including cuts in taxes imposed on oil products, should Dubai crude oil reach about $170 a barrel. It will ask state-run energy-related companies such as Korea Electric Power Corp. and Korea Gas Corp. to refrain from raising energy prices.

The price of Dubai crude, an Asian benchmark, rose 4.2 percent to $122.13 a barrel at the close of trading on June 6.

To contact the reporter for this story: Seyoon Kim in Seoul at skim7@bloomberg.net

Last Updated: June 8, 2008 04:35 EDT