Moon Stresses Fairness Over Growth in Korea's 5-Year PlanBy
Government to increase spending faster than economic growth
Minimum wage to rise again, more support for maternity leave
South Korea’s new government laid out its plan to reduce inequality and boost growth, promising to spend more to create jobs and shift the country away from an economic strategy based around exports from large conglomerates.
Fresh off the victory of getting an extra budget through a parliament he doesn’t control, new President Moon Jae-in is looking to reshape the economy to benefit individual Koreans. The plan calls for the minimum hourly wage to rise more than 30 percent over the next five years, greater public spending, more public sector jobs, along with higher taxes and tighter regulation of the conglomerates known as chaebol.
More than 70 percent of the 11 trillion won ($10 billion) extra budget will be spent by early in October, public spending will rise faster than nominal economic growth over the life of the plan, and the Bank of Korea will continue to maintain an accommodative monetary policy throughout the rest of the year, the finance ministry said in a statement.
With the help of such policies, South Korea’s economy will expand 3 percent both this year and next, Lee Chanwoo, the deputy finance minister, told reporters last week ahead of the release of the five-year plan.
Minimum Wage Boost
Over the next five years, the government will raise the hourly minimum wage to 10,000 won, as part of efforts to boost household income. The wage was already lifted to 7,530 won for 2018, the biggest jump since 2001.
Raising wages could help the economy now because the gap between the rich and poor is becoming very serious, said Park Chong Hoon, the head of research at Standard Chartered Bank in Seoul. But as an open economy that relies on exports, higher pay may cause long-term economic damage by pushing companies to leave the country and invest more abroad, Park said.
The policy announcement also lays out plans to increase benefits to companies that invest domestically, gradually convert non-regular employees in the public sector to regular status, require public companies to recruit more young people, and double the amount of subsidies for women on their first three months of maternity leave.
To help promote fair competition, there will be tighter regulation of the chaebol, including a gradual reduction in cross-shareholdings by large companies. The government will also increase taxes on these companies, but the statement didn’t provide details on the changes. The punishment for stock manipulation will be increased and the powers of the fair trade commission to monitor unfair deals strengthened.
The finance ministry will work to prevent the nation from being named a currency manipulator by the U.S. Korea is currently on a U.S. watch list of nations deemed at risk of engaging in currency manipulation.