South Korea’s government and the ruling party on Tuesday agreed to increase the amount of tax refunds for low-income households this year, in a move to help them deal with the side effects of the legal minimum wage increase.
Officials are also set to speed up the timeline to subsidize low-income senior citizens and young job seekers, as part of an expansive fiscal program responding to sluggish employment and slow growth.
“Support measures for the low-income bracket will focus on creating jobs and building social safety nets for the elderly, small-sized businesses and temporary employees,” said Deputy Prime Minister and Finance Minister Kim Dong-yeon at a government and ruling party meeting.
A key action, according to the top fiscal policymaker, will be to “drastically expand” the range and amount of the Earned Income Tax Credit, a tax refund system for the lower income bracket.
In addition, those aged 65 or more and who belong to the lower 20 percent income bracket are to receive 300,000 won ($267) in basic pension starting next year. The initial timeline was first to increase the current amount from 200,000 won to 250,000 won in September this year and later raise the amount to 300,000 won in 2021.
The vocational allowance for young job seekers will also be raised from 300,000 won to 500,000 won, while its maximum period will be expanded from the current three months to six months.
“(Additional) reserve funds dedicated to senior jobs may be considered, if necessary,” Minister Kim added.
Deputy Prime Minister and Finance Minister Kim Dong-yeon (center) on Tuesday speaks in a government-ruling party meeting at the National Assembly, calling for expanded financial support for low-income households. (Ministry of Strategy and Finance)
Officials of the Ministry of Strategy and Finance and the ruling Democratic Party met at the National Assembly on Tuesday morning to discuss ways to support low-income households, prior to the government’s finalizing of its economic policy directions for the second half of the year.
The meeting came amid mixed reactions concerning the Minimum Wage Council’s latest decision to raise the legal hourly wage for next year by 10.9 percent to 8,350 won ($7.40) from the current 7,530 won.
Though the pace was a slowdown from the previous 16.4 percent hike and from the Moon Jae-in administration’s target timeline of raising the wage to 10,000 won per hour by 2020, the double-digit hike was still seen as adding labor cost pressure upon small-sized businesses here.
Seoul’s monthly number of newly created jobs stayed narrowly above the 100,000 mark in June -- the worst since the 2008 global financial crisis, data showed.
Voicing concern, Minister Kim has increasingly been calling for a “flexible approach” to the wage hike initiative, saying \ that the drastic change is exerting negative impact on the country’s struggling job market.
“The minimum wage hike was one of the policy measures to boost household incomes and overcome structural problems, but we are also well aware of the related concerns,” said Rep. Kim Tae-nyeon, chief policymaker of the Democratic Party.
Seeking for a “soft landing” of the wage system change, the ruling party will also come up with further actions such as job subsidies, credit card fee discounts for small businesses and reinforced protection for commercial real estate lease, Kim added.
Meanwhile, progressive minority groups and labor unions continued to advocate the wage hike initiative as a key pillar of the Moon Jae-in administration’s “income-led growth” drive and blamed the minister‘s reluctance towards the plan.
“The core of the income-led growth is to convert the conventional conglomerate-led economic structure into a domestic market-centered one by boosting incomes and domestic consumption,” Rep. Sim Sang-jeung of the Justice Party said Tuesday in a radio interview with KBS.
“President Moon’s economic team, led by Minister Kim, seems to view the minimum wage hike as a roadblock to the economy, but such an approach contradicts the income-led growth initiative.”
By Bae Hyun-jung (tellme@heraldcorp.com)