Finance Minister Choi Sang-mok (second from right) addresses a joint press briefing with related government bodies on economic plans and policies for the second half of the year at the government complex in Seoul on Wednesday. (Yonhap)
The South Korean government has unveiled a set of economic measures for the second half, focusing on helping small business owners grappling with debt as the economy continues to show uneven recovery.
President Yoon Suk Yeol introduced a 25 trillion won ($18 billion) support package for small business owners and the self-employed burdened by loans, and called for structural measures during a meeting to discuss the direction of economic policy in the second half held at Cheong Wa Dae on Wednesday.
“Macroeconomic indicators have improved, but it is regrettable that this has not yet led to the economic revitalization of people's livelihoods,” he said.
The package includes extended loan repayment periods up to five years and lower interest rates for up to 800,000 individuals, along with regulatory reforms to reduce fixed costs like rent and utilities.
Yoon enumerated recent signs of economic recovery, including exports that rose for a ninth consecutive month in June, stabilizing consumer prices with inflation staying in the 2 percent range, and economic growth of 1.3 percent logged in the first quarter.
On Wednesday, the Finance Ministry upgraded its 2024 growth forecast to 2.6 percent, up from January's 2.2 percent, driven by expanding exports amid global economic recovery and a rebound in the semiconductor market.
With economic schemes mapped out for the second half, the government emphasized that policy efforts will prioritize a broader economic recovery, reaching some areas that felt less impact as domestic demand remains sluggish and recovery is uneven.
Expressing concerns over the rise in late debt payments of small business owners who were dealt a major blow by the COVID-19 pandemic, the president said that providing universal cash handouts would only be a populist stopgap measure.
“We will provide sufficient support customized to small business owners in desperate need and push for structural measures,” he said.
Every half-year, the government presents economic prospects and announces key economic policy tasks to be promoted in the next six months.
During Wednesday’s meeting, the government also rolled out what it called a "Dynamic Economic Road Map" that includes mid- to long-term tasks to carry out structural reforms declared by the Yoon government to meet the goal of restoring dynamism in the economy for sustainable growth.
Below are key takeaways from the economic policy plans for the second half of the year and the road map to make the economy more dynamic.
‘Value-up’ tax incentives
Aiming to address the "Korea Discount" issue by improving shareholder returns and corporate governance, authorities will provide tax incentives to companies that increase dividends and push for separate income taxation for shareholders.
The corporate tax rates of companies that take part in the "Corporate Value-up Program" by voluntarily presenting measures to improve their valuation, including an increase in payouts and cancellation of treasury stock, will be cut by between 9 and 14 percent, starting from the second half of this year.
The tax burden on shareholders for dividend income will be eased.
Under the current tax code, a dividend income tax of 14 percent is levied on dividends received from investments in domestic stocks. If dividend income exceeds 20 million won a year, it is subject to comprehensive financial income taxation, which increases the tax rate by up to 45 percent.
The tax rate of 45 percent will be lowered by up to 20 percentage points as the government will apply separate taxation of dividend income for shareholders of companies that are increasing their dividend payouts.
AI chip, quantum technologies
The government picked artificial intelligence semiconductors, quantum technology and biotechnology as key sectors for productivity innovation and vowed all-around support for those areas in investment and taxation.
A pan-government task force will be formed to develop AI semiconductors as well as establish related laws and a governance system.
Financial support worth 18.1 trillion won will be provided to the entire semiconductor ecosystem in the second half of the year.
Next year's national research and development budget in the quantum technology field will be increased by more than 30 percent on-year while strategic R&D will be promoted by setting short-term to long-term goals of commercialization and securing leading technologies.
More foreign national workers
To address labor shortages, the government aims to boost the employment of foreign nationals in critical sectors. This includes expanding opportunities for E-9 nonprofessional visa holders in the restaurant sector, currently limited to kitchen assistants in Korean restaurants in certain regions.
The government announced that it will also promote a pilot project involving 5,000 people to allow foreign students or spouses of foreign workers to work as domestic workers.
Meanwhile, the government is currently facilitating the employment of foreign caregivers and domestic workers, starting with a pilot program for 100 such foreign workers this year and aiming to increase domestic worker employment to 500 next year.
Efforts are underway to attract highly skilled engineers through a special visa for advanced fields like AI technology, alongside expanding fast-track permanent residency for science and technology professionals.
Revitalizing industries, consumption
The government plans to strengthen the domestic sector with 27 trillion won for facility investment and 192 trillion won in trade finance support for companies exporting promising products.
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 temporary individual consumption tax reductions for replacing old vehicles, and the tax exemption for eco-friendly vehicles will be extended until 2026.
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