Sweeping changes likely to hit Korea’s policies on welfare, tax, labor, conglomerates
As South Korea’s general elections ended on Wednesday in a way that elevates the position of opposition parties, key economic issues are expected to go through heated disputes and, if necessary, modifications.
The stakes couldn’t be higher. A wide range of the country’s policies on welfare, taxes, state budget, labor relations, real estate, conglomerates and free trade agreements are set to be affected.
To what extent changes will occur remains arguable but what is certain is that the main opposition Democratic United Party would be allowed to tackle the governing Saenuri Party on key economic policies, in many cases altering the nation’s official stances.
Candidates from both ruling and opposition parties rushed to offer what is called “populist” welfare programs to win more votes. Policymakers at the Ministry of Strategy and Finance fear that such generous promises, often without specific plans to secure the necessary funding, would put enormous pressure on the policy initiatives already underway.
The Saenuri Party said its welfare programs would cost 89 trillion won ($77.7 billion) and the DUP’s version would require 164.7 trillion won. The Finance Ministry, however, placed its own estimate at 268 trillion won over a five-year period.
As lawmakers are set to fight over how to set aside a big sum of money for their welfare programs, policies on taxes and welfare spending would suffer a series of turbulences.
Regulatory pressure on conglomerates is also drawing attention as any change heralds a spiraling impact on Asia’s fourth largest economy.
The opposition DUP earlier pledged to re-introduce the corporate equity investment ceiling and bring in more regulations on holding companies. Such measures are likely to limit the expansion of the family-owned chaebol groups, which are already under public pressure to stay away from certain sectors traditionally favored by startups.
The DUP argued that the corporate tax rate for small firms would remain intact at 10 percent but the criteria for classifying companies should be amended. Particularly controversial is the DUP’s proposal to establish a new corporate tax category for conglomerates whose taxable income exceeds 100 billion won. The rate for top-ranked big businesses would be set at 30 percent, the opposition party said.
More stringent regulations and punishing taxes against big businesses could backfire, however, as Korea relies heavily on major exporters such as Samsung Electronics and Hyundai Motor to fuel energy into its economic growth.
Business lobbies and associations are voicing their concerns about regulatory changes, arguing that such moves could lead to sluggish investment and fewer jobs.
When it comes to labor relations, new lawmakers from both governing and opposition parties are expected to push for a policy that addresses the longstanding issue of temporary workers. The consensus is that companies would be encouraged to hire more regulator full-time workers and upgrade the compensations for temporary workers. As the presidential election is scheduled later this year, companies big and small would be pushed to change their employment practices for temporary workers.
As for real estate policies, the government sketched out a set of deregulations aimed at reviving the moribund market and plan to come up with specific action plans soon. But lawmakers are reluctant to embrace such market-promotion measures, which critics said would serve only the wealthy with multiple houses.
Only a small change, if ever, will be introduced for the FTA with the United States. Only a couple of months ago, the KORUS FTA was the hottest issue that might make or break the election results, but things changed drastically as the DUP had proposed to pull out of the crucial trade pact with the country’s strategic ally, only to retract the idea after facing vociferous opposition from the public and the media. The Saenuri Party and the DUP generally hold the same view that the Korean government would push for a revision only to the clauses related to investor-state dispute, or ISD.
