J-nomics to get boost fol­low­ing elec­tion vic­tory

The Korea Times - - FRONT PAGE - By Yoon Ja-young yjy@ko­re­atimes.co.kr

The land­slide vic­tory of the gov­ern­ing party in the lo­cal elec­tions is ex­pected to add mo­men­tum to the con­tro­ver­sial eco­nomic poli­cies of the Moon Jae-in ad­min­is­tra­tion. Econ­o­mists, how­ever, point out that with po­lit­i­cal is­sues hav­ing over­shad­owed eco­nomic fail­ures in the elec­tion, the govern­ment should make up for short­com­ings in poli­cies amid de­te­ri­o­rat­ing eco­nomic fig­ures.

“The in­come-led eco­nomic growth will gain mo­men­tum. Cor­po­rate reg­u­la­tion will strengthen and prop­erty tax will likely be raised as ex­pected,” said Park So-yeon, an an­a­lyst at Korea In­vest­ment and Se­cu­ri­ties.

“There has been crit­i­cism that the min­i­mum wage hike had more side ef­fects, but the vot­ers’ de­ci­sion can be in­ter­preted as their ap­proval of it. De­spite con­tro­versy, the govern­ment is likely to con­tinue rais­ing it,” she added.

The coun­try’s hourly min­i­mum wage reached 7,530 won this year, fol­low­ing a steep 16.4 per­cent hike. It is sched­uled to reach 10,000 won by 2020 ac­cord­ing to a pres­i­den­tial elec­tion pledge.

The mea­sure, how­ever, drew crit­i­cism as job mar­ket con­di­tions have only wors­ened while those in the bot­tom rung of the in­come bracket are suf­fer­ing from de­creas­ing in­come. An­a­lysts had warned that small em­ploy­ers and busi­nesses would de­crease the hir­ing of work­ers fol­low­ing the steep hike.

With those in the bot­tom rung suf­fer­ing from fall­ing in­come, the govern­ment is ex­pected to in­crease sup­port through ex­pan­sion­ary fis­cal poli­cies in­stead of amend­ing its in­come-led growth strat­egy. Pres­i­dent Moon also hinted re­cently that he will go on with the min­i­mum wage hike which is at the core of in­come-led growth, say­ing, “the min­i­mum wage hike has had a 90 per­cent pos­i­tive ef­fect.” Chae­bol re­form as well as a tax hike will also gain mo­men­tum. The ad­min­is­tra­tion has al­ready raised the cor­po­rate tax rate, and in­come tax on those in the high­est in­come group. The prop­erty tax is also likely to be raised, with the pres­i­den­tial com­mit­tee for fis­cal re­form sched­uled to an­nounce its plans soon.

The im­pact on the stock mar­ket seems to be neg­a­tive.

“While in­come-led growth may help with eq­ui­table dis­tri­bu­tion and pro­mote do­mes­tic con­sump­tion, stronger cor­po­rate reg­u­la­tion will be a neg­a­tive for the bourse. Es­pe­cially, con­glom­er­ates that make up a huge por­tion of the KOSPI will be the tar­gets for reg­u­la­tion,” Park said.

Ex­perts say that the ad­min­is­tra­tion should make up for prob­lems in eco­nomic poli­cies de­spite the vic­tory.

“A vic­tory in the elec­tion doesn’t mean that peo­ple are sat­is­fied with eco­nomic poli­cies. Po­lit­i­cal and diplo­matic is­sues such as the thaw­ing ties with North Korea and cor­rup- tion-bust­ing got more of the spot­light than eco­nomic is­sues,” said Yoon Chang-hyun, a pro­fes­sor at the Univer­sity of Seoul.

He said the ad­min­is­tra­tion should put more weight on in­no­va­tive growth and dereg­u­la­tion to en­cour­age cor­po­rate in­vest­ment in­stead of stick­ing to in­come-led growth. The ad­min­is­tra­tion has re­cently been pay­ing at­ten­tion to in­no­va­tive growth, one of its growth strate­gies fo­cus­ing on the cor­po­rate sec­tor which re­ceived less of the spot­light. With wors­en­ing em­ploy­ment fig­ures, mar­ket watch­ers have said that the pri­vate sec­tor should be en­cour­aged to cre­ate jobs.

“If it con­tin­ues with cur­rent poli­cies, the dis­mal eco­nomic fig­ures will get the spot­light. I think the ad­min­is­tra­tion is at the cross­roads. It can ei­ther ac­knowl­edge the bad econ­omy and make up for prob­lems or stick to cur­rent prob­lems. It is time for the Pres­i­dent to make a turn around,” the pro­fes­sor said.

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