J-nomics to get boost following election victory
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.