2017 Work Report: Making the Economy Stronger

2017 Work Report: Making the Economy Stronger

The government has presented the 2017 work report: making the economy stronger, which focuses on reducing uncertainties and boosting the economy.

Evaluation for the last 4 years

The Korean economy has been doing well for the last 4 years as the country's GDP is projected to be the 11 largest in 2016[1], going up from 14 in 2012, and the country's credit ratings have been upgraded to the highest notches in the history despite increasing external uncertainties. In addition, fiscal resources have been efficiently managed as the government cut spending on overlapping or similar projects as well as reformed fiscal spending[2] and total tax revenue[3] has been on the rise. The reform of the public sector proved successful as financial soundness of public institutions has improved significantly and performance-based reward has been adopted by 119 public enterprises and quasi-governmental institutions as of June 2016.

However, the economy has to cope with weakening recovery momentum and widening income discrepancy between permanent and temporary workers, and between large conglomerates and SMEs.
Furthermore, the economy needs to be prepared for risks possibly arising from internal and external uncertainties, and also for the 4 Industrial Revolution.

Against this backdrop, the government presented the 2017 work report which focuses on the following.

1. Do its utmost to successfully manage internal and external uncertainties

- Implement dynamic macroeconomic policies to sustain growth momentum: a fiscal spending increase by more than 20 trillion won, 31 percent of the budget frontloaded to the 1 quarter, the largest-ever, and efforts to avoid FX market volatility

- Improve household debt quality as well as control the debt level, and announce another round of housing market measures in the first half, which are tailored to different market situations in different regions

- Maintain the country's high level of credit worthiness by building trust with foreign investors and credit rating agencies regarding the strong fundamentals of the economy

- Manage external soundness by closely monitoring risk factors such as capital movements and external debt situations, as well as increasing financial resources[4] to prepare for sudden volatility that will possibly occur

- Cope with protectionism: Establish mutually beneficial economic and trade relationship with the new US administration, address issues regarding trade with China, and find solutions through multilateral cooperation bodies, such as the APEC

- Actively participate in the G20 discussion of major agenda from Korea's point of view

2. Boost the real economy and support the working class

- Keep necessities prices low, such as the prices of fresh food, public utilities and processed food

- Work on the creation of decent jobs, and promote the employment of young adults, women and those laid off due to restructuring

- Promote consumption: Provide tax breaks for new car purchases if they replace old diesel vehicles[5], and expand the Korea Sales Festa[6] to art performance, restaurants and other services

- Encourage private sector investment in public projects: Conduct a fastest review possible if pubic projects are proposed by the private sector, and promote BTL projects[7]

- Work on bilateral and multilateral trade negotiations currently underway, including RECP and TISA[8], to reach agreements as fast as possible

- Promote Korean companies' participation in overseas infrastructure projects by providing all round support, including diplomatic support and increased financing

3. Efficiently manage fiscal resources

Fiscal Soundness

- Accelerate fiscal reform: Work on the passage of the Fiscal Soundness Act by the National Assembly to build a legal foundation for securing mid- to long-term fiscal soundness, which limits the level of national debt below 45 percent to GDP and the deficit in the consolidated fiscal balance excluding social security funds below 3 percent to GDP

- Increase fiscal spending efficiency: Root out benefit fraud by building an integrated system to manage government support programs, and thoroughly evaluate fiscal projects to better allocate fiscal resources to addressing current issues, such as sluggish exports and low birth rates

Fair and Efficient Taxation

- Help boost the economy: Introduce an investment-friendly as well as employment-friendly tax system, and expand tax support for working and middle-income classes

- Work on redesigning tax incentives for fairer taxation and on improving tax transparency

- Reduce compliance costs: Keep working on improving tax regulations and on the rewriting of tax legislation to improve understandability

Treasury Management

- Work on providing appropriate financing through Treasury bond issuance: Strengthen the monitoring of the financial market and further develop the primary dealer system that works for Treasury bond markets

- Work on increasing management efficiency regarding national properties and outsourced public projects

4. Persistently pursue restructuring and prepare for the future

Restructuring

- Public sector reform: Implement performance-based salaries in public enterprises and quasi-governmental institutions, draw up plans for adjusting public enterprise businesses in the policy financing, healthcare and industrial promotion sectors to help the public institutions focus on their core-competencies, and increase investment in essential public services and new industries

- Corporate and industrial restructuring: Pursue restructuring according to the firm principles of self-rescue efforts and fair burden-sharing, and prepare for potential risks arising from the restructuring

Future Growth Engines

- Work on removing regulatory obstacles, and revise government support, including tax and financial support, to be new industry-friendly

- Work for the service sector development plans to produce tangible outcomes, as well as work on enacting the framework act on service sector development

- Found a basis for further developing the service sector: Promote business services which support the manufacturing sector, increase R&D investment, support service exporters, and work on the development of the 7 promising services, such as healthcare, tourism, contents, education, finance, software and logistics

Prepare for the future

- Prepare for low birth rates and ageing population: Review fiscal projects designed to increase birth rates and redesign them if necessary, work on adjusting state pension ages and retirement ages, and promote the elderly to establish multiple streams of income

- Prepare for the 4 Industrial Revolution: Form a public-private task force which will act as a control tower to better cope with changes due to the 4 Industrial Revolution

Launch a government-wide emergency task force

The government will form a task force to successfully deal with any emergency that would possibly arise, and will closely cooperate in all areas of state affairs from foreign affairs including global financial markets, to economic affairs, National Assembly, diplomacy and national defense.

The Ministry of Strategy and Finance will act as a control tower in the case of an economic emergency.

[1]According to the IMF

[2]Introduced zero-based budgeting for fiscal projects and cut support in 2015, reduced discretionary spending by 10 percent in 2016

[3]Total tax revenue excluding social security contributions as percentage to GDP: 17.9(2013) → 18.0(2014) → 18.5(2015) → 18.9(2016 supplementary budget)

[4]US $1 billion worth of foreign currency-denominated bond issuance to finance FX market stabilization funds

[5]Temporarily provide a 70 percent individual consumption tax cut and a 50 percent registration tax cut until June 2017

[6]Nationwide sales promotion event

[7]Build-Transfer-Lease, in which the private sector invests in public projects and recollects their investments by operating the facilities

[8]Regional Comprehensive Economic Partnership (RECP), a proposed trade agreement among Asia-Pacific countries, and Trade in Service Agreement (TISA), WTO's service trade agreement under negotiation