Extended Ministerial Meeting on the Economy
Deputy Prime Minister Kim Dong-yeon presided over the Extended Ministerial Meeting on the Economy, held on November 2. The meeting unveiled the government’s plan to create an ecosystem to nurture innovative startups. The key measures include creating a startup-friendly environment to help foster entrepreneurship, boosting support through increased financing opportunities and tax incentives, as well as establishing a virtuous cycle between startup ventures and investment.[1]
The following is a summary of Deputy Prime Minister Kim’s keynote address:
President Moon Jae-in’s Budget Speech at the National Assembly
During his speech, President Moon Jae-in underscored the need to move toward a people-centered economy where the benefits of economic growth are shared by a broader society. President Moon further emphasized the importance of job creation, wage-led growth, growth through innovation and fare competition. Thus, today’s meeting on growth through innovation is very meaningful.
Current Economic Situation
The Korean economy has expanded 1.4 percent in the third quarter, heading toward the annual growth target of 3 percent this year. There have been positive developments, such as the recent improvement in the Korea-China relations and the US Treasury’s decision not to designate Korea as a currency manipulator. However, the economic recovery has not been felt by a broader society, and the government should work hard to achieve tangible results.
Growth through innovation: Creating an ecosystem to nurture innovative startups
1) Creating a startup-friendly environment to help foster entrepreneurship
- Support talented and experienced individuals to launch diverse types of startups: 1) Encourage spin-offs in large companies and SMEs by introducing a ‘startup leave’ system, which allows a return to work in the case of failed startup venture, 2) Allow scholars in universities and research institutions more flexible employment arrangements to encourage startup ventures
- Revamp the venture startup support system into a private sector-driven one: Utilize the Tech Incubator Program for Startups (TIPS) in the government’s overall policy on startups
- Provide support during the seed stage of startups with office spaces and online and offline networking opportunities: Utilize the Pangyo Techno Valley, government properties and public institutions as the so-called ‘makerspaces’ to facilitate exchange of ideas and commercialization of innovative ideas
- Assist startups throughout their developmental stages, from financing to participation in public procurement markets to securing a market to finding access to overseas markets, and help them successfully cross the so-called ‘Valley of Death’ and grow into strong mid-sized enterprises
2) Boosting support through increased financing opportunities and tax incentives
- Set up an ‘innovation venture fund’ worth 10 trillion won: 1) The public sector will contribute 3 trillion won through fiscal expenditure and policy-based loans and the private sector will match 7 trillion won to the fund, 2) Increase the proportion of common shares, 3) Provide a comprehensive funding package throughout different stages, from commercialization of ideas to market launch, and M&A to business reorganization
- Promote technology financing based on the business profitability and the future value of technology: Provide more educational programs on technology financing at the Korea Banking Institute and other graduate institutions
- Diversify tax incentives for startup investment to attract investment by a broader public: 1) Double the amount of angel investment tax exemption that can be deductible 100 percent from the current level of 15 million won, 2) Reintroduce tax exemption for gains from stock options, 3) Increase tax exemptions for employee stock ownership from 4 million won to 15 million won, 4) Introduce tax incentives for investment in startup investment associations to encourage investment in small amounts by a broader society
3) Establishing a virtuous cycle between startup ventures and investment
- Gradually phase out joint surety, which has been a significant burden on startup failures: Policy-based financing institutions will abolish joint surety within the first half of 2018 while private institutions will phase out step-by-step
- Facilitate IPO and M&A: 1) Strengthen independence of the KOSDAQ Market Committee to boost the KOSDAQ and KONEX markets, 2) Encourage investment from pension funds, 3) Boost incentives for large companies to take part in M&A, 4) Attract foreign venture capital investment in domestic M&A
- Prepare measures to prevent technology theft: Launch a task force at the Korea Fair Trade Commission this year and expand KFTC’s investigative mandate over technology theft
