2021 Economic Policies

 

 

Outcomes of the 2020 policies

 

As the economy had to deal with a COVID-19 slump throughout the year, the government had to shift some of its focus to repairing damages and restoring confidence, in addition to pursuing industrial restructuring and working for a post-corona economy. 

 

A total of 310 trillion won worth of coronavirus packages, including the 4^th extra budget passed in December, have been drawn up over 2020 for small business financial support and household relief programs.  However, the economy has showed its strong fundamentals with brisk exports and thriving financial markets.  Although growth is not expected to pick up in 2020 and job markets remain weak, the most recent data show the economy is doing comparatively well. 

 

The government has sought industrial innovation and inclusive growth, as well as worked on a post-corona economy, such as through the Korean New Deal.  Polies to promote DNA[1] and BIG3[2] will continue into next year, as well as those to ensure job security.  The Korean New Deal initiative and three follow-up plans have been drawn up and will continue to be implemented as a way toward a post-coronavirus economy.

 

Background

 

Although there are uncertainties that might put a limit on recovery, the economy will likely turn around next year.  Domestic consumption, investment and exports are all expected to improve, jobs recovering at a moderate pace.  Global economies moving towards digitalization and low carbon emissions, the Korean government will take steps, too, with its focus on citizen well-being and sustainable growth.  Challenges from fast changing demographics will become more serious and there will be growing concerns over local economies due to population flow-out.  Over 2021, we will have to help gain recovery momentum and help it stay there on a positive trajectory.

 

Against this backdrop the government has made the country’s economic outlook for 2021 and drawn up the 2021 economic policies.

 

2021 Outlook

 

• Growth:  Annual growth of 3.2 percent is expected.  Both domestic demand and exports are projected to grow amid improving global trade and recovering semiconductor demand, as well as helped by expansionary fiscal policies and economic-boost efforts. 
• Employment:  A total of 150,000 jobs are expected to be added to the economy, the employment rate improving from 65.8 percent to 65.9 percent.
• Inflation:  The annual consumer price inflation is projected to be 1.1 percent, rising from 0.5 percent of the previous year.
• Current account balance:  Current account surpluses are expected to be US $63.0 billion as exports and imports both rise.  Exports are projected to grow 8.6 percent backed by semiconductors and new industries, and imports to rise 9.3 percent.

 

 

	2020	2021
GDP growth (%)	-1.1	3.2
Employment growth (thousand) Employment rate (%, aged 15-64)	-220 65.8	150 65.9
Consumer price inflation (%)	0.5	1.1
Current account (US $billion) Exports (%) Imports (%)	68.0 -6.2 -7.5	63.0 8.6 9.3

 

 

Framework for the 2021 Policies

 

The 2021 policies were drawn up with two focuses:  Help regain growth momentum as fast as possible and take a leap forward to a future economy.  Key policies are as follows.

 

Help the economy regain growth momentum as fast as possible

 

1) Deal with coronavirus uncertainties

 

• Maintain expansionary fiscal policies
• Strike a balance between economic-boost and disease prevention
• Strengthen risk management

 

2) Help the economy turn around

 

• Promote consumption, investment and exports

 

3) Support the real economy, as well as local economies

 

• Ensure employment security and promote job creation
• Strengthen support for small businesses
• Help companies suffering financial difficulties due to the pandemic
• Help develop local economies

 

Help the economy take a leap forward to the future

 

4) Promote industrial innovation and develop future growth engines

 

• Work towards a digital economy, such as through the Digital New Deal
• Promote venture startups and new industries
• Help become a high tech manufacturing powerhouse
• Work on service development, including arts and performance

 

5) Pursue sustainable development

 

• Promote an environmentally friendly, low carbon economy, such as through the Green New Deal and carbon neutral measures
• Invest in human resources development and improve regulations in order to increase productivity
• Work on the restructuring of fiscal, public and labor sectors
• Prepare for low birth and population decline

 

6) Pursue inclusiveness and fairness

 

• Strengthen social safety nets, including job security
• Work to narrow the divide the pandemic has brought
• Work for a fairer and more cooperative economy
• Ensure citizen safety and improve the quality of living

 

Korean New Deal

 

The government will continue to work on the successful implementation of the Korean New Deal throughout the year, which now encompasses stronger social safety nets and local New Deal in addition to the Digital New Deal and Green New Deal.  The Korean New Deal will be a focus of policy financing and private sector funds will also be made available as planned.  The government will work on a fast revision to laws and regulations where necessary. 

 

 

2021 Economic Policies

 

1. Deal with coronavirus uncertainties

 

- Maintain expansionary fiscal policies

 

1. Spend 63 percent of the 2021 budget[3] in the first half
2. Provide 495 trillion won worth of policy financing
3. Gradually withdraw coronavirus stimulus
4. Extend the government’s purchase of corporate bonds and CP, which otherwise ends at the beginning of the year

 

- Strike a balance between economic-boost and disease prevention

 

1. Work to give COVID-19 vaccine doses, including pre-purchases from overseas, as well as promote vaccine development at home, such as by providing clinical trial support
2. Increase the public COVID-19 care capacities and promote private participation in critical care
3. Expand the certificate for good hygiene practices, currently given to restaurants, to other businesses, promote online use of government-issued vouchers, work to attract foreign tourists, and continue with no-destination flights
4. Develop new indicators for advance estimates to more properly assess risks
5. Promote the development of new insurance products to prepare for a pandemic, such as those providing insurance against reduced income with fixed costs during a pandemic

 

- Strengthen risk management

 

1. Find ways to reduce short-term finance, including tax breaks for long-term share investment
2. Work to increase the supply of affordable housing:  Draw up measures to promote the construction of rental housing by the private sector, which will include property and capital gains tax breaks for the rental homes financed by mutual funds and REITs
3. Work on the external risks which can affect sovereign credit ratings and FX markets, as well as on issues related to mega-FTAs, including RCEP and CPTPP

 

2. Help the economy turn around

 

- Promote consumption

 

1. Give households an additional income tax deduction for extra spending which exceeds the previous year’s:  Additional deduction of 10 percent for the amount exceeding the previous year’s spending by five percent or more with the deduction ceiling of 1 million won
2. Cut the car purchase tax by 30 percent and provide a 20 percent refund for the purchases of energy-efficient home appliances
3. Increase the issuance of local market gift certificates
4. Work to promote the development of post-coronavirus tourism

 

- Promote investment

 

1. Expand the 100 trillion won investment projects to 110 trillion won:  65 trillion won worth of public investment, 17 trillion won worth of private investment in public projects and 28 trillion won worth of corporate investment
2. Allow an early depreciation of up to 75 percent in 2021 for facilities investment
3. Promote reshoring:  Ease requirements for reshoring support, as well as increase the support

 

- Promote exports

 

1. Streamline the quarantine exemption approval and extend the running of the centers providing COVID-19 related support for business immigration services
2. Help with shipping:  Add two cargo ships per month, 8,000 TEU, each, and provide a total of eight ships worth 130,000 TEU over the first quarter, as well as promote long-term shipping contracts
3. Provide 256 trillion won worth of export financing in addition to those offered by Korea Exim Bank, and extend Korea Trade Insurance Corporation’s loan guarantees
4. Open logistics centers for Korean exporters in Indonesia and Netherland
5. Provide export support for FTAs and other bilateral economic cooperation, and draw up plans to promote development financing in financial institutions, including Korea Exim Bank, in order to expand economic cooperation with developing countries and encourage private investors interested in the region

 

3. Support the real economy, as well as local economies

 

- Ensure employment security and promote job creation

 

1. Temporarily expand the job creation tax incentive for 2021
2. Extend, if necessary, the special support for pandemic-hit businesses and plan extra support
3. Expand the young adult job program to 100,000 young Koreans, which includes digital jobs and remote work, and of which the focus is on helping them gain experience and get trained
4. Extend the young adult employment quota (3 percent of the newly hired) and increase new hires in public institutions
5. Allocate a total of 30.5 trillion won to a job creation budget, 5 trillion won assigned in the first quarter
6. Include corporate efforts to hire more young adults in Korea Exchange’s ESG guidance

 

- Strengthen support for small businesses

 

1. Provide more than 3 trillion won for those hit by the resurgent virus
2. Introduce a support for commercial property owners who offer rent cuts
3. Extend the electricity bill payment deferral for small businesses to March 2021
4. Include ‘untact’ businesses in the fiscal support program designed to promote business retrial after failure

 

- Help companies suffering financial difficulties due to the pandemic

 

1. Extend the government’s corporate debt purchase program to July 2021
2. Increase financial support for SMEs to 302 trillion won
3. Promote joint business restructuring between manufacturers and suppliers to launch new businesses:  a. Provide capital gains tax deferral for four years followed by three year installment payment,  b. Offer 20 billion won worth of matching funds and 10 billion won worth of R&D funds,  c. Include in the 1,000 Korea’s innovative firm support[4],  d. With regard to the capital gains tax deferral and installment payment, the government to ease the debt ratio requirement for more companies to benefit from the tax support

 

- Help develop local economies

 

1. Promote the local New Deal:  Find solutions to difficulties and work to improve regulations with a fast track approach
2. Locate worker welfare facilities in an industrial complex building, a pilot project in addition to the current New Deal projects
3. Further develop the current support for new farmers according to different demands

 

4. Promote industrial innovation and develop future growth engines

 

- Work towards a digital economy, such as through the Digital New Deal

 

1. Invest a total of 12.7 trillion won over 2021, along with revising 5G taxes and promoting an ‘untact’ economy and 6G technology development
2. Work to usher in a data economy:  Build a national data governance system
3. Increase the facilities investment tax deduction by 2 percentage points for 5G installment
4. Promote ‘untact’ services for healthcare and senior care, such as with smart hospitals and carebots
5. Raise a 4 trillion won worth of New Deal fund for policy-based investing

 

- Promote venture startups and new businesses

 

1. Build a K-test bed to help demonstrate new technologies, and provide opportunities for successful technologies through the government procurement system, as well as help them with overseas market entry
2. Help ventures expand globally, and support the establishment of joint ventures by Korean and overseas companies
3. Revise the Venture Act to introduce a Silicon Valley Bank venture financing of low-rate lending with new stock warrants, which is deemed proper for scale-up financing
4. Promote R&D in ventures:  Ease the debt ratio requirement for government R&D support by excluding convertible redeemable preferred shares of ventures from their debt

 

- Help become a high tech manufacturing powerhouse

 

1. Launch a regular ministerial level meeting to find ways to promote BIG3
2. Encourage major manufacturing industries to adopt high technologies and digital solutions, and promote their building of smart facilities which can play a role of a lighthouse for the country’s manufacturing, as well as the adoption of robotic automation in three major manufacturing areas of processed metals, auto parts and electrical/electronic appliances
3. Secure the domestic supply of 20 high tech items for manufacturing, an outcome of the government’s project to promote the production of high tech supplies and equipment

 

- Work on service development, including arts and performance

 

1. Work to enact the Framework Act on Services Development, and draw up mid- to long-term plans for services development in the first quarter
2. Continue to work on the First Step model[5], an approach to introduce a new service
3. Continue to develop the country’s arts and performance sector and promote the use of it for marketing purposes

 

5. Pursue sustainable development

 

- Promote an environmentally friendly, low carbon economy, such as through the Green New Deal and carbon neutral measures

 

1. Invest a total of 13.2 trillion won over 2021 in Green New Deal
2. Continue with the renovation projects, such as remodeling public rental houses and making schools green and smart
3. Allow financial institutions to participate in carbon emissions trading

 

- Invest in human resources development and improve regulations in order to increase productivity

 

1. Work to develop as many as 300,000 talents to lead the Digital and Green New Deal
2. Introduce a human resources development incentive:  Provide companies offering good training programs with opportunities to participate in public projects
3. Continue to improve regulations to effectively support the Korean New Deal
4. Work for the better outcomes of government R&D projects:  Promote joint R&D projects among ministries and introduce a program to support painstaking researches

 

- Work on the restructuring of fiscal, public and labor sectors

 

1. Work on the enactment of the national fiscal rules, and improve regulations on national procurement and national property management
2. Work on the better use of national properties, such as the green remodeling of old buildings
3. Improve public institutions’ management efficiency:  Mandate feasibility study before carrying out a project and review cost-based electricity pricing

 

- Prepare for low birth and population decline

 

1. Continue to work on ways to respond to population decline and demographic changes
2. Work to prepare for ageing population

 

6. Pursue inclusiveness and fairness

 

- Strengthen social safety nets, including employment security

 

1. Spend a total of 5.4 trillion won in 2021 to strengthen job security and social insurance
2. Launch a National Wage Support System, which will provide financial support for job seekers for up to eight months
3. Create a roadmap to expand the country’s ‘employment insurance’ to platform workers, the self-employed and others currently outside the system
4. Work to make loans more accessible to platform workers, freelancers and others lacking for the proof of stable income
5. Provide low-income households with stronger social safety nets in the four areas of basic livelihood, medical care, housing and education

 

- Work to narrow the divide the pandemic has brought

 

1. Allow the education loan program for low-income households to cover private institution expenses for afterschool classes
2. Lower the interest rate for low-income household loan programs from 4.5 percent to 2-3 percent
3. Increase support for the physically challenged, mothers seeking reemployment, farmers and fishermen

 

- Work for a fairer and more cooperative economy

 

1. Work on the enforcement of the three laws on fair economy, which are revisions to the Commercial Act, Fair Trade Act and Act on Supervision of Financial Groups
2. Support the scaling up of social enterprises

 

- Ensure citizen safety and improve the quality of living

 

1. Continue with the three projects to improve citizen safety of reducing traffic accidents, preventing industrial accidents and providing mental healthcare:  Add toxic chemical release to the industrial accident prevention program, which will be monitored remotely with infrared cameras, AI and drones
2. Continue with immediate disaster response and fine dust reduction
3. Expand the service price posting, currently mandated at afterschool institutions, beauty parlors and barbershops, to other areas