2019 ECONOMIC POLICIES

I. Background

The economy has to deal with challenges posed by the changes in the country’s growth paradigm from a development-focused one to a more inclusive one. Although the administration’s inclusive growth policies, which put their first priority on the wellbeing of Korean citizens, have begun to produce outcomes as household income has increased and the basic cost of living has decreased, problems have also been posed by weakening job markets and shrinking private sector investment.

For the 2019 outlook, there are concerns that the country’s major trade partners, such as the US, China and Japan, may see their growth slowing down, leading to a slowdown in the country’s exports. External risks will continue, such as global trade conflicts, monetary policy normalization in major economies and financial market volatility in emerging economies, as well as domestic risks such as large household debt, declining labor force and ageing population. Against this backdrop the government has made the country’s economic outlook for 2019 and drawn up the 2019 economic policies.

II. 2019 Outlook

Growth: Annual growth of 2.6 – 2.7 percent, similar to this year’s, is expected. Exports are projected to grow at a slower rate, and growth will be supported by investment boosting policies and expanded welfare expenditures.
Employment: A total of 150,000 jobs are expected to be added to the economy, the employment rate improving from 66.7 percent to 66.8 percent.
Inflation: The annual consumer price inflation is projected to be 1.6 percent, staying stable from the previous year, as oil prices will go down, and fresh food and service prices will become stable.
Current account balance: Current account surpluses are expected to decline to US $64 billion, as export growth is projected to slow down in line with slowing global trade and ongoing trade conflicts. Exports are projected to grow 3.1 percent, and imports to rise 4.2 percent.

	2018	2019
GDP growth (%)	2.6 ~ 2.7	2.6 ~ 2.7
Employment growth (thousand) Employment rate (%, aged 15-64)	100 66.7	150 66.8
Consumer price inflation (%)	1.6	1.6
Current account (US %billion)	74	64
* The dollar-won exchange rate as of December 21, 2017 (1,083 won per dollar) is applied.

III. Framework for the 2019 Policies

The 2019 policies have been devised, with a long-term goal of inclusive growth in mind, as well as the administration’s three pillars: income-led growth, ‘innovative growth’ (growth led by industrial innovation), and a fair economy (an economy that works for all). The framework for the 2019 policies is as follows:

Boost the economy
Work on industrial restructuring
Pursue inclusive growth
Address mid- to long-term challenges

IV. 2019 Economic Policies

1. Boost the economy

The government will make sure by employing fiscal, financial, regulatory and all other measures available that the economy will regain momentum.

Promote corporate investment, as well as public sector investment
1. 1) Work to remove barriers to corporate investment, such as by streamlining complex regulatory procedures and working on agreements among different interests
2. 2) Promote private investment in public projects: more than 6,4 trillion won worth of public infrastructure construction projects to be made available for private investment
3. 3) Make available financial support worth as much as 16 trillion won to promote corporate investment, including 10 trillion won to support business restructuring and 5 trillion won to support better environment and safety
4. 4) Increase SME tax incentives for investment: SMEs located in the areas affected by restructuring to receive the increased tax incentives, and reshoring companies to receive increased income tax reduction
5. 5) Increase fiscal investment in infrastructure: Launch as soon as possible large scale infrastructure projects, such as transportation and logistics facilities construction, frontload budgets for community facilities construction, and streamline regulatory procedures for public enterprises and local governments to early start their construction projects
Encourage entrepreneurship: Provide appropriate support according to the different stages of business development from starting up and scaling to business exit and rebound
1. 1) Start up: Increase the portion of startup financing in the government’s venture funds, expand gift tax reduction given to startups, revise income tax break for startups in a way to promote job creation, and expand R&D tax deduction
2. 2) Scale up: Promote financing in the market, such as through small-scale public offerings, crowdfunding and business development companies (BDCs), support private-sector financing, such as intellectual property (IP)- based lending by establishing an IP value evaluation system and a loan collection system, expand technology-based lending, and raise tech-based funds worth 500 billion won over the next four years
3. 3) Business exit: Extend M&A tax reduction given to companies acquiring high-tech SMEs to the end of 2021, and increase the sales tax break given to seller companies if they reinvest in other ventures
4. 4) Re-bound: Increase the grace period of government loans given to those retrying in other fields after failure, and provide special loans and guarantees for those retrying
Boost consumption and promote tourism
1. 1) Extend the consumption tax reduction for car purchases until the end of June 2019, as well as the support for scrapping old diesel cars
2. 2) Develop a tour program which will be comprised of the Korea Sales Festa and K-Pop performances, work on the development of natural resources into tourist attractions, such as national parks for ocean leisure, forests for leisure and rest, old palaces with education programs and an ecology park around the DMZ, work to promote cruise tourism, such as by building infrastructure needed and revising regulations, and allow duty-free shops in downtown Seoul
Promote exports
1. 1) Provide a total of 6 trillion won worth of support to promote overseas construction, including plant and smart-city construction
2. 2) Increase export financing by 12 trillion won to 217 trillion won
3. 3) Promote expanding markets to the ‘New South’ and ‘New North’ by providing up to 5 trillion won worth of support for M&As with companies located there, as well as building manufacturing facilities and distribution systems in those areas
Properly manage macro-economy
1. 1) Strengthen risk management: Frontload in the first half the largest budget ever to respond to weak employment and slowing growth, unfold FX market operation to increase transparency, and work on external risks, including trade conflicts between the US and China, such as by keeping 24/7 monitoring, preparing contingency plans and properly using diplomacy
2. 2) Properly manage risks which may arise from interest rate hikes: (Household debt) Require banks to reserve additional capital which will match household credits, and tightly regulate nonbank financial institutions’ debt service ratio, (Corporate debt) Increase collateralized bonds issued by the public financial institutions, and revise regulations to promote corporate lending by banks

2. Work on industrial restructuring

The government will work to help reach a national consensus about new services, and will work to produce outcomes of the labor market reform, as well as industrial reform.

Remove regulatory barriers to new services
1. 1) Make home sharing services available to locals in addition to foreign tourists
2. 2) Work to introduce remote patient monitoring via smartphones, and announce a guide to healthcare services provided by non medical institutions
3. 3) Run a pilot program for car sharing
Strengthen major industries
1. 1) Draw up measures to innovate the country’s major manufacturing with support focused on cars, vessels, display panels and petrochemicals: Provide auto part suppliers with support needed when they issue bonds, and work on the development of future car technology, including those for driverless cars and electric cars
2. 2) Revise the Corporate Restructuring Promotion Act to provide support in advance to companies wanting to avoid restructuring, extend the Corporate Restructuring Promotion Act until August 2024, and increase the corporate restructuring fund if necessary by 0.5 trillion won to 1.5 trillion won
Increase support for new industries
1. 1) Provide across-the-board support from fiscal to tax and regulatory support to promote smart factories, future cars, fintech and biohealth: Announce in the first quarter of 2019 plans to grow smart car industries, allow online payment services provided by the country’s nonbank financial institutions for overseas purchases, and give biohealth companies the new growth engine R&D tax deduction for their overseas clinical trials
2. 2) Work to develop new business models: Promote new services which use state-of-the-art technologies of AI, IoT and robots, and seek private-public cooperation in building a platform economy for such industries as biohealth, future cars, energy and high-tech materials
Develop service industries: Work on the passage of the Framework Bill for Services Development in the first quarter of 2019, draw up measures in the first half to innovate promising services, such as tourism, healthcare, contents and logistics, continue to grow services which create more jobs, such as tourism, healthcare, education, SW and game, and promote jobs in new areas, such as green care specialists, by issuing professional certificates, as well as providing other regulatory support
Work to develop a model for sustainable employment: Promote ‘equal pay for equal work’, work to develop an employment model beneficial to both industries and workers, and work to increase welfare for SME workers and give 10 percent tax deduction to large conglomerates for their funding to SME welfare funds

3. Work on inclusive growth

The government will continue to work to help increase household income and expand social safety nets, while making up for shortcomings in some measures.

Increase support for the working class and the self-employed: Carry out measures to reduce the operational burden of small businesses, as well as to protect them, such as by introducing a new online payment service with extremely low fees and adopting a 10 year guarantee of commercial lease extension, set aside businesses only for SMEs and small merchants, and provide financial support for heavily indebted small merchants, as well as for those retrying after failure
Support the vulnerable
1. 1) Provide employment as well as wage support: (Young adults) Strengthen education support and scholarship programs for those from low income families, as well as set aside quotas in medical schools and law schools, double the support for hiring young adults, and work to increase public sector jobs for high school graduates, (Women) Add as many as 18,000 caring jobs, increase support for hiring female workers with flexible work schedules, and expand SME tax support for hiring women wanting to work again, (Middle aged) Create 2,500 jobs which require skills and experience of the middle-aged, and increase employment support for the middle-aged from 3,000 employees to 5,000, (Elderly) Increase public sector jobs for the elderly by 100,000 to 610,000
2. 2) Make up for shortcomings in the minimum wage increase and less than 52 work hours per week: Increase financial as well as tax support for small business owners, improve the current minimum wage system, and make up for the shortcomings in the up to 52 hour workweek
3. 3) Promote social enterprises: Increase wage support given to social enterprises for hiring young adults, help social enterprises expand their markets, and draw up a framework bill for developing social enterprises
Work to improve the quality of living: Work to increase rental homes, invest 3 trillion won to build a high speed railway running across the Seoul metropolitan area, expand the coverage of national health insurance, increase college tuition support, and work to help reduce fine dust, such as by increasing electric buses and providing support for street washer trucks
Strengthen social safety nets: Expand the EITC, work to introduce an unemployment support to help those not covered by national unemployment insurance, expand the coverage of social security benefits, daycare benefits, pension benefits and housing benefits, increase unemployment benefits, and work to revise the national pension plan
Promote fair economy: Work to get rid of unfair practices, including those related to internal transactions and price fixing, require large manufacturers to publicize information on their payment to first-tier suppliers so that second-tier suppliers can refer to it, impose heavier punishment for stealing technology from SMEs, work to improve corporate governance and increase corporate management transparency, and promote cooperation between large conglomerates and SMEs

4. Prepare for the future

The government will work to prepare for changes in the future, such as those the 4th industrial revolution and the low birth and ageing society will bring, as well as to prepare for economic cooperation with the North.

Prepare for the fourth Industrial Revolution: Promote investment in R&D, restructure R&D support and launch R&D funds, work on developing a platform economy and promote industrial convergence, develop workforce by strengthening school education as well as job training for college graduates, and expand occupational training programs for low-skilled workforce
Prepare for low birth and ageing population: Revise the government’s mid- to long-term plans according to demographic changes in the future, increase maternity benefits, increase wage support for moms working part time and promote the opening of daycare centers in work places, introduce paternity benefits and raise the level of pay dads can receive during the paternity leave
Prepare for economic cooperation with the North: Work to make plans ready for effective economic cooperation to be possible when situations improve, which include working with international organizations

V. 16 Most Important Tasks

The government will work for the following tasks to start producing outcomes in the first half

Big Projects: Work for investment in large-scale projects to be made as early as possible

1. Work for more than 6 trillion won worth of corporate construction projects to start as early as possible
2. Attract private sector capital to public infrastructure projects worth more than 6.4 trillion won
3. Work to start as early as possible the construction of community facilities, worth 8.6 trillion won
4. Frontload 61 percent of budgets in the first half, and increase investment by public institutions

Big Deals: Help reach an agreement on tasks suspended due to different interests

1. Work to find ways to a sharing economy
2. Work to introduce remote-healthcare and healthcare services provided by nonmedical institutions
3. Develop employment models more beneficial to both industries and workers
4. Promote ‘equal pay for equal work’

Big Innovation: Work on industrial innovation

1. Draw up measures to strengthen major industries, such as cars, vessels, display panels and petrochemicals
2. Draw up measures to develop promising services, such as tourism, healthcare, contents and logistics
3. Work to establish a healthy ecosystem for ventures by providing proper support according to different business stages of start up, scale-up, business exit and rebound
4. Draw up support for the four new industries: Smart factories, future cars, fintech and biohealth

Big Trust: Continue with inclusive growth policies, making up for shortcomings

1. Strengthen support for young adults from low income families, such as by strengthening scholarship programs, setting aside quotas in medical schools and law schools, and increasing other education support
2. Work to increase the income of the working class households, including the self-employed, such as through increased EITC, low-fee online payment systems, and increased protection for business tenants
3. Work to introduce an unemployment support to cover those outside of national unemployment insurance
4. Revise the Minimum Wage Act and Labor Standards Act to make up for the shortcomings in the minimum wage increase and up to 52 hour work week