Regulatory reform neededThe government has confirmed its economic policy for the second half of this year. It includes improving the business environment and strengthening financial support for low-income households. However, the government only touched on minor areas and did not ease the decentralization regulations in Seoul metropolitan areas, on which it has stayed firm. The government said the economy is in the process of recovery but was silent when it comes to central economic issues. It did not explain how to boost growth potential, increase new jobs and investments, solve problems related to irregular workers, or tackle ineffectiveness in the public sector.
The government tactically avoided discussing the public’s requests. People want taxes on gasoline and diesel oil lowered, but the government said it would cut special consumption tax on kerosene. Kerosene is mostly used for heating among low-income households.
There was no need for the special consumption tax levied on kerosene in the first place. The tax should have been eliminated, and by belatedly abolishing the tax, the government is trying to substitute the tax decrease on fuel.
The government raised the economic growth forecast by 0.1 percentage point to 4.6 percent. The Bank of Korea also said Korea’s economy is in the process of recovery. The recent economic recovery is, however, attributed to improvement in the world economy rather than Korea’s economy regaining its strength. In addition, external factors are getting worse. Exports are growing slowly but company profits are declining. The Samsung Economic Research Institute said a strong domestic currency, high oil prices and a slowing information technology sector are barriers to economic recovery.
Prior to laying out optimistic views on the economy, the government should think about why past economic policies did not lead to an increase in investment and new jobs. This is because of regulations and anti-business sentiment. In a survey by the Ministry of Finance and Economy, 60 percent of economic specialists answered that regulatory reform is the No. 1 task for promoting investment. There is an answer, but the government is trying to overlook it.
The world is reforming regulations, cutting taxes and downsizing the public sector to promote economic growth. Unless Korea can live on its own, the government should stop trying to move back and completely fix the basic framework of economic policies. If it is not done, the government’s optimism is in vain.