Choi sees lengthy expansion policy
“As our economy is in a very bad situation due to various reasons, including the Sewol ferry tragedy, for the time being it is necessary to employ expansionary policies,” said Choi in a forum with the Korea Broadcasting Journalist Club. “Such action should not be limited to the second half of this year, but continue next year and possibly in 2016.”
The finance minister again indirectly prodded the central bank to do its part in the stimulus campaign. Noting the policy rate is solely the decision of the central bank’s monetary policy committee, Choi stressed that the central government and central bank are on the same page regarding the current economic situation.
“The central bank recently lowered its economic outlook and has agreed to expand through 3 trillion won loans to small businesses and private entrepreneurs,” Choi said. “I believe the central bank shares the same view on the need for quantitative easing.”
He brushed off concerns about the effect eased mortgage loan regulations and lowering the benchmark rate might have on the economy. At the end of the first quarter, household debt was just shy of 1,025 trillion won ($999.3 billion).
Easing mortgage requirements, he said, would improve the household debt structure and eventually reduce risks. Starting next month, the debt-to-income ratio will be 60 percent and the loan-to-value ratio 70 percent.
“Housing prices on average have fallen 20 percent and for apartments the drop is roughly 30 percent,” Choi said. “Most of the bubbles are gone and we are in an urgent situation to normalize the market.”
He said excessive regulation of the real estate market initially intended to protect the middle- and lower-income classes is actually causing them more harm, citing the spike in long-term deposit rent, or jeonse, which he said is up to 70 percent of apartment value.
On the government’s proposal to tax businesses’ cash reserves, Choi stressed the policy isn’t intended to increase the burden on companies, but to encourage spending that has been frozen since the Sewol tragedy.
“Without spending by households, it will be difficult to get past the sagging domestic market,” Choi said.
At the forum, he stressed the policy targets conglomerates, not small and midsize companies.
“We’re trying to design a system that would meet reality and the details of such plans will be released in early August when we announce the tax revision plan,” Choi said, adding the government has no plans to raise the overall corporate tax.
“Among OECD countries, our corporate tax rate is in the lower tier, but corporate tax collected is equal to 4 percent of GDP, the highest level among OECD countries.”
BY lee ho-jeong [firstname.lastname@example.org]