Economists are split on stimulus package

Analysts had mixed views on the Korean government’s decision to roll out a 20 trillion won ($17 billion) fiscal stimulus package containing a 10 trillion won supplementary budget on Tuesday.

The government cited a deterioration of the local economy caused by various domestic and foreign issues such as the ongoing corporate restructuring process and the United Kingdom’s decision to leave the European Union.

Some critics said the size of the stimulus package was too little to boost the sluggish economy, while others argued that the amount was not a problem but rather the spending.

“I believe the size of the supplementary budget is too small, considering various factors around the world,” said Bae Hyeon-kee, CEO of the Hana Institute of Finance. “Domestic consumption is slowing while household debts continue to rise. The government needs to focus on solving uncertainties in general in order for people to spend more.”

Hyundai Research Institute has said that the supplementary budget amount should be at least 26 trillion won to maintain the economic condition of the past two years, considering growing uncertainties such as “Brexit”.

“A 20 trillion won fiscal stimulus package is not small, and I believe it was necessary for the government to come up with a supplementary budget,” said Choe Byeong-ho, an economics professor at Pusan National University. “It is now up to the government to decide in which areas they need to spend this extra cash to help the economy grow once again.”

Some criticized the government for being too optimistic.

“The government always comes up with an idea such as injecting more money, saying they are facing unexpected circumstances, expecting that the money will solve the problem,” said Kim Kyung-soo, an economics professor at Sungkyunkwan University. “They have been too optimistic, and they need to come up with specific plans that will help the economy, such as pushing corporate restructuring and labor market reform [rather than trying to solve problems with money or by lowering key interest rates].”

Many economic experts, on the other hand, lauded the government’s plans to give tax cuts to diesel car owners who replace their cars with gasoline-powered ones and incentives to promote the sale of energy-efficient home appliances by offering 10 percent discounts.

“Giving 70 percent tax cuts to diesel car owners who plan to buy new gasoline cars will help solve some of the fine dust emissions problems and will improve domestic consumption in general,” said Kim Woo-cheol, a professor who teaches tax-related subjects at the University of Seoul. “There will be a lot of people who will go for this benefit.”

Kim added that the government needs a long-term aggressive plan to encourage Koreans to buy energy-efficient electronics.

Others argued that the government’s plans will only have a short-term impact on the local economy since the incentives will expire in less than a year

BY KIM YOUNG-NAM [kim.youngnam@joongang.co.kr]