Wake up to realityThe Moon Jae-in administration has set its economic direction for the second half of the year. As expected, the government lowered its goals for economic growth and employment for 2018. It lowered the expected growth rate to 2.9 percent from 3.0 percent while estimating new hires at 180,000 from the previous 320,000. The decision reflects ever-worsening economic and employment conditions at home and abroad.
Nevertheless, the liberal administration reaffirmed its unflinching determination to continue with so-called “income-led growth,” which is already showing signs of backfiring. The government has decided to raise the basic pension for senior citizens in the bottom 20 percent income bracket to 300,000 won ($265) — two years earlier than its original plan — and provide a whopping 3.8 trillion won subsidy to 3.34 million households by drastically easing requirements for earned income tax credit. The government is ready to pour all available budget into artificially lifting incomes, as seen in the process of determining next year’s minimum wage through the Minimum Wage Commission.
However, the government critically lacks strategies for “innovative growth” to finance its big spending plans. Although the government said it will soon announce tasks needed to reinvigorate the market, it will most likely be a list of works to do rather than a detailed set of action plans. For instance, steep tax deductions for investments in new technology and industry were a card used by past administrations in nearly in every recession. The Moon administration also plans to secure a 3.8 trillion won extra budget by changing the way it runs state funds.
We don’t want to blindly disparage the administration’s income-led growth particularly given the ever-widening income polarization. But policies drawn up without taking reality into account are not achievable or sustainable. Income-led growth is no exception. How can the people’s average incomes go up without growth in the economy? Fortunately, Moon has softened his stance a bit recently.
And yet his policies are still centered on income-led growth. He is willing to open state coffers if the market cannot handle the shocks. A balance between vision and reality is nowhere to be seen. If the administration continues to adhere to this strange economic concept even when economic players are giving up, we may end up irrevocably hurting our fiscal health.
The government’s plans for the second half of 2018 is an echo of five-year economic plans of the past. As the announcement suggests, the Moon administration appears to be trapped in its empty catchphrase of income-led growth. We hope Moon gets real.
JoongAng Ilbo, July 19, Page 30