Hong wants tax reforms to aid economy

Finance Minsiter Hong Nam-ki, second from right, meets with Democratic Party lawmakers including floor leader Lee In-young at the National Assembly on Monday. The government will be announcing its tax reform for this year later this week. [YONHAP]

Finance Minister Hong Nam-ki said the government will propose bold tax reforms to support Korean businesses and help revitalize the economy as intensifying tensions with Japan and a number of other global issues take their toll on growth and exports.

“The external conditions have been worsening due to the recent slowing of global economy, intensifying trade tensions [between the United States and China] the slowing of semiconductor industry and the export restrictions by Japan,” the Finance Minister said Monday in meeting with the ruling Democratic Party.

“Exports and investments, which have been the cornerstones to our economy, are contracting as we are in a situation where we have to be on alert more than ever,” Hong added.

“We are focusing on all measures that are available to us, including fiscal, monetary, finance and various investment revitalization efforts,” he said. “And we are actively backing efforts on the tax front.”

Hong particularly emphasized tax reform, details of which will be announced on Thursday. The initiative will focus on boosting investment, especially in R&D that will help lower the dependency on key materials and components from Japan.

“Taking the opportunity of the export restrictions from Japan, we plan to actively support [Korean industries] through taxes, including larger tax credits on new growth R&D expenses of key materials, components and equipment that would raise the fundamental competitiveness [of Korean goods] and lower the dependency of Korean industry on Japan,” he said.

The Finance Minister said the government’s latest tax reforms will also expand tax benefits that will speed up innovative growth on start-up investments and the recruitment of talent. As part of the government’s goal of revitalizing the economy, the program will also include larger tax benefits in areas that will boost exports and increase consumption and tourism.

The ruling party also agreed on the urgent need for a bold tax reform in overcoming the crisis.

“Semiconductor exports, which have contributed largely to our economy, have shrunk significantly,” said Lee In-young, Democratic Party floor leader. “We’re concerned that the Japanese economic invasion will either intensify or become extensive. The private sector and the government need to join forces in overcoming the immediate difficulty and increase efforts in revitalizing the economy.”

The ruling party last week stepped up its attack on the Japanese government and called the export restrictions an “invasion,” as they are a threat to Korea’s overall economy.

The government’s tax reform comes at a time when there are doubts about whether the Korean economy could even succeed in achieving 2 percent growth this year amid building headwinds.

The government forecasts this year’s economic growth at 2.4 to 2.5 percent, 0.2 percentage points lower than its previous outlook. Bank of Korea has a less optimistic view, at 2.2 percent, down from 2.5 percent earlier. Others even have readjusted their forecasts for this year to below 2 percent.

Finance Minister Hong added that the tax reform will also focus on continuing the Moon Jae-in administration’s inclusive economy, including tax benefits for businesses that either create jobs or improve the quality of jobs, while also easing the burden on self-employed businesses and expanding support for those in vulnerable situations.

“We will continue to strengthen and support economic and social inclusiveness,” Hong said.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]