[2021 Economic Policy] 110 Trillion Investment and Expanded Card Deductions Projected for 3.2% Growth (Comprehensive)

Announcement of the 2021 Economic Policy Direction

President Moon Jae-in is presiding over the expanded National Economic Advisory Council meeting on the '2021 Economic Policy Direction Report' held at the Korea Chamber of Commerce and Industry in Jung-gu, Seoul on the 17th. (Photo by Yonhap News)

[Asia Economy Reporter Kwangho Lee] The government will launch a public-private investment project worth 110 trillion won, an increase of 10 trillion won from this year. It will provide 1.04 million direct government jobs to vulnerable groups. Additionally, if credit card usage exceeds a certain level, income tax deductions will be increased by 1 million won, and the individual consumption tax on passenger cars will be reduced by 30%. The government is also considering tax benefits for Donghak Ants who hold stocks for a long period.

The government forecasts an economic growth rate of -1.1% for this year and aims to raise the growth rate to 3.2% next year through policies that boost economic vitality. This negative growth rate is the first in 22 years.

On the 17th, the government held the National Economic Advisory Council at the Korea Chamber of Commerce and Industry in Jung-gu, Seoul, chaired by President Moon Jae-in, and finalized and announced the "2021 Economic Policy Direction" with these details.

The framework for next year's economic policy consists of a "3+3 policy package" aimed at achieving a major transition to economic recovery and a leading economy, including active economic management, boosting economic vitality, revitalizing people’s livelihoods and regional economies, securing next-generation growth engines, preparing for sustainable growth, and strengthening inclusiveness and fairness.

President Moon emphasized "fast and strong economic recovery" as the core principle of next year's economic policy direction, stating, "We will focus policy tools such as fiscal and financial measures to achieve a definite rebound in the livelihood economy together with companies."

Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki stressed, "Through bold government investment and consumption stimulation policies, we will achieve 3.2% economic growth next year."

Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki is announcing the 2021 Economic Policy Direction on the afternoon of the 17th at the Joint Briefing Room of the Government Seoul Office in Jongno-gu, Seoul. Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki is announcing the 2021 Economic Policy Direction on the afternoon of the 17th at the Joint Briefing Room of the Government Seoul Office in Jongno-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

The government plans to maintain an expansionary macroeconomic policy stance next year as well. It will raise fiscal execution in the first half of the year to a record high of 63% and increase the scale of policy financial supply to 495 trillion won. However, temporary measures responding to the COVID-19 crisis will be gradually normalized. The government explained that it focused on recovering domestic consumption and employment, which were most severely impacted by the COVID-19 situation.

First, to support the recovery of investment next year, the government will undertake a total investment project of 110 trillion won, including public institutions, private investment projects, and corporate investments. Public institution investment is planned at a record high of 65 trillion won. Private investment projects will discover new investments worth 13.8 trillion won. In addition to existing private investment projects such as roads and railways, new types of projects included in the Korean New Deal, such as Green Smart Schools, will also be sought. Corporate investment will support projects worth 28 trillion won, including the construction of e-commerce logistics facilities and expansion of petrochemical plants. The public office and government building complex development project plans to start construction within this year on seven projects worth a total of 690 billion won, including about 1,400 housing units.

To stimulate domestic consumption, a separate income tax deduction will be provided for increased consumption next year. Although not yet finalized, the likely method is to apply an additional 10% deduction rate on top of the current 15-40% deduction rate for credit card usage that increases by more than 5% compared to this year. Considering the additional deduction, the current credit card income deduction limit of 2 to 3 million won (depending on total salary level) will be raised to 3 to 4 million won.

The individual consumption tax rate on automobiles, reduced by 30% to 3.5%, will be extended until the first half of next year. Households with three or more children, childbirth families, basic livelihood security recipients, and low-income groups eligible for electricity bill welfare discounts will receive a 20% refund on the purchase amount of high-efficiency home appliances.

In the employment sector, the employment increase tax credit system will be temporarily revised for one year next year. Companies that increased employment and received tax credits of 7 to 12 million won per person (for small and medium enterprises) but had to reduce employment this year will not be penalized by having to return the credits, and the original three-year benefit period will be maintained.

Youth who lost employment opportunities due to COVID-19 will be provided with internship-like work experience jobs. Support will be provided for a total of 100,000 people, including 80,000 in the private sector and 20,000 in the public sector.

The government is also exploring ways to encourage Donghak Ants, who supported the stock market during COVID-19, to invest long-term. This will involve providing tax support for holding stocks for a certain period. The support plan is expected to be prepared next year and implemented in line with the introduction of the financial investment income tax in 2023.

To revitalize private rental housing involving REITs and funds, tax support measures such as raising the comprehensive real estate tax exclusion threshold for construction rental from 600 million won to 900 million won were proposed. This aims to reduce the burden on construction companies supplying rental housing.

A plan to absorb compensation funds for the 3rd New Town by lowering capital gains tax when compensation rights are invested in REITs and received as stocks was also presented. Customized support measures exceeding 3.5 trillion won will be proposed early next year for small business owners hit hard by COVID-19. The electricity bill payment deadline will also be extended by three months.

In terms of fair economy, the government will regulate the platform ecosystem by enacting the Fair Trade Act for online platform intermediary transactions. It will revise unfair terms and conditions in sectors such as delivery apps and rental cars and gradually introduce a service price display system starting with sports facilities.

The government will activate the execution strategy for carbon neutrality by 2050 and fully launch the Korean New Deal project, investing 21 trillion won.

Deputy Prime Minister Hong said, "To achieve the goal, we must fully overcome the crisis quickly and strengthen the momentum for economic recovery." He added, "Until COVID-19 is completely controlled by vaccines, 'quarantine is the vaccine' and 'the premise of recovery' in the economy. I earnestly ask the public to strictly comply with quarantine guidelines and unite their strength for economic recovery and rebound."

This content was produced with the assistance of AI translation services.