"Next Year's Outlook Too Optimistic... Problematic That Only Those with Spending Power Benefit"

Expert Analysis on Economic Policy Direction
Considering Income Deductions After One Year, Spending Does Not Increase; Timing Issues Also Arise
Next Year's Growth Rate at 3.2%, Social Distancing Level 3 Upgrade Not Reflected

[Asia Economy Reporters Joo Sang-don and Jang Se-hee] The government has projected next year’s economic growth rate at 3.2% and proposed various measures to stimulate domestic consumption. However, experts have generally described this outlook as "overly optimistic," expressing concerns that the government’s ambitious plan to boost consumption through additional income tax deductions on credit card use will primarily benefit those with sufficient spending capacity, potentially exacerbating economic polarization.

The core of the additional income tax deduction on credit card spending outlined in the 2021 Economic Policy Direction is to increase the deduction rate to raise the refund amount. An additional 10% deduction benefit is provided within a limit of 1 million KRW on top of the current deduction rates of 15-40%. Annual credit card usage typically increases by more than 5%, but given the severely weakened consumer sentiment, the government intends to expand this growth margin.

However, experts’ assessments lean more toward concern than expectation. Professor Kim So-young of Seoul National University’s Department of Economics pointed out, "Since those who earn more are more likely to spend more, the problem of regressivity becomes more significant." She noted that the benefits are concentrated among those with spending capacity, which could actually widen the gap. Professor Kim also criticized the timing issue, saying, "People won’t spend more now just because they expect to receive a tax deduction a year later." Professor Lee In-ho of Seoul National University’s Department of Economics also commented, "Growth momentum should come from Korean products selling well, but how effective is the approach of ‘we’ll reduce your taxes, so consume’?" He added, "In the case of automobiles, those who want to replace their cars have already done so, so the effect of the individual consumption tax cut will cumulatively diminish."

There are also many evaluations that the government’s projected economic growth rate for next year (3.2%) is "rosy." Many opinions pointed out that the possibility of raising social distancing to level 3 was not reflected, making the target difficult to achieve. Professor Lee In-ho expressed concern, saying, "I can’t find a reason why the economy will improve next year," adding, "It takes six months just to vaccinate in the U.S., and travel and economic vitality need to return as before, but there is no clear timeline for this." Professor Kang In-soo of Sookmyung Women’s University’s Department of Economics said, "The OECD’s forecast of 2.8% also does not take into account vaccines and a third pandemic wave, so the forecast could fall further."

However, Professor Kang expected exports to recover. He said, "As COVID-19 vaccines are distributed and lockdowns are lifted in various countries, consumption will increase, so overall global trade, including ours, will increase compared to this year."

The government’s expectation that employment will increase by 150,000 next year also faced criticism from experts. Professor Park Young-beom of Hansung University’s Department of Economics described it as "hope mixed with expectation." He said, "Although our country’s economic growth rate is relatively higher than other countries this year, it won’t be next year," adding, "An increase of 150,000 means ‘normalization next year, returning to the end of last year before COVID-19,’ which I think is difficult."

Professor Sung Tae-yoon of Yonsei University’s Department of Economics viewed the effects of measures such as accelerated depreciation allowance for facility investment, preferential tax credit rates for 5G facility investment, and the expansion of public, private, and corporate investment projects by 110 trillion KRW as limited. Professor Kang Sung-jin of Korea University’s Department of Economics suggested a change in perception regarding the government’s role. Professor Kang criticized, "This economic policy direction does not include deregulation to open new industries and investment destinations, but only measures to cut taxes and provide support," adding, "The basic perception that the government will do everything through various supports instead of leaving the economy to the market has not changed."

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