"Y-nomics Corporate Regulation: Don't Hit, Empower"

[Ynomics Must-Know] ①
Escaping Complex Crises Through Private-Led Growth
Abolishing Outdated Regulations That Hinder Business Activities... Lower Corporate and Inheritance Taxes Than Major Countries
Establishing a Virtuous Cycle of 'Investment → Employment → Growth'

[Asia Economy Sejong=Reporter Kwon Haeyoung] The inauguration of the Yoon Seok-yeol administration is just one day away. Due to unexpected adverse factors such as the pandemic and war, public anxiety and economic uncertainty have increased. Pension depletion and national debt caused by low birth rates and rapid aging have become time bombs for our economy. Establishing energy policies, including expanding nuclear power plants to achieve carbon neutrality, is also an urgent task. Accordingly, we will publish suggestions on major economic policies that must be pursued early in the Yoon administration’s term in four installments.

'COVID-19, the Ukraine war, high oil prices, high inflation, high exchange rates, high interest rates, low growth, and a sharp increase in national debt.'

The domestic and international economic conditions faced by the Yoon Seok-yeol administration, which will launch on May 10, are worse than any previous government. With the potential growth rate falling to around 2%, and prices soaring, concerns about stagflation (economic stagnation accompanied by rising prices) have deepened, and the worst-case scenario, which was considered unlikely?the 'twin deficits' (current account deficit and fiscal deficit)?is becoming a reality.

In this era of complex crises, the new government’s answer is private sector-led economic growth. While the immediate priority is to curb soaring prices, fundamentally, the success of Y-nomics depends on how much the administration can raise the potential growth rate, which has fallen to the bottom, by creating a 'business-friendly environment.' As the new government has announced, it is urgent to remove outdated regulations that hinder corporate activities and to establish a virtuous cycle of 'investment → employment → growth' through lowering corporate and inheritance taxes, which are high compared to major countries. ▶Related article page 5

According to the National Assembly Budget Office on the 9th, Korea’s corporate tax share of total tax revenue was 12.1% in 2020, 3.3 percentage points higher than the OECD average of 8.8%. In fact, Korea’s corporate tax, including local taxes, has a nominal top rate of 27.5%, ranking 11th among the 38 OECD member countries (as of 2021). The top inheritance tax rate, including a 20% surcharge applied to major shareholders’ stakes, is 60%, the highest in the OECD.

Corporate regulations are also strengthening. During the five years of the Moon administration, bills that significantly restrict corporate activities, such as amendments to the Commercial Act and the Fair Trade Act, the enactment of the Financial Group Supervision Act, and the Serious Accident Punishment Act, passed through the National Assembly. Labor market rigidity has increased due to union-biased policies such as rapid minimum wage hikes and the 52-hour workweek system.

To overcome the complex economic crisis faced by the new government and raise the potential growth rate, which has fallen to the 2% range, the answer lies in corporate growth. Professor Kang Sung-jin of Korea University’s Department of Economics emphasized, "For the new government’s economic policy of private sector-led growth to succeed, deregulation must be prioritized, and there must be a strong drive for regulatory reform in the early stages of the term with a firm commitment to implementation."

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