Moon Administration Regulations Three Times Those of Park Administration... Yoon to Benchmark 'Trumpnomics'

[Y-nomics Must-Know] ①
4136 Regulatory Bills under Moon Administration... Corporate Tax Raised to 25% in 2018, Going Against Global Trends
Enhance Effectiveness by Legislating Non-binding Regulatory Cost Management System

[Asia Economy Sejong=Reporter Kwon Haeyoung] The core of 'Y-nomics,' the economic policy of the newly launched Yoon Seok-yeol administration, follows the same trajectory as 'MB-nomics' (Lee Myung-bak's economic policy), which is 'regulatory reform and tax cuts → investment → growth.' However, even the Lee Myung-bak government, led by a president from a business background, saw the momentum for reform rapidly weaken due to controversies over 'preferential treatment for large corporations' and 'tax cuts for the wealthy' as it passed the midterm of its administration. The Yoon government, in particular, has formed a cabinet mainly composed of 'neul-gong (career bureaucrats)' for stable governance, and with the challenging situation of a 'minority government with opposition majority,' there are concerns that reform efforts may become even more difficult. Experts point out that if the government retreats from the regulatory abolition stance due to political calculations, it could miss the golden time for economic growth. Therefore, based on the rationale of private sector-led growth through regulatory innovation, it is necessary to complete speedy reform work within the first one to two years of the term.

◆ 4,136 Regulatory Bills under Moon Administration... Three Times More than Park Administration = According to the Regulatory Reform Committee's Regulatory Information Portal under the President on the 9th, a total of 4,136 regulatory bills were proposed through member legislation during the Moon Jae-in administration. This is more than three times the 1,313 bills during the previous Park Geun-hye administration. In fact, South Korea's corporate institutional competitiveness ranks 26th out of 37 OECD member countries, placing it in the lower tier. Specifically, in the regulatory sector, it ranked 25th; in labor, 28th; and in taxation, 26th.

Corporate tax was also raised, running counter to the global trend of lowering corporate taxes amid the global supply chain crisis. South Korea's highest corporate tax rate was lowered to 22% in 2008 during the Lee Myung-bak administration but was raised by 3 percentage points to 25% in 2018 during the Moon administration. The tax bracket stages also increased from three to four. Meanwhile, the average highest corporate tax rate among the Group of Seven (G7) countries dropped from 26.7% in 2011 to 20.9% in 2021, and the OECD average fell from 23.7% to 21.5% over the same period. As a result, Samsung Electronics' corporate tax burden rate is three times that of its competitor Intel in the U.S. and twice that of Apple.

◆ Attention to Trumpnomics = 'Trumpnomics' is considered one of the representative cases where the government emphasized corporate growth and job expansion in economic policy and actively promoted deregulation. Former U.S. President Donald Trump, who also came from a business background, introduced the 'one in, two out' regulatory cost management system, which requires eliminating two existing regulations for every new regulation created. South Korea currently operates a similar regulatory cost management system. The problem is that it is regulated by a Prime Minister's directive and lacks enforceability. This is why voices from the business community are growing, urging the new government to legislate the regulatory cost management system currently pending in the National Assembly to enhance the system's effectiveness.

It is also noteworthy that the Trump administration lowered the corporate tax rate from a maximum of 35% to 21%, below the OECD average (21.5%). Choo Kyung-ho, the nominee for Deputy Prime Minister and Minister of Economy and Finance, has already announced plans to reduce corporate and inheritance taxes. In particular, the simplification of tax brackets and the extent of the reduction in the highest corporate tax rate are key issues. There is an opinion that the highest corporate tax rate should be aligned with the OECD average. Regarding tax brackets, 35 out of 38 OECD member countries apply a single tax rate, while South Korea is the only country with a four-tiered tax rate system. Additionally, there is a suggestion to consider lowering the minimum corporate tax rate of 17% applied to companies with taxable income exceeding 100 billion won to the global minimum corporate tax rate of 15%, which will be introduced in 2023.

Yoo Hwan-ik, head of the Industrial Division at the Federation of Korean Industries, said, "The Moon administration significantly reduced corporate vitality with government-led growth policies and various regulatory bills, and raised corporate tax rates, going against the global downward trend. The new government should speedily promote regulatory reform and corporate tax rate cuts as incentives to revitalize domestic production by Korean companies."

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