[One Year of Yoon Administration]⑬Corporate Friendly, Economic Security Praised... Slow Execution Speed 'Problem'

Labor Reform,
Yoon Administration's Worst Policy in One Year: 'Pension Reform'
Consensus That 'Sound Fiscal Management Is Difficult to Achieve Immediately'
Slow Progress from Economic Policy Formulation to Implementation
"Need More Public Communication... Must Also Engage with Opponents"

Unlike the previous administration that emphasized expansionary fiscal policy and the role of the public sector, the Yoon Seok-yeol government has promoted sound fiscal management and the private sector during its first year in office. The government's perception of the problems facing the Korean economy and their solutions have completely changed. Experts from various fields were asked how desirable the economic team's diagnosis and solutions under the Yoon administration are, and whether they have been properly implemented.

Experts praised the government's focus on revitalizing private sector vitality and initiating long-term reforms necessary for structural improvement. However, they pointed out the limitation that economic policies were formulated but not fully realized. Considering the National Assembly situation and public opinion, political skills should have been exercised and communication increased, but this did not happen. They advised that to successfully complete economic policies during the remaining term, dialogue with the public, including opposition forces, must be increased.

From Moon's 'Public Leadership' to Yoon's 'Private Vitality'

On June 16 last year, President Yoon announced the first new government economic policy direction (Gyeongbang), presenting the goal of "overcoming low growth and creating a virtuous cycle of growth and welfare." Gyeongbang is a procedure through which the government informs the public of economic goals, operational principles, and key policies. It also reveals what domestic and international issues the government considers important.

The prominent inclusion of deregulation and labor reform issues, which were rarely seen in the previous administration, received high marks from experts. Joo Won, Director of Hyundai Research Institute, said, "The active and swift response to external changes such as the global supply chain restructuring is highly commendable," and added, "Efforts to enhance corporate vitality, the source of growth, through corporate-friendly policies are also viewed positively." Professor Kang Sung-jin of Korea University’s Department of Economics said, "It is too early to judge success, but labor reform has had a good start." Shin Se-don, Professor Emeritus of Economics at Sookmyung Women's University, also responded, "What was done well was the attempt to eliminate labor irrationalities."

The recognition of problems in employment, wages, labor, and low growth has also completely changed. The Yoon administration cited "delayed industrial structure transformation" and "excessive regulation and government intervention" as some of the ailments of the Korean economy. This contrasts sharply with the Moon administration, which pointed to polarization and concentrated support for large corporations. The main economic tasks shifted from "income-led growth and job-centered economy" to "private-sector-led dynamic economy and structural improvement leap economy." While the Moon administration proposed "10,000 won minimum wage" and "corporate governance improvement" as alternatives, the Yoon administration prioritized "corporate tax cuts" and "bold deregulation of corporations."

The intention to revive the economy by boosting corporate investment vitality was clearly reflected in the passage of the "K-Chips Act (Partial Amendment to the Restriction of Special Taxation Act)" through the National Assembly on March 30 last year. The bill mainly increases tax credit benefits for national strategic technologies. Initially, the bill included expanding the tax credit for large corporations from 6% to 8%, but President Yoon personally instructed, "Please actively consider additional expansion of tax support." As a result, benefits for large and medium-sized enterprises increased up to 15%.

Professor Kim Dae-jong of Sejong University’s Department of Business Administration said, "Our corporate tax rate is higher than that of the U.S., so the K-Chips Act should have naturally passed," and added, "Providing tax benefits to companies has the effect of stimulating the economy." Professor Shin also analyzed, "The K-Chips Act was absolutely necessary." However, an official from a government research institute commented, "It is not desirable for the government to select and support specific industries," and added, "Since the policy direction is to leave it to the private sector, support should have been at a supplementary level."

Conflicting Evaluations of Sound Fiscal Management... Consensus on 'Difficult Year'

The budget and fiscal management stance has completely reversed. The Yoon administration declared a full shift from the previous government's expansionary fiscal policy to sound fiscal management. It set targets for managing total fiscal volume, including national debt, and planned various fiscal innovation measures. The Ministry of Economy and Finance set the 2023 budget at 639 trillion won, a 5.2% increase over the original budget, but considering the second supplementary budget, the national finances shrank for the first time in 13 years.

Experts expressed differing opinions on the sound fiscal management stance. Shin Ji-ho, Vice Chairman of the Youth Policy Coordination Committee, said, "The best achievement of the Yoon Seok-yeol government is returning to sound fiscal management," pointing out, "National debt, which was about 600 trillion won, exceeded 1,000 trillion won during the five years of the Moon Jae-in administration." He added, "The country's debt is ultimately a burden that young people will have to bear later." Professor Kang In-soo of Sookmyung Women's University agreed, saying, "Considering the expansion of the scope of exemption from preliminary feasibility studies before the general election, securing fiscal soundness is an important issue," and "The introduction of fiscal rules is necessary."

On the other hand, there were counterarguments that the current economic situation must be considered. Director Joo said, "Considering the countercyclical function of fiscal policy, it is a situation where fiscal expansion to stimulate the economy is necessary," and explained, "It is appropriate to suspend the goal of fiscal soundness at least for this year." Professor Kang Sung-jin said, "Fiscal soundness should allow deficits during recessions," and added, "In a situation where there are concerns about stagflation like now, a stance of 'restraint in expenditure expansion' rather than 'fiscal soundness' is needed."

However, there was consensus that achieving the sound fiscal management goal will be difficult due to the political landscape of a divided National Assembly and deteriorating tax revenue conditions caused by the economic downturn. Professor Kang In-soo said, "Fiscal rules were discussed in the previous government but achieved little," and predicted, "It will be difficult to legislate the current initiatives in a divided National Assembly." Director Joo forecasted, "Due to the expected tax revenue shortfall caused by this year's economic recession, it will be difficult to achieve the sound fiscal management goal." Professor Shin also judged, "Fiscal soundness has become very difficult amid declining tax revenue trends."

Policy Non-Implementation and Slow Pace... 'Pension Reform' Fails

The failure to implement necessary economic policies as planned was cited as a regrettable point. Corporate tax cuts are a representative example. The government pledged early on to lower the top corporate tax rate from the current 25% by 3 percentage points, but due to opposition from the Democratic Party, which opposed it as a "super-rich tax cut," the reduction was limited to 1 percentage point per bracket. Although there was consensus among lawmakers on fiscal rules, the Social Economy Basic Act (Sakyung Act) has not passed the National Assembly due to controversy.

Some economic policies were also stalled due to the government's approach, regardless of the political situation. The Ministry of Employment and Labor's proposed working hours reform was effectively postponed amid controversy that it would allow a "69-hour workweek." The government insisted it was a system to firmly establish the 40-hour workweek, but there was strong opposition questioning the feasibility of long vacations. On March 27, Minister of Employment and Labor Lee Jung-sik was criticized for saying, "These days, the MZ generation (Millennials + Generation Z) have such a strong sense of rights that they say, 'Vice Chairman, come out; Chairman, come out.'" Professor Kim said, "While overseas countries are reducing working hours, the government should have considered labor policies more deeply."

The most disappointing economic policy was pension reform, one of the three major reforms. There were evaluations that the government lacked will and concerns that the reform discussions were stagnating and going in circles. President Yoon said at the National Task Inspection Meeting in December last year, "It is an unpopular task, but we will not avoid it," and added, "(Pension reform) will be completed by the end of this government or early next government." This led to criticism that the timing of pension reform was excessively delayed. Minister of Health and Welfare Cho Kyu-hong also responded to reports on the National Assembly's Pension Reform Special Committee's private advisory group's premium increase proposal earlier this year by saying, "This is not the government's proposal."

Professor Kang In-soo said, "There is no concrete content and almost no public discussion," and predicted, "If intermittent discussions continue as they are, it is highly likely to end without any significant results." Professor Kang Sung-jin also said, "The direction is good, but there are limitations in practicality," and evaluated, "There was no policy executor to strongly drive the policy and no clear public consensus." Kim Jong-jin, Director of the Working Citizens Research Institute, also explained, "Pension reform does not look easy," and added, "It might be delayed and postponed without even being announced, leading only to debates."

"Increase Communication with the Public... Dialogue with Opponents"

To successfully complete economic policies that are slow or have weak support bases, there were repeated calls to increase dialogue and communication more than now. Most important economic policies require the consent of the National Assembly, and considering the political landscape, the opposition party's agreement and cooperation are necessary. It is widely expected that the three major reforms will struggle to gain momentum unless the government actively engages in dialogue. Director Joo said, "Reform requires the consensus of all stakeholders and mutual concessions through dialogue and compromise," and criticized, "To complete reforms within the term, a realistic and detailed implementation roadmap must be established, but such a vision is not visible."

In particular, regarding labor reform, advice was given that union participation is essential regardless of political orientation or labor, industry, and academic circles. This is because issues related to workers' treatment, such as wages, require labor-management agreement. Director Kim said, "The core of economic policy is people's livelihood, and one of them is the job issue, so social dialogue restoration is necessary for labor, management, and government to come together," and advised, "If labor, management, and government only consume conflicts, economic policies will be difficult to implement."

Professor Kang In-soo said, "During the process of promoting labor reform, communication with the public should be expanded, and a more bold implementation based on public support should be demonstrated."

There were also voices calling for stronger support for women, youth, and vulnerable groups and improvement of unreasonable practices. Lee Jeong-han of the Korea Women Entrepreneurs Association said, "The economic activity participation rate of Korean women is 59.9%, ranking 31st out of 38 OECD countries, placing it in the lower tier," and mentioned, "A systematic roadmap and support must be backed to enable women entrepreneurs to incorporate new technologies and transition to high value-added industries." Vice Chairman Shin emphasized, "Although there is leave, the corporate culture and reality where it is practically not used, and the problem of exposure to unpaid overtime risks must be organized and eradicated."

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