S. Korea Needs Structural Reform

South Korea’s finance minister on Friday called for intensive structural reform to regain the growth momentum of Asia’s fourth-largest economy.

“In order to make a breakthrough for the economy, we have to change the fundamentals of our economy through strong structural reform,” Finance Minister Yoo Il-ho said in a keynote speech at a Seoul symposium. “We cannot avoid the demand for restructuring. We have to push for it as its achievement leads to the next government and generation,” Yonhap reported.

The South Korean government has been working on reforming its social and economic structure in a bid to seek a new growth engine, as the country seems to be trapped in low growth stemming from rapidly aging population.

It drives forward with corporate restructuring to sort out shaky sectors such as shipbuilding, steelmaking, shipping and petrochemicals that have been suffering from massive losses due to a global slowdown and contracting demand.

Yoo said the country has to get fully prepared to spearhead the fourth industrial revolution that the world economy is now facing.

“We have to improve growth potential through deregulation and innovation of industries for domestic demand,” said Yoo. “It is impossible for a country to take the lead when it loses timing.”

For this year, the top economic policymaker said the South Korean government will maintain an expansionary policy to deal with the possible impact of the restructuring and rising uncertainties at home and abroad this year.

South Korea will likely grow some 2.5% in 2017, down slightly from 2.7% for the previous year, due mainly to contracting global demand amid widespread trade protectionism.

 Higher Tax Revenue

The government collected nearly 10 trillion won ($8.7 billion) more in taxes last year than planned. Critics say this excess, despite the economic slowdown, means households and companies are being deprived of money for consumption and investment.

The ministry of strategy and finance closed its books for fiscal year 2016 on Friday.

It collected 243 trillion won in taxes last year, 24.7 trillion won more than the previous year—the biggest increase recorded. It is 9.8 trillion won more than it had originally planned.

The government attributed it to the strong real estate market and improved corporate performance in 2015, which is the basis for taxation in 2016.

“The wages of workers and the income of those who run their own businesses increased, on top of revitalization of the real estate market,” said Cho Yong-man, head of the ministry’s fiscal management bureau. “They led to an increase in earned income tax, comprehensive income tax, as well as capital gains tax.”

He also cited an overhaul of tax exemptions and tax cuts for conglomerates and high-income earners that helped collect more value-added tax and corporate tax.

The government amassed 7.7 trillion won more in value-added tax last year compared with the previous year. Corporate taxes increased by 7.1 trillion won. Earned income taxes rose 3.9 trillion won on rising wages and more people employed.

Tax revenue from customs duty dipped 500 billion won on sluggish imports. Interest on income tax decreased 400 billion won amid falling interest rates.