[Interview] Kim Tae-nyeon "Economic Crisis, President Yoon Was Too Idle... Vulnerable Groups Must Be Protected Through Fiscal Policy"

Strengthen Fiscal Role in Economic Crisis
Support Vulnerable Groups with Emergency Livelihood Benefits Linked to Inflation
All-Party Effort Needed for National Crisis Response

Kim Tae-nyeon, Member of the Democratic Party of Korea./Photo by Yoon Dong-joo doso7@

[Asia Economy Reporter Naju-seok] "The most vulnerable groups during an economic crisis are small and medium-sized enterprises, small business owners, and low-wage workers. The government must proactively consider how to protect these groups in advance."

Kim Tae-nyeon, Chair of the Democratic Party's Economic Crisis Response Committee, pointed out the recent surge in prices in an interview with Asia Economy on the 7th, emphasizing the urgent need for tailored policies for vulnerable groups whose living expenses constitute a relatively high proportion of their income, as their suffering intensifies when prices rise.

Chairman Kim said, "There are 1.53 million people nationwide living on livelihood benefits, and as prices rise, the government plans to provide an additional emergency livelihood benefit of about 60,000 won per month," adding, "This does not solve the fundamental problem." He stressed, "At the very least, the system should be improved to be linked to prices and other factors." Regarding the household burden caused by interest rate hikes, he said, "If the interest rates on jeonse loans or mortgage loans exceed 7-8%, the livelihoods of ordinary people could be threatened, so measures such as limiting or deferring interest on policy fund-related loans should also be proposed." He also mentioned, "Companies are facing difficulties due to rising raw material prices caused by the sharp rise in exchange rates, so mechanisms like delivery price linkage systems should be discussed urgently."

Chairman Kim argued that the role of fiscal policy should be strengthened to cope with the economic crisis. He emphasized, "The government's role is carried out through fiscal policy," and "We must strengthen social safety nets to provide protection." For this reason, he expressed a negative stance on the government's direction of tax cuts, including corporate tax reductions. He said, "There is no empirical evidence that lowering corporate taxes increases investment and revitalizes the economy," and criticized, "How can we treat unproven measures as gospel?"

He added, "When you go out and listen to what people are saying, the situation is much more serious than the indicators show," and said, "I hope President Yoon Seok-yeol really talks with ordinary citizens."

Since the crisis is occurring in a complex manner, he also called for the consolidation of national capabilities. He said, "(This crisis) is not only in the economic domain but also overlaps with diplomacy, security, and social issues," and urged, "A total cooperation system for all ministries must be established." He added, "The primary responsibility for national governance lies with the government and ruling party, but the opposition will cooperate where necessary."

Kim Tae-nyeon, member of the Democratic Party of Korea./Photo by Yoon Dong-joo doso7@

Below is a Q&A session.

- You defined this crisis as the third major crisis of the 21st century. Why do you see it as serious?

▲ Scholars say a super-large complex crisis is coming. It would be better if it didn't, but considering various economic situations, we must prepare. After the COVID-19 crisis, there was an enormous quantitative expansion worldwide. Now, we are entering a phase of tightening. Interest rates are rising, and with the Russia-Ukraine war causing high oil prices and a high exchange rate, multiple serious situations are overlapping. Moreover, we are entering a period of great transformation with climate crisis response and low birthrate and aging population issues. We need economic transformation to overcome the crisis and prepare for a new era.

- On the 5th, President Yoon announced he would hold an emergency economic livelihood meeting. You have argued that a control tower for economic crisis response should be established. How do you evaluate the government's response?

▲ (Until now) it was not done well. Although late, it is fortunate that the government has recognized the seriousness of the economic crisis and the importance of a control tower. Through special committee meetings, the Democratic Party has said the president should take charge directly. When the president acts as the control tower, the attitude of public officials changes, and the signal to the market changes. If the government is seen as actively responding to the crisis and striving to create a new economic structure, the market can be more reassured. In all past financial crises, the president acted as the commander-in-chief, whether during the IMF crisis, the 2008 financial crisis, or the 2020 pandemic crisis. Moreover, this crisis cannot be overcome by economic ministries alone. It is a super-large complex economic crisis involving not only economic but also diplomatic, security, and social issues. Because it is complex, a total cooperation system among all ministries must be established. For this, it is appropriate for the president to act as the control tower.

- There are criticisms that the establishment of the control tower is delayed.

▲ We need an all-out response to the crisis, but the president was too relaxed, visiting bakeries and parks on weekends. The ruling party and government should be united to create economic policies, but there is no sign of such tension. The policies announced are outdated and ineffective. They say they will reduce corporate tax and comprehensive real estate tax. However, for corporate tax on income over 3 billion won, lowering from 25% to 22%, the effective tax rate is about 17%, which is not high compared to other countries. Considering other burdens beyond corporate tax, Korea's burden is relatively low. There is no empirical evidence that lowering corporate tax increases investment and revitalizes the economy. How can we still treat unproven measures as gospel? To play a supporting role, fiscal resources are needed, but proposing to reduce these resources as a measure?is this appropriate for the times? It is as if the government refuses to play any role. The Yoon Seok-yeol administration seems confused. Overall, there is no big picture. What we learned globally from COVID-19 is the importance of fiscal policy. The current government only blames the previous administration but is neither better nor sufficient. The current regime is in power now. Shouldn't we be grateful that they overcame COVID-19 so quickly and handed over power?

- What suggestions do you have regarding welfare and protecting vulnerable groups?

▲ Protecting vulnerable groups during a crisis requires national effort. Currently, 1.53 million people live on minimum livelihood benefits, and the government plans to provide about 60,000 won more per month due to rising prices, but the fundamental problem must be solved. The livelihood benefits for next month will be set soon, and the system should at least be improved to link with prices. Interest rates are rising sharply, and if jeonse or mortgage loan rates exceed 7-8%, the livelihoods of ordinary people could be threatened. Measures such as limiting or deferring interest on policy fund-related loans should be proposed. Companies face difficulties due to rising raw material prices caused by exchange rate surges, so delivery price linkage systems should be discussed urgently. In sectors like travel and aviation, costs from oil prices, airspace fees, and aircraft lease payments are increasing, so measures are needed.

- There is growing criticism of national governance.

▲ Public opinion is rife with criticism of governance. In this situation, can the head of the economic ministry say not to raise wages? This can cause misunderstandings, as if inflation is caused by wages. How much does wage increase affect prices? Workers are worried about lunch costs. If prices rise but wages do not, real income decreases. When real income falls, disposable income decreases, consumption decreases, and the economy loses vitality. There are concerns about demand contraction, but if disposable income is reduced and demand shrinks, economic vitality will plummet. I don't know how they plan to handle this.

- How should political responses change?

▲ The president and government must be vigilant. The opposition is no exception. However, the primary responsibility for governance lies with the government and ruling party, so the National Assembly should not be left as it is. The ruling party should boldly concede where necessary to seek opposition cooperation. The opposition is trying to normalize the National Assembly by conceding the chairmanship of the Legislation and Judiciary Committee, but the ruling party remains inflexible. I even suspect the ruling party lacks discretion. The ruling party just changed power and is basking in the glow of power but cannot enter the mainstream, and they seem to be competing over who enjoys the glow more. The opposition must become more competent. The opposition must play both the role of watchdog and guide.