[2023 Economic Policy] Market Risk and Real Estate 'Biggest Challenges'... Choo "Will Proactively Address Taxation and Regulation"

Bold Corporate Regulatory Innovation
New Growth 4.0 Strategy for the Future, Driving 3 Major Reforms

[Asia Economy Jeong Jaehyung, Economic and Financial Editor] "First is the stability of macroeconomics such as inflation and the economy. In a situation where market uncertainty is increasing and risks are expanding, we will manage macroeconomics stably so that any factor, like the Legoland incident, does not become a trigger and spread as market risk. Second, it is time to boldly and preemptively ease related tax systems and regulations due to the real estate market downturn. Third is regulatory innovation. We will boldly address the issues raised by companies that have not yet been discussed. Lastly, fourth is the New Growth 4.0 strategy for the future and the three major reforms in labor, pensions, and education."

This is what Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho said at a meeting with economic editors of media outlets explaining the '2023 Economic Policy Direction.'

Market Risk Management and Soft Landing of Real Estate Are the Biggest Challenges

The word 'crisis' is heard often. Inflation has soared globally due to the overlapping effects of the Russia-Ukraine war, global supply chain decoupling movements, and China's COVID-19 lockdowns. South Korea also has to respond to inflation; although inflation is not as high as in the U.S., it inevitably has to somewhat follow the U.S.'s rapid base interest rate hikes.

A decline in growth rate is inevitable. The sharply increased interest rates are dampening investment sentiment. Consumption is holding up somewhat. The real estate market has cooled off sharply. Looking only at the real estate project financing (PF) market, the situation is similar to the early 2010s real estate PF crisis. Unsold and unoccupied units will surge, and PF projects will struggle more than now to secure funds such as loans.

In this situation, it is natural that the government's top priority in next year's economic policy direction is to manage macroeconomics and financial markets stably.

Regarding the Legoland incident, some evaluate that "we took the beating earlier anyway." It means that both the government and the market have conducted a preventive drill against bond market liquidity crunches that could have been more severe. The government plans to secure additional response capacity by strengthening the financial soundness of the Korea Development Bank and the Export-Import Bank through equity contributions and extending the support period of the Industrial Stability Fund beyond the current end of 2025. It will also extend the application deadline for the Korea Asset Management Corporation's personal delinquent debt purchase fund (KRW 2 trillion) from the end of this year and reorganize household debt management and the system for managing marginal companies by additionally raising the Corporate Restructuring Fund.

To achieve a soft landing of the real estate market, which has fallen into a recession phase, excessive and punitive real estate regulations on multi-homeowners and actual buyers will be normalized. Since demand for buying houses has significantly decreased due to high interest rates, the government plans to drastically reduce the excessive regulations and taxes imposed during the Moon Jae-in administration.

Corporate Regulatory Innovation, New Growth 4.0 Strategy, and Three Major Reforms

A way to promote economic growth without using government fiscal or financial support is regulatory innovation. If regulations that dampen corporate investment enthusiasm and private sector creativity are abolished, new markets will open and jobs will increase. This topic appears every year in the government's economic policy direction but is difficult due to many stakeholders.

In any case, the government plans to accelerate regulatory innovation to restore corporate investment and job vitality next year. Through the 'Economic Regulatory Innovation Task Force (TF),' it will prepare core regulatory innovation plans for seven major economic themes with high private demand and investment effects.

For the future of our economy, the government will also promote the New Growth 4.0 strategy and the three major reforms in labor, pensions, and education. Regarding the New Growth 4.0 strategy, the government announced that it will move away from past industrial promotion and government-led methods and pursue concrete projects closely related to citizens' lives centered on the private sector. It will select goal-oriented projects to solve national challenges in the style of the U.S. Department of Defense's Defense Advanced Research Projects Agency (DARPA), appoint private experts as project managers (PMs) to manage the projects.

In labor reform, efforts will be made to spread job- and performance-based wage systems, and under the principle of equal pay for equal work, plans to reform the dispatch system and concretize rational labor and wage system reforms will be pursued, along with improving the dual structure of the labor market. In education reform, autonomous performance management tailored to university characteristics, linking financial support, and enhancing execution autonomy will be promoted. Based on the National Pension Fund's financial projection results in March next year, reform plans for the National Pension and improvements in pension fund management will be prepared. For health insurance, short-term tasks such as reviewing increasing the out-of-pocket rate for outpatient users exceeding 365 days per year and strengthening eligibility for foreign dependents will be prepared to enhance sustainability, and mid- to long-term tasks will be reflected in a comprehensive plan after working group discussions.