[2025 Economic Policy] Urgent Economic Team's Full Effort to Revive Domestic Demand... Many Measures Are 'Temporary' and 'Half-Year'

20% Income Deduction for Increased Consumption and Repeated Excise Tax Reduction on Old Cars
Clear Limits of Economic Triggers: Real Estate and Household Debt Measures

The '2025 Economic Policy Direction' announced by the government on the 2nd focused on 'stable economic management.' It contains managed policies that can navigate the current economic challenges, which include a recession and an unprecedented impeachment crisis. Accordingly, its limitations are clear. The policies, ambitiously introduced to revive the livelihood economy, are merely temporary support measures repackaged from previous ones, and structural reforms to overcome the low-growth shock or risk management measures for real estate and household loans?considered the economic triggers of our economy?are absent, revealing its limitations.

20% Income Deduction for Increased Consumption... Durable Goods Trio

Choi Sang-mok, Acting Prime Minister and Minister of Economy and Finance, stated at the government Seoul office during the announcement of the 2025 Economic Policy Direction, "We will manage the economy as stably as possible in response to expanding domestic and international uncertainties." To this end, he presented four major policy directions: 'revival of the livelihood economy, management of external credibility, response to uncertainties in the trade environment, and strengthening industrial competitiveness.'

Among these, the revival of the livelihood economy focused on tax and fiscal support and boosting tourism. The government first decided to support a 20% additional income deduction for increased consumption to accelerate domestic demand recovery. The 'additional consumption income deduction' will be implemented temporarily in the first half of the year, providing a 10% additional income deduction up to 1 million KRW for consumption amounts that increase by more than 5% compared to the previous year.

To promote durable goods consumption, a 'three-item support set for purchasing cars, electric vehicles, and home appliances' was also prepared. For the first half of the year, the individual consumption tax on cars will be reduced by 30%, and when replacing an old car over 10 years old with a new one, the individual consumption tax will be temporarily reduced by 70% (up to 1 million KRW). This year, electric vehicle subsidy payment standards will be implemented immediately from the beginning of the year, and additional subsidies for corporate discounts will be temporarily expanded until June. For example, for an electric vehicle worth about 44 million KRW, if the industry offers a 4 million KRW discount, the government's additional subsidy will increase from 800,000 KRW to 1.2 million KRW, providing a total support of 5.2 million KRW. To ease the burden of home appliance purchases for vulnerable groups, the refund support rate for purchasing high-efficiency appliances will also increase from 10-20% to 15-30%. For example, when a multi-child family purchases an air conditioner worth 2 million KRW, the refund amount will increase from 200,000 KRW to 300,000 KRW.

To support small business owners, the government decided to double the income deduction rate for credit card amounts used at small-scale small business stores. To stimulate consumption, an additional 1 million accommodation coupons for non-metropolitan areas will be distributed, and the vacation support project for workers will be expanded significantly from 65,000 to 150,000 people, more than doubling the support scale. The government also plans to create a consumption boom by holding a series of large-scale winter tourism and consumption events from early in the year. During the Lunar New Year peak season, the discount rate for digital Onnuri gift certificates will be temporarily raised from 10% to 15%, and the number of alleyway shopping districts where gift certificates can be used will be expanded to 450 locations. To alleviate the living cost burden for low-income households, 11.6 trillion KRW will be supported this year, and more than 90% of 1.24 million direct jobs for the elderly will be quickly hired in the first quarter.

Repeated Early Use of Fiscal Funds... No Structural Reform Measures for Low Growth

The core of the government's measures to stimulate the economy, which is walking on thin ice amid martial law and impeachment crises, is 'early use of fiscal funds.' The plan is to concentrate 18 trillion KRW of available public sector resources in the first half of the year and push for the largest early execution in the first half ever, but this is insufficient to calm the anxieties of economic agents. The additional consumption income deduction, old car individual consumption tax reduction, and Onnuri gift certificate revitalization mentioned in the livelihood economy recovery sector are temporary policies for the first quarter or first half of the year, repeating contents presented in economic policy directions for several years.

While focusing on short-term policies to lift the slumped economy, there is criticism that the will to reform to overcome the entrenched low-growth structure has been weakened. Even in the economic policy direction of the second half of last year, structural reforms centered on a dynamic economy were emphasized, but this time, the economic policy direction only included contents such as 'discovering and supplementing additional tasks,' 're-promotion,' and 'preparing roadmaps.' The management of real estate and household debt, considered triggers of the Korean economy, also focused only on preventing the situation from worsening rather than fundamental measures, stating only that they will be 'managed stably.'