South Korea will not seek an extra budget this year, the new finance minister said Wednesday, adding that it will instead push for other fiscal alternatives to bolster economic recovery, including expanding its budget spending assigned for next year.
Speaking to reporters after his inauguration, Choi Kyung-hwan also said he will downgrade the country's growth outlook for this year and draw up a policy management plan based on the revised assessment of the latest economic situations.
Criticizing local companies for holding on to their cash instead of investing, the minister said he would push for taxes on corporate cash reserves so that their money would stream into households.
"Given that downside risks are growing in the global economy and the mood is slumping in the wake of the Sewol ferry accident, it seems inevitable that we lower the previous growth outlook for this year," Choi told a press conference held just after his inauguration.
"Based on the assessment, we have put much thought into possible macroeconomic policies, and some proposed an extra budget as an alternative. But considering that we are in the middle of drawing up a budget for next year and that the extra budget would not be enforced until later this year even if it is prepared because of the procedures, we have decided not to push for it," he added.
In Seoul, Bank of Korea Gov. Lee Ju-yeol also cited downside risks for the South Korean economy.
"The economic growth would recover after the third quarter of the year, but given a protracted contraction in domestic demand and investment, and an increased volatility of the Korean won, downside risks are slightly greater (for the economy than upside ones)," Lee said at a forum.
The government earlier predicted that the economy will grow 3.9 percent this year. Government sources and experts predict that the government will adjust down the outlook to between 3.5 percent and
3.7 percent. The central bank last week lowered its growth outlook to 3.8 percent from 4 percent.
When nominated last month as the finance minister, who doubles as deputy prime minister for economic affairs, Choi raised the possibility of drawing up an extra budget to prop up the slumping recovery of Asia's fourth-largest economy.
"Instead, we are going to seek diverse fiscal tools during the second half in order to exceed the soon-to-be-revised growth forecast, while keeping a more expansionary stance than we initially planned in preparing our budget plan for next year," he said.
Choi also emphasized the importance of boosting domestic demand in order to help the livelihoods of people, saying that businesses should play a role in generating more income, which is a key element to helping the overall economic sentiment bounce back.
"There should be a virtuous cycle in which businesses work hard to produce results and the results should flow into households through job creation and more labor income. This could eventually boost consumption and provide investment opportunities for businesses in the end," he said.
Blaming businesses for holding onto too much cash and halting the money flow into households, he said that he will push to impose taxes on their cash reserves to induce more income and dividend to be directed toward workers and investors.
"Of course, businesses should maintain an appropriate level of cash reserves, but given the dividend trend and other investment aspects here, I think that our companies are holding cash reserves with an excessively conservative point of view," he said.
"We are currently considering regulatory schemes including taxes and other appropriate incentives aimed at having the income of businesses flow into households in the form of income and dividend," he added.
Data from corporate tracker CEO Score on Wednesday showed the country's top 10 business groups had 515.9 trillion won (US$499.66
billion) in their war chest as of the end of first quarter this year, almost double what they had five years ago.
Choi confirmed that he plans to ease housing loan regulations in the face of the protracted slump in the property market, saying that his economic team will find ways to "normalize" the loan-to-value and debt-to-income rules "in a way not to aggravate the household debt problem."
The rules, which are designed to control the amount of loans for home buyers based on their income and ability to pay back debts, were introduced when the country's housing market was booming.
Critics opposing the changes say easing the rules could worsen the fast-growing household debt, which currently hovers over 1,000 trillion won ($972.3 billion).
The government is reportedly considering hiking the LTV to a uniform ratio of 60 percent from the current 50-60 percent being applied differently between Seoul and other regions.
In his inauguration speech, Choi said the government should tackle "outdated" housing market regulations as quickly as possible, saying that the regulations are akin to "wearing summer clothes in the middle of winter." He said that the government will maintain an "expansionary" macroeconomic policy until the economic sentiment revives.
He also vowed to revamp regulations deemed to be "unnecessary"
and "hampering" of business activities, while working hard on boosting the slumping domestic demand in order to prop up the economic recovery.
His push to ease real estate market regulations and maintain expansionary macroeconomic policy, however, signaled a difference from the position of the central bank, possibly a gap in their assessment of the current economic situations, observers said.
The central bank governor said at the Seoul forum that mounting household debt is a major challenge confronting the country's economy. He also expressed worries about a possible negative impact of a rate cut, a remark that suggests the BOK may not cut its borrowing costs anytime soon. (Yonhap)