South Korea plans to increase the amount of tax refunds for low-income households and the beneficiaries to cope with possible side effects of minimum wage hikes, party and government officials said Tuesday.
The country will also advance its plan to subsidize those who are aged 65 and older and belong to the bottom 20 percent in the income bracket starting next year as it seeks to expand its basic pension program.
The decision was made at a meeting among officials from the ruling Democratic Party and the government to discuss ways to support low-income families and review economic conditions in the second half.
"Measures for those in the low-income bracket are focused on creating jobs and social safety nets for the elderly, small business owners and temporary workers," Finance Minister Kim Dong-yeon said at the start of the meeting.
The meeting was arranged amid angry reactions from both business and labor circles following the government's decision to hike the minimum wage by 10.9 percent to 8,350 won ($7.40) per hour next year after a 16.4 percent rise this year.
In his election promise, President Moon Jae-in vowed to raise the threshold to 10,000 won by 2020, but he apologized Monday that it will likely be impossible to meet the target.
But the hike in the minimum wage has had the unintended effect of hampering job growth as smaller firms have dismissed many part-time workers. Small business owners are complaining about sharply rising labor costs.
To help cushion their difficulties, the government will sharply expand the recipients of the earned income tax credit scheme that calls for refunding taxes to low-income families and the volume of its financial supports, DP and government officials said.
The country will also seamlessly push for expanding the basic pension program for senior citizens who belong to the bottom 70 percent of the income bracket.
In such an effort, it will begin to pay 300,000 won to the elderly in the bottom 20 percent of the income bracket starting next year, two years earlier than its original plan.
Other measures include subsidies for the youth seeking their first jobs and job creation for the elderly.
"To increase jobs for senior citizens, the government plans to create reserves for emergency situations in the second half, if needed," Kim said.
"Hiking the minimum wage is the direction that we should go into, but we cannot help focusing on their potential impacts on the economy in the second half in many aspects," the minister said.
The government is preaching for the policy of "income-driven growth" that calls for a virtuous cycle of increasing household income and spending.
But job growth remained poor as the number of newly created positions stayed slightly above 100,000 per month for the fifth straight month in June, the worst job data since the 2008 global financial crisis.
The South Korean economy is also showing signs of slowing amid global trade disputes.
Last Thursday, the Bank of Korea cut its forecast for economic growth to 2.9 percent this year from its earlier 3 percent projection. The government will unveil its outlook for the second half Wednesday.
Hong Young-pyo, the floor leader of the DP, on Tuesday vowed efforts to curb rising rent and cut credit card commissions to help small business owners and the self-employed.
"The wage issue looks like tensions among small employers, but the core of this issue lies in unfair franchise contracts and excessive hike in rent," Hong said at a meeting with party officials. (Yonhap)