Introduction of 20-year Mortgage Loan System

The government has decided to attract corporate investment worth 17 trillion won by easing regulations on land use in the Seoul metropolitan area. The government`s decision was made in order to revive the sagging economy.

Starting next year, those who opened a long-term indirect stock investment account more than one year ago do not need to pay taxes on interest and income from dividends, and for those with an annual income of less than 30 million won, the amount deducted from their income will be increased.

At a meeting for coordination of economic policies chaired by President Roh Moo-hyun, Prime Minister for Finance and Economy Kim Jin-pyo and economy-related ministers decided on the new government`s economy management plans, which include the above.

The government also decided to ease regulations on the construction and enlargement of factories of foreign investment companies in order to promote corporate investment. As a result, it is highly likely that LG Philips`s LCD factory will be built in Paju city.

It also decided to raise the ceiling rate of golf courses to forestland in each city, county or district from the current 3% to 5% and abolish regulations limiting plottage of ski areas and golf clubs.

The government is likely to put more cars in the category of compact cars increasing the standard from the current to less than 800cc displacement (European levels). And it also plans to encourage people to buy compact cars in such ways as additional cuts in local tax.

Along with the plan to boost sagging sales of compact cars, it plans to allow the sale of diesel-powered passenger cars in local markets, but it also plans to devise measures to reduce air pollution considering expected protest from environmental groups.

It decided to set up the Korean housing mortgage finance corporation next January to introduce a mortgage loan system in which people can buy houses on a 20-year loan.

Currently in the case of long-term indirect stock investment accounts, the tax rate on interest is 16.5%. However, if the principal is less than 80 million won and the rate of stock investment is more than 60%, tax will not be imposed.

When it comes to the amount of deduction from one`s income, the rate will be increased from 10% to 20% for those with an annual income of 10 million to 30 million won, from 45% to 50% for those with an annual income of 5 million to 10 million won.

With respect to reform of business, banking system, public sector and labor, the government plans to keep pushing for the reform drive in order to increase transparency in those sectors, but at the same time try to devise ways to induce participation in the market as well as business in the reform process.

Kwang-Hyun Kim Kwang-Am Cheon kkh@donga.com iam@donga.com