New Tax Break Is Public Stunt for the April Elections

Starting this year, corporations will receive a one million won reduction in corporate tax for every new employee they hire in the next three years as part of a tax incentive package aimed at job creation. The government plans to repeal all special excises except petroleum products, automobiles and air conditioners, officials of the Ministry of Finance and Economy said in a briefing with President Roh Moo-Hyun on major economic policies.

The officials said they will concentrate on job creation as a way of enlivening investment. They will considerably liberalize regulations including ones on governing real estate while they will implement policies to stimulate spending.

Given the ever-worsening youth unemployment, the job creation tax incentive will take effect this year and continue until 2006.

Under the incentive, companies which hire more full-time employees -- defined as workers hired for more than three months -- than the last two years’ average will receive a one million won tax break for every new worker. The incentive does not affect the luxury service sector such as upscale bars where customers are waited on by barmaids.

The government will maintain low interest rates until the economy turns around. It plans to use 54 percent of this year’s budget during the first half of the year.

However, economic watchers and industrial leaders remain largely skeptical about the effectiveness of the incentives while they agree to the overall policy direction toward job creation and improvement in investment. Some people downplayed them as a publicity stunt for the April General Assembly elections.

“Even the salary for a new blue collar hire is 15 million to 20 million won a year. I am not sure how many companies will hire new workers just for a one million tax break per head,” Kim Young-bae, the general director of the Korea Employers’ Federation. “Getting rid of anxiety factors such as management-labor disputes is the urgent thing to do to enliven investment.”

Meanwhile, President Roh said, “The economy recovery should be fast enough to cause the people to consider it as real. The finance-economy ministry and other related government bodies should build a risk management system to swiftly act against warning signs in the economy.”

“We have to act on principle as far as the issue of the real estate market is concerned. We should completely hold real estate prices in check,” he stressed.