Government Lays Out Measures to Support Livelihood of Middle-income Households

The government presented “Measures to support livelihood of middle-income households” on August 13, reflecting the fact that middle-income households are the biggest victims of the delay in economic recovery.

Several measures had already been laid out this year to ease the burden of middle- income families, but owners of Small and Medium Enterprises (S&MEs) have said that they feel the economy is still in the trough. On top of that, surging “basket prices” are worsening the livelihood of the middle-income households.

The government’s plan covers seven sectors including real estate, consumer prices, personal finance, low-income households, S&MEs, private education expenditures, and job stability.

Some, however, criticize that the plan is merely a list of measures the related ministries have already announced. Two of the most noticeable measures are reduction of mobile telecom charges and loans for return of deposit.

With the implementation of lower mobile phone charges starting next month, the subscribers will enjoy the benefit from October when they receive the bills for September phone usage.

The loans for return of deposit will help renters, who are suffering from oversupply of housing, give deposit back to the tenants by receiving house collateralized loans.

Mobile Phone Service Charge Reduced by 1,000 Won—

The government ordered SK Telecom to cut down its basic service charge and KT to lower its land-to-mobile call charges.

Once the measure is implemented, other mobile carriers such as KTF and LG Telecom are expected to cut down their charges to gain price competitiveness.

According to the electronic communications service law, dominant operators such as KT and SK Telecom are obliged to receive approval from the government on deciding land-to-mobile call charges. In other words, the government has the authority to determine the charges.

Taking advantage of its position, the government pursued the reduction of phone charges to ensure stability in the livelihood of the general public as well as in consumer prices.

The government had originally considered a two-digit decrease in mobile phone charges. However, the reduction rates announced on August 13 were only 3.7 percent of the current basic charges and 2.2 percent of the current land-to-mobile call charges, which is not significant enough for the subscriber to feel the impact of lower fees.

Once all three mobile carriers lower their charges, the government projects the subscriber will save 425.1 billion won in mobile phone usage and 85.6 billion won in fixed-line phone usage, with a total saving of 510.7 billion won. Lower phone charges are expected to pull down inflation rate by 0.083 percentage point.

“Considering that the economy is going through a tough time, the government decided to lift burdens of the general public by lowering phone charges,” said Kim Dong-soo, head of Information and Communications Policy Bureau at the Ministry of Information and Communication.

Loans for Return of Deposit—

The recession of the real estate market has led to a series of disruption in the market when renters were unable to find potential tenants or return deposits to the tenants who were planning to move out.

According to the statistics by Kookmin Bank, deposits for rent in June 2004 plunged by an average of 6.4 percent in Seoul, and 5.2 percent in the Seoul Metropolitan area except for Seoul respectively from June 2002. For instance, a house in Seoul requiring 100 million won deposit has become cheaper by an average 6.4 million won in two years.

With continued drop in deposits, the imbalance of supply and demand of rent is expected to worsen in autumn when moving reaches its peak.

Loan for return of deposit is the money the government lends through banks to a renter who is unable to give back the deposit to the tenant even after the termination of their contract. The government provided loans worth 189.9 billion won right after the financial crisis between May 1998 and the end of 1999.

The Ministry of Construction and Transportation has earmarked 100 billion won this time to provide loans through Kookmin Bank, Woori Bank, and the National Agricultural Cooperative Federation (NACF).

Only the homeowners with residential area of 25.7 pyong or smaller are eligible for the loan, and the loan limit is within 30 percent of deposit for rent, or up to 20 million won. One pyong equals 3.3 square meters.

Loan terms are similar to mortgage loans with annual interest rate of 5.8 percent and two-year balloon payments which can be extended by two years. Those who have already received mortgage loans to the level of LTV, which is 40 to 50 percent of market price of the house in Seoul, are not eligible to apply for additional loans.