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‘Public New Deal Fund’

Posted August. 07, 2020 07:46,   

Updated August. 07, 2020 07:46


The government has revealed more details about the “new deal fund,” a key component of the South Korean New Deal. It said the new deal fund would guarantee a three percent or higher return per year on top of the principal and offer great tax benefits. The fund will be worth 16 trillion won, which is 10 percent of the entire budget estimated for digital and green new deal projects. The government’s plan is to offer 10 trillion won to the public while sourcing the remaining six trillion won from various pension funds.

The government is considering taxing dividends separately from other income and at five present, a third lower than the regular tax rates, while guaranteeing a three percent or higher return. This is a great offer considering saving interest rates are almost zero. There is no reason not to invest in it when It offers a higher return than national bonds and generous tax benefits with little, if not zero, risk.

The challenge, however, lies in finding businesses and projects to invest in that will create a profit. Because the fund has a specific purpose, the government will probably buy shares of renewable energy companies such as solar energy companies or invest in digital new deal projects such as for 5G communications or data centers through asset management companies. However, there is no project that runs no risk of failure. If the fund generates lower profit than expected or suffers a loss, someone else than investors will have to shoulder the burden as the government has guaranteed a three percent or higher return. The government will end up having to either increase the prices of the public services created using the fund or use tax revenues to make up the gap.

Fund investors are usually quite affluent. It would not be fair if the government guarantees a return for them and passes the burden onto other taxpayers. If the government were to revitalize the economy and boost the cash flow in the market, it should ease regulations or provide incentives for industries, as opposed to using a public fund, as it would naturally encourage private investment. If it would like to proceed with the Korean New Deal, it should issue New Deal national bonds.