Focus on boosting economic vitality in the second half of the year and stabilizing the people’s livelihood… Jeonse deposit refund loan ‘breath hole’

From the end of this month, if the landlord takes out a loan to return the jeonse deposit, a DTI (total debt service ratio) of 60% will be applied instead of the DSR (total debt principal and interest repayment ratio). As a measure to minimize the damage from reverse jeonse tax, only the difference in deposit will be temporarily eased for one year.

In addition, in order to expand investment by companies, it was decided to ease restrictions on changing business types for inherited family businesses and reduce the burden of family business succession taxes.

As a countermeasure against low birth rates and marriage, plans to expand the limit on gift tax deductions limited to wedding funds are also being reviewed.

On the 4th, the government jointly announced the ‘Economic Policy Direction for the Second Half of 2023’ containing these contents.

Deputy Prime Minister of Economy and Minister of Strategy and Finance Choo Kyung-ho said in a statement, “The growth rate of this year is expected to be 1.4%, which is lower than expected due to sluggish performance in the first half of the year. “There is still a high degree of uncertainty in the global economy and financial markets, so we cannot let go of the tension,” he diagnosed.

Accordingly, the government plans to focus its pan-ministerial policy capabilities while maintaining consistency in the broad framework of the economic policy direction for the second half of the year, focusing on ▲improving economic vitality ▲stabilizing the livelihoods of the people ▲improving the economic fundamentals ▲expanding the foundation for the future.

◆Economic vitality…Inject 15 trillion won additional resources into policy finance and public institutions

The government plans to inject an additional 15 trillion won in fiscal execution in order to strengthen macroeconomic and financial management in the second half of the year. It proposed a plan to inject 2 trillion won by setting the scale of policy finance supply at 13 trillion won and early execution of next year’s projects by public institutions.

Policy finance will also be supplied to 242 trillion won, an increase of 13 trillion won compared to the original plan.

Deputy Prime Minister Choo said, “We will use the fund’s surplus resources and world surplus funds to the fullest to execute finances such as the people’s livelihood budget without a hitch, and actively support the economic recovery by injecting more than 15 trillion won of additional financial resources from policy finance and public institutions.”

Above all, we plan to provide all-out support to boost the economy through exports and investments. In the second half of the year, trade finance of KRW 184 trillion is provided, the largest ever, while policy finance of KRW 26 trillion is provided to promote corporate investment.

In order to support the venture industry, the revision of the ‘Venture Activation 3 Act’ is also promoted.

Further easing of the family business succession tax is also being promoted. The annual gift tax payment period is extended from the current 5 years to 20 years, and the tax bracket for the special low rate (10%) is raised from the current 6 billion won to 30 billion won.

For domestic ‘U-turns’ in high-tech strategic industries such as semiconductors, support will be expanded to at least the level of foreign investment.

In addition, to stimulate domestic demand, 300,000 domestic lodging coupons and 700 air tickets for foreign tourists are provided.

The government also put weight on stabilizing the public livelihood so that the real estate downturn, represented by the reverse tax crisis, does not lead to the financial market and the real economy as a whole.

To this end, from the end of July, regulations will be eased for one year only for loans for the purpose of returning the difference in deposit due to the decrease in jeonse prices.

For individuals, a total debt service ratio (DTI) of 60% is applied instead of a total debt service ratio (DSR) of 40%. As the lease contracts that peaked in late 2021 to early 2022 expire one after another, considering the trend of the spread of the reverse tax crisis, it is temporarily applied only to the difference in deposit for one year from the end of July.

The fair market value ratio of comprehensive real estate tax is maintained at the current 60%. The original plan to return to the original 80% was put on hold, so the burden of comprehensive real estate tax will be reduced by that much. The fair market value ratio is the official price ratio that determines the tax base for comprehensive real estate tax. The purpose is to return the tax burden to the level of 2020, before the real estate price soared.

In order to reduce the burden of electricity and gas expenses, it was decided to expand ‘energy cashback’ and strengthen medical support for low-income families.

Deputy Prime Minister Chu said, “We will actively reduce the burden of living expenses for the common people by reducing private education and telecommunication expenses and expanding the supply of 1 trillion won in low-income finance.”

In addition, it was decided to provide an additional 23 trillion won in housing purchase and charter loans, including stepping stone and support loans. Starting this month, the full support for deposit refund guarantee fees of up to 300,000 won is provided to young people.

Regarding the improvement of the economic constitution, the government decided to break the practice of ‘sharing’ of R&D projects and review the R&D budget from a ‘zero base’. Instead, it plans to secure global science and technology competitiveness through intensive support for world-class joint research.

It was also decided to speed up the upgrade of the high-tech industry ecosystem by establishing global clusters such as semiconductor and bio, creating 15 national high-tech industrial belts at the right time, and accelerating the new growth 4.0 strategic project.

The three major structural reforms of labor, education and pension will also be promoted in earnest.

Labor reform focuses on flexible working hours, expansion of job and performance-based wage systems, supplementation of the Severe Accident Punishment Act, improvement of the dual structure of the labor market, and establishment of the rule of law between labor and management.

In order to flexibly respond to the rapidly changing labor market environment, the key is to rationalize the uniform working hour system represented by the 52-hour work week to expand options, and to strictly respond to illegal acts by labor and management in accordance with laws and principles.

Deputy Prime Minister Chu said, “In the case of labor reform, along with the establishment of labor-management law, based on the voices of the field, we will promptly prepare measures to reform working hours and supplement the Severe Accident Punishment Act, and promote the improvement of the dual structure.”

In the field of education, university regulation reform, education, strengthening national responsibility for care, and digital education innovation policies will be materialized. Continue to promote university regulatory reform and marginal university maintenance. The special accounting for higher education and lifelong education, which is worth 9.7 trillion won this year, will also be expanded to focus on revitalizing local universities and nurturing talent in high-tech fields.

Korean university students. Credit: Chelsea Marie Hicks, flickr https://flic.kr/p/9N1S2n (CC BY 2.0)

To reform the pension and health insurance, it plans to establish a comprehensive national pension management plan in October and submit it to the National Assembly.

As the top priority of the mid- to long-term task of ‘expanding the foundation for future preparation’, measures for low birth rates were presented.

To supply foreign workers, the immigration policy will be reformed, and a groundbreaking regulatory exception will be applied to depopulated areas.

The foreign domestic helper policy is also comprehensively reviewed. It is a system that employs foreign domestic helpers from Southeast Asia, etc., and plans to comprehensively review whether to expand it and various supplementary measures based on on-site demand analysis.

The government will also strengthen support for hiring substitutes for parental leave. Currently, there are plans to increase the number of private alternative manpower banks operating institutions.

Expansion of the limit on gift tax deduction for marriage funds is also considered. Currently, when gifting property to a child, if the gift amount exceeds 50 million won (20 million won for minors) per person, a 10-50% tax must be paid for each tax base.

In addition, it plans to expand the current 100,000 won monthly maternity and childcare allowance tax-free limit and child subsidy.

It also provides tax benefits for childrearing subsidies paid by companies to employees (preparation of grounds for allowing corporate tax deductions).