South Korea To Continue Fiscal Stimulus Measures

by Mary Swire, Tax-News.com, Hong Kong

11 January 2010

President Lee Myung-bak has confirmed that the South Korean government’s expansionary fiscal policies, introduced last year to counteract the global recession, will be maintained for the first half of this year in order not to jeopardise the nascent economic recovery.

South Korea has employed a range of measures, including increased government spending and tax cuts, since its stimulus measures were first announced towards the end of 2008. A total program, amounting to KRW14 trillion (USD12.4bn), included some KRW3 trillion in tax reductions when first introduced.

Implemented tax cuts have largely been concentrated on supporting small and medium-sized businesses, the car market, and research and development.

However, the President indicated that, after the first six months of this year, previous policies to stimulate the economy would be reviewed, and an exit strategy formulated.

He said that, while the economy was showing signs of improvement, some uncertainty still remained. He indicated that the expansionary policies would not be removed until it was possible to be sure of the strength of the recovery.

In the meantime, he asked companies to make particular efforts to increase their capital investment so that the economic recovery would be sustained after the government had to withdraw its support.

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