Press Release

Embargo:

Release Date: January 13, 2015

Contact Information: Yoon Jeong-shik (044-215-5410/ Planning and Coordination Office)

2015 WORK REPORT: THREE-YEAR PLAN FOR ECONOMIC

INNOVATION
The government has published a comprehensive report on improving Koreas economic
fundamentals and balancing domestic consumption and exports. The report requires the joint
cooperation of the Ministry of Strategy and Finance, the Ministry of Employment and Labor, the Fair
Trade Commission, the Ministry of Land Infrastructure and Transport, the Ministry of Agriculture,
Food and Rural Affairs, and the Ministry of Oceans and Fisheries.
1. Leading the way on structural reform with public institution reform

Curb public institution excess, boost real productivity

Introduce a one-strike out policy for subsidy corruption, prevent corruption by
strengthening systems and increasing penalties, for example by increasing the fine by 5
folds

2. Promote agreements between labor, management and government by promoting a

sincere dialogue under the umbrella of 4 major labor market principles

The four principles: skill and performance-led human resource management, irregular
employee wage discrimination prevention, strong social safety net to help people get
back to work, sustainable growth founded on mutual benefit and cooperation
Reform the labor market, such as by boosting employment flexibility and stability by
promoting large-scale compromise between labor, management and government, and
improving working conditions for irregular employees, and strengthening social safety
net

3. Improve investment conditions by reforming regulations

Implement systems that promote regulatory reform, such as a cost-in cost-out approach
to the cost of regulations and a regulation guillotine system
Establish an additional 6 cutting edge industrial complexes (worth 3 trillion won), build
4 downtown duty-free shops, attract global resort complexes, build hotels, and build
wharfs for cruise-usage

4. Transform the rental housing industry paradigm from regulation into support, foster
private rental housing industry for middle-class

Increase supply of public rental housings for working class, while at the same time
fostering private-capital funded rental housing industry
MINISTRY OF STRATEGY AND FINANCE
www.mosf.go.kr

Strengthen support for rental housing industry across-the-board, from housing site supply,
to construction, to purchase and management
Develop infrastructure, including enacting special laws and promoting entrepreneurship
in rental housing industry

5. Strengthen market monitoring to boost fairness across large, medium and small-sized
enterprises

Strengthen market monitoring in areas that frequently engage in unfair trading practices,
such as home shopping networks
Improve conditions for filing complaints and reporting unfair trading practices such as
by introducing an online anonymous reporting system

6. Boost future growth potential of agriculture and fisheries industries by promoting

convergence and FTA utilization

Promote agricultural industrialization (making it Koreas 6th high value-added industry,

known hereafter as 6th industry) by improving convergence-related regulations, utilize
FTAs to greatly increase agricultural product exports (from US $5.7 billion in 2013
US $7.7 billion in 2015)
Focus on fostering marine services, such as cruises and marinas, and ease regulations,
such as partially lifting the marine green belt (a marine resource protection zone)

General Report
The Ministry of Strategy and Finance will implement the Three-year Plan for Economic Innovation,
led by structural reform in four major areas: the labor market, finance, public sector, and education.
The governments strategy for implementing the Three-year Plan in 2015 is detailed below.
1. Strengthen Koreas economic fundamentals by improving market fairness and
reforming 4 major areas: labor market, finance, public sector, and education.
Labor Market
The government will reform the labor market by boosting employment flexibility and stability by
promoting large-scale compromise between labor, management, and government, improving working
conditions for irregular employees, and strengthening the social safety net.
-

Promote a culture of labor-management coexistence by providing support for subcontractor

benefits and training investment (tax support: in the event that an SME that is subcontracting
an irregular worker hires that worker as a regular employee, the SME will receive a 2 million
won tax break), and developing measures to promote employee ownership (by providing
incentives for long-term ownership and employee ownership at SMEs)
Resolve blindspots in unemployment benefits for those in the arts and the self-employed, and
strengthen social safety net by including accidents suffered while commuting under workers
compensation

Finance
MINISTRY OF STRATEGY AND FINANCE
www.mosf.go.kr

The government will boost financial sector dynamism by promoting finance-IT convergence,
invigorating venture capital, and developing measures for the 2nd stage of financial sector reform
-

Ease barriers restricting the entry of fintech, such as by abolishing regulations, including
digital certificates in insurance and securities companies in addition to credit card and
payment gateway companies
Increase technology financing from 8.9 trillion won in 2014 to over 20 trillion won in 2015
and develop measures for 2nd stage financial sector reform

Public Sector
The government will institutionalize efforts to improve public sector debt and curb reckless
management by implementing the 2nd stage of public sector reform and accelerate fiscal reforms.
-

Institutionalize efforts to improve public sector debt and curb reckless management by
expanding the number of public institutions that must abide by a total debt issuance limit
(currently 16 institutions)
Have public institutions take the lead with labor market reform by increasing performancebased salaries and promoting peak wages
Accelerate the merging of similar/overlapping of some 600 fiscal projects (by 2016 rather
than the originally planned 2017), conduct an in-depth evaluation of public institution tax
breaks and tax reductions, and conduct feasibility tests for future tax breaks on about 20
projects
Develop subsidy corruption prevention systems (establish the Government Subsidy
Management Committee and develop integrated subsidy management system, introduce
one-strike out policy for those guilty of subsidy corruption and increase fine by 5 folds)
and pass public employee pension reform

Education
The government will foster in-demand skills, such as by selecting reduced-student universities and
increasing contract-based major departments.
-

Select and provide support for universities that voluntarily lower student enrollment in
majors that are not in demand (reduced-student universities) and increase the number of
contract-based majors (52 in 2014 70 by 2017)
Promote the proliferation of a joint corporate-academic model, including introducing 16
model joint high school-community colleges and 9 Korean-style apprentice-based vocational
schools

Increasing Fairness
The government will move forward with 4 key initiatives to remedy the culture of unfair practices
between large corporations and SMEs.
-

Strengthen market monitoring: strengthen investigations into home shopping network

subcontract payments, investigate high-ranking enterprises in the event that they are
suspected of wrongdoing

MINISTRY OF STRATEGY AND FINANCE

www.mosf.go.kr

Protect the middle: expand SME discrimination investigations to mobile and platform
businesses and local public corporations
Reporting systems: introduce anonymous online reporting system to prevent retaliation
Coexistence and cooperation: reduce penalties for firms that voluntarily acknowledge
subcontract payment violations, promote culture of coexistence

2. Balance domestic consumption and exports by improving investment conditions,

increasing the consumption base and boosting young adult and female employment
Improving Investment Conditions
-

Fully-implement a cost-in cost-out cost limit on regulations, introduce a regulation

guillotine, and encourage local governments to implement regulatory reform
Begin operating the Corporate Investment Promotion Program (shareholding investment
method that will attract over 30 trillion won in new investment) in the 1st quarter
Develop old areas, such as by remodeling old industrial complexes (9 complexes 20
complexes), create 6 additional urban cutting edge industrial complexes (worth 3 trillion
won), and promote urban regeneration by developing old government office sites (through
public and private cooperation)
Foster promising service industries, such as tourism and finance
Greatly increase tourism infrastructure, including establishing 4 downtown duty-free
shops, attracting global resort complexes, increasing number of hotels by 5,000 by 2017,
and building wharfs for cruise-usage
Strengthen support for manufacturing-connected service industries by easing limits on
foreign investment in the aeronautical industry
Develop roadmap to becoming a Yuan-denominated financial hub
Attract 320,000 foreign patients by providing policy-based financing proportional to
support received by exporters and SMEs and promote entry of medical services into
overseas markets
Boost future growth potential of agriculture and fisheries industries, including making
agriculture and fisheries a high value-added industry (6th industry), and increase export
support

Increasing the Consumption Base

-

Continue to improve quality of household debt (develop measures in the Q1 to promote

changing existing mortgages (40 trillion won) into long-term, fixed-rate mortgages that are
payable in installments) and strengthen monitoring of household debt levels
Increase supply of public rental housing for the working class, foster private rental housing
industry by encouraging private capital investment
Strengthen support for rental housing industry across-the-board, from housing site supply, to
construction, to purchase and management
Housing sites: Lift restrictions on housing development zones, sell housing sites at a
discount, ease floor area ratio regulations
Construction and purchase: ease financing conditions for the National Housing Fund
(minimum mortgage rate lowered from 2.7% 2%), increase tax break on purchases of
long-term rental housing units (25% 50%)
Management: increase exemption on REITs taxes (5 years 8 years), increase income
tax break for rent income for 8 years (50% 75%)
MINISTRY OF STRATEGY AND FINANCE
www.mosf.go.kr

Construct necessary infrastructure, including passing special laws and fostering rental
housing management industry

Boosting Young Adult and Female Employment

-

Young Adults: Expand work-study programs (2,079 in 2014 more than 3,000 in 2015),
strengthen academic and career counseling and small hidden champion enterprise matching
programs
Women: Reform child care support systems to focus on working mothers, promote reduced
working hours for working mothers
Promote switching to flexible work-hour system

Further Topics for Discussion

Following this report, the government will address public sector reform and will specifically look
into the following:

Curbing excessive functions of public institutions by dealing with overlapping or similar

projects, and putting the brakes on reckless expansion. Look into SOC, culture and arts, and
agriculture, forestry and fisheries areas this year.
Continue to implement Comprehensive Measures to Root out Government Subsidy
Corruption in order to eradicate fiscal leakage

1. Importance of Public Sector Reform

The public sector plays a large part in the lives of the Korean people and therefore is always an area
of interest. As such, the government will start with public sector reform and then move on to labor
market, education and finance reform.
In order for the public sector to provide high-quality service, the government will boost real
productivity by reducing public institution debt and curbing reckless management, continue to
reform public institutions fiscal situations, for example by eradicating subsidy corruption, and
channel the private sectors creativity and efficiency with regards to fiscal management.
2. Boosting Public Institution Productivity
Boosting public institution productivity is a core goal of the Three-year Plan for Economic
Innovation. In order to accomplish this goal, the government stressed public institution reform by
focusing on achieving results.
The 18 highly indebted public institutions reduced their debt by 24.4 trillion won by selling assets
and boosting efficiency, beating initial estimates of 20.1 trillion won by 4.3 trillion won. Moodys
recognized the governments efforts to control public institution debt levels and responded by
upgrading the credit rating for 8 public institutions. The total of 38 recklessly managed or highly
indebted public institutions were all successful in implementing measures to curb reckless
management along with 96 percent (290 out of 302) of all public institutions. This is expected to
result in about 200 billion won a year and about 1 trillion won over 5 years in cost reductions.

MINISTRY OF STRATEGY AND FINANCE

www.mosf.go.kr

The government will continue to actively manage public institution reform to ensure that public
institutions do not fall back on old habits. The government will research ways to reorganize public
institution key functions by curbing excesses, such as encroaching on private sector functions and
aggressively expansive investments. The government will develop a plan to reform public institution
functionality in 2015, starting with SOC, culture and the arts, and agriculture, forestry and fisheries,
and will continue to gradually reform other areas by 2017. At the same time, the government will
develop measures to make each public institution more effective at carrying out its intended function.
The government will also implement a continuous reform system, including strengthening
investment screening transparency and implementing marketability testing. Lastly, in order to take
the initiative and set a positive example with public sector reform, the government will transfer to a
performance-based wages system, which includes strengthening performance-based pay systems,
expanding peak wages systems, and abolishing automatic promotions for long-term employees,
while also providing ways for skilled irregular employees to transfer to regular employment.
3. Eradicating Government Subsidy Corruption
The government, when compiling the 2015 budget, continued to implement fiscal reforms, such as
combining more than 300 similar or overlapping projects, but government subsidy corruption
continues to be a drain on fiscal resources, and is causing the Korean people to be distrustful of the
governments ability to properly manage fiscal resources.
In order to respond to this issue, the government announced Comprehensive Measures to Root out
Government Subsidy Corruption on December 4, and following that announcement, the government
has been working together with related ministries to implement follow-up measures and will
continue to vigilantly monitor the situation in order to prevent precious tax payer money from being
wasted. The joint-ministerial Subsidy Corruption Task Force is in charge of implementing follow-up
measures and is working on revising legislation and establishing guidelines.
Public institution is of great importance to the Korean people and vital for Koreas future, and as
such the government will continue to work on boosting public sector efficiency in order to support
the economic recovery and the prosperity of the Korean people.

MINISTRY OF STRATEGY AND FINANCE

www.mosf.go.kr