Annex A2. Key elements of the Three-year Plan for Economic Innovation

1. Public sector reform

a. Root out lax management in the public sector and strengthen public debt management

b. Strengthen the efficiency of fiscal expenditure by reforming both the occupational pension system and the subsidy scheme

All 313 public institutions adopted the wage peak system by December 2015. The debt ratio of major public institutions has been lowered by 38 percentage points of GDP since 2012. The government employee and teachers’ pension schemes were reformed. Fiscal efficiency was improved by eliminating 689 similar and overlapping budget programmes.

2. A disciplined market economy

a. Remove unfair business practices between conglomerates and SMEs

b. Alleviate the dualism of the labour market

c. Improve the protection and use of intellectual property rights

The Subcontract Act was revised to reward informants who report unfair practices. The government established a subsidy system to encourage companies to convert non-regular employees into regular ones and has created a labour market reform bill based on a tripartite agreement.

3. Secure the social safety net

a. Strengthen the safety net for vulnerable groups

b. Strengthen employment support

The government has increased health and welfare spending, revised the customised benefit for the Basic Livelihood Security Programme (BLSP) and introduced the Basic Pension. The minimum wage has been increased by 32% since 2012 and the Earned Income Tax Credit has been extended to all self-employed.

4. Realise the creative economy and increase investment

a. Establish Centres for Creative Economy and Innovation (CCEIs)

b. Increase the total amount of R&D investment

c. Strengthen competitiveness of SMEs

d. Promote new industries, including in the energy sector, to achieve convergence to high-income countries

Seventeen CCEIs have been established. The government created a one-stop system for supporting start-ups, increased tax exemptions on investments in start-ups and built infrastructure to support start-ups. Korea invested 4.3% of its GDP on R&D in 2014, up from 4.0% in 2012. The government set up an integrated support system for SMEs and focused R&D investment on them. It also designated 19 future growth engines and launched an emissions trading system in 2015.

Korea has FTAs with 15 countries, which together account for 73% of global GDP. The government set up a system to nurture “300 hidden champions” into competitive global players under the so-called World Class 300 Project.

6. Secure favourable investment conditions

a. Improve the regulatory reform system

b. Promote service industries including healthcare, education, tourism, finance and software

The government launched a pilot project of “cost-in, cost-out” to cap the regulatory burden. The National Assembly revised the Tourism Promotion Act, enacted the Crowdfunding bill and passed preliminary approval for Internet-only banks.

7. Expand domestic demand and increase youth and female employment

a. Improve the household debt structure

b. Normalise the housing sales market and stabilise the rental market

The government launched “Comprehensive Measures on Household Debt” to increase the share of mortgage loans that are fixed-rate and amortised. The government revitalised the housing sales market and stabilised the rental market by easing excess regulations on the price ceiling on pre-sales and increasing the supply of public rental houses to a record breaking level.