Moon's Flagship Policies for South Korea Draw Warning From OECD

(Bloomberg) -- South Korea should assess the impact of its minimum wage hike for this year before raising it any further, according to the Organisation for Economic Cooperation and Development.

In an economic survey report for the nation released on Wednesday, the OECD also said the government’s hike in corporate income tax runs counter to trends in other member countries, and that a more efficient way to raise tax revenue would be to increase indirect taxes like the value-added tax.

None of this will please President Moon Jae-in, who was elected last year promising higher incomes and more jobs for average Koreans. He’s promised to keep pushing up the minimum wage, to 10,000 ($9) by 2020. That would see it jump more than 50 percent during his term, prompting push-back from businesses and private economists, who argue that it will cut jobs.

“Unless this is matched by higher productivity, it could push inflation above its target and have a negative impact on Korea’s international competitiveness,” OECD said.

South Korea raised the income-tax rate for the nation’s highest-earning companies to 25 percent from 22 percent starting this year, which is close to the OECD average but above the rate in other Asian economies such as China, Hong Kong, and Singapore, the organization said.

The OECD also recommended that the central bank raise interest rates to gradually reduce policy accommodation.

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