Korea Unveils Small Business Aid, Tax Breaks as Virus Hits (1)

The South Korean government announced a raft of subsidies and consumer incentives to support an economy hit hard by the spread of coronavirus.

The measures, which include rent subsidies for small businesses and temporary tax breaks on car purchases, come after President Moon Jae-in earlier called for “extraordinary” steps to cushion the economy. The government said it will seek parliamentary approval for an extra budget before the end of March.

South Korea is facing a soaring number of coronavirus cases and the economy is struggling with a sharp decline in exports to China, plunging consumer sentiment and a hit to its tourism industry. The country’s central bank refrained from cutting interest-rates when it met Thursday, opting instead to extend inexpensive loans to small businesses and leaving it for the government to take broader action.

“Difficulties surrounding the economy have turned out to be bigger than expected,” the government said in a statement Friday announcing the new measures. “The spillover impact could increase if the outbreak prolongs and especially as China’s economy now has a bigger influence on South Korea.”

Dining Out

Finance Minister Hong Nam-ki said Friday the new spending component of the extra budget would be bigger than the 6.2 trillion won ($5.1 billion) allocated when another viral disease hit the economy in 2015. The total size of the supplementary budget could be larger than that, as it includes funds to fill in any tax-revenue shortfall.

The aid package includes:

• Reduced rent at state-owned properties, and partial reimbursement to landlords who lower rents for small businesses
• From March-June, a 70% reduction in sales tax on automobile purchases
• Reduced entry fees at government-owned museums and lower bullet-train fares
• Seek local parliament approval to cut property taxes for businesses in virus-hit areas
• Urging public officials to eat lunch at local restaurants at least twice a week as a way of supporting businesses under threat

The government said the economic toll became evident from Feb. 19, when the number of coronavirus infections soared from dozens to hundreds. As of Friday the total number of cases in South Korea had topped 2,000 -- the most in the world after China, where the outbreak began.

South Korea’s daily exports to China fell 22% year-on-year in the first 20 days of February, compared to a 0.3% decline a month earlier. In the third week of February, the number of Chinese visitors from South Korea plunged more than 80%, while department store sales dipped 20% and the number of moviegoers more than halved.

(Updates with details on extra budget proposal.)

To contact the reporter on this story:
Jiyeun Lee in Hong Kong at jlee1029@bloomberg.net

To contact the editors responsible for this story:
Paul Jackson at pjackson53@bloomberg.net

Jason Clenfield, Michael S. Arnold

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