S. Korea helps with US$10b aid package

By Seyoon Kim  |   2008-6-9  |     NEWSPAPER EDITION

SOUTH Korea's government said it will provide 10.5 trillion won (US$10 billion) in tax rebates and subsidies to help consumers and businesses cope with surging energy costs.

The announcement comes after oil posted its biggest dollar gain last Friday, and touched an all-time high of US$139.12 a barrel in New York trading, Bloomberg News reported.

The world's biggest energy consumers, including South Korea and the United States, issued a statement on Saturday from a Japan summit expressing "serious concern" over record oil prices and urged a shift to alternative sources of fuel.

"We're facing great difficulty as the world's fifth-largest oil consuming nation while we don't produce a drop of oil," South Korean Prime Minister Han Seung Soo said at a briefing in Seoul yesterday. "The government will do its best to help reduce the burden from rising oil prices on consumers."

Oil prices have doubled over the past year, raising living costs for South Korea's consumers and production expenses for businesses. The nation's inflation rate accelerated to a seven-year high of 4.9 percent in May and economic growth slowed to the weakest pace in more than a year in the first quarter as households and companies curtailed their spending.

"The government step is very positive in that it stepped up to prevent the economy from slowing further," Kim Jae Eun, an economist at Hana Daetoo Securities Co in Seoul, told Bloomberg News. "I don't think the measures themselves will help boost demand at home but they will certainly help protect the economy from sliding further."

The government will provide income-tax rebates to the 78 percent of the nation's workers who earn less than 36 million won a year. Owners of self-run businesses with incomes less than 24 million won will also get a tax rebate. That will benefit about 13.8 million people together, the government estimates.

South Korea will pay 50 percent of the increase in oil costs for bus drivers, truckers, farmers, fishermen and those on lower incomes. Owners of trucks smaller than a metric ton will also receive tax rebates, the government said.

Truckers have threatened to strike if the government doesn't take measures to reduce energy costs, according to the Website of unionized truckers in the country. The union will vote today whether to launch a general strike.

"The government's announcement is beyond disappointing and makes us angry," the truckers' division of Korean Transport Workers' Union said in a statement yesterday. "The government will have to provide more efficient measures, including a cut in diesel prices."

South Korea's government said it will spend 1.3 trillion won to pay half of the accumulated losses stemming from a freeze in electricity and gas prices. The government will raise to 20 percent tax breaks to firms investing in energy-conservation-related facilities, from 10 percent now.