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 on Friday, and touched an all-time high of US$139.12 a barrel in New York trading.
The world’s biggest energy consumers, including South Korea and the US, 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 last month 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,” said Kim Jae-eun, economist at Hana Daetoo Securities Co in Seoul. “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 rebates on income taxes 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.
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 tonne will also receive tax rebates, the government said.
South Korea’s government said it would spend 1.3 trillion won to pay half of the accumulated losses stemming from a freeze in electricity and gas prices.
The government will expand to 20 percent tax breaks to companies investing in energy-conservation-related facilities, from the current 10 percent.
The measures will be effective from next month until next June.
Economic policy for the second half of this year will “reflect” the change in oil prices, Finance Minister Kang Man-soo said yesterday at a briefing in Seoul.
Oil surged to US$130 per barrel, more than the US$90 per barrel the government forecast when it set economic policy earlier this year, Kang said.
South Korea said it would consider further measures, including cuts in taxes imposed on oil products, should Dubai crude oil reach about US$170 a barrel. It will ask state-run energy-related companies such as Korea Electric Power Corp and Korea Gas Corp to refrain from raising energy prices.
The price of Dubai crude, an Asian benchmark, rose 4.2 percent to US$122.13 a barrel at the close of trading on Friday.
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