New Deal Fund, the government is taking investment risks … Controversy over compensation of losses with taxes

President Moon Jae-in (left) greets the Democratic Party representative with Lee Nak-yeon as he enters the conference room of the first Korean version of the New Deal strategy meeting held at the Blue House on the 3rd. Reporters photos of the Blue House

The government initiative to create a ‘Korean version of the New Deal Fund’ is to bring liquidity in the market to the New Deal project, which will invest 160 trillion won in 2025, to reduce the financial burden and increase the business engine.

However, there are criticisms that it is a structure that guarantees the principal through financial and policy funds, although it has not explicitly issued a ‘guarantee of principle’, thus compensating the loss of investors with taxes. In addition, many point out that the essence of the New Deal companies and businesses that will be investment destinations is ambiguous, reminiscent of past control funds.

There are also concerns that if the regime entering the second half of its term raises national money and carries out medium and long-term projects, the next regime will have to take care of it or the business itself may become confusing.

○ A fund of 20 trillion won to offset losses through taxes

The Korean version of the New Deal Fund, which was announced by Hong Nam-ki, Deputy Prime Minister of Economic Affairs and Minister of Strategy and Finance, and Finance Commissioner Eun Seong-soo at the Seoul government office on the 3rd, was establish and promote in three main categories: a political-type New Deal Fund, a New Deal Infrastructure Fund, and a private New Deal Fund.
The “ Political New Deal Fund ” was created by the government and political financial institutions (KDB Development Bank and Korea Growth Finance) investing 3 trillion won and 4 trillion won respectively for 5 years and raising 13 trillion won from the private sector to a total of 20 trillion won. do. Based on this, the government plans to create a children’s fund and invest in companies and projects related to the New Deal. In particular, to induce private investment, government and policy finance assume subordinate investments and take investment risk first. This means that if there is a loss on an investment product, the government and the political and financial institutions will suffer. A government official said, “Of the 3 trillion won of government investment, if there is a loss, it is guaranteed to be guaranteed, and the policy finance takes care of the remaining losses.” Plan”.

The ‘New Deal Infrastructure Fund’ is a method of direct investment in infrastructure facilities, such as renewable energy generation complexes, such as wind and solar energy, and hydrogen charging stations. It plans to provide tax benefits to public offering funds that invest more than 50% in infrastructure related to the New Deal among the 580 infrastructure funds already in operation. The income tax rate on dividends is reduced from 14% to 9% with a limit of 200 million won in investment, and separate taxation is applied. You have decided to improve the related system so that the retirement pension can be invested in the New Deal Infrastructure Fund, as long as the capital is guaranteed.

The government plans to improve related regulations by creating a “Private New Deal Fund”, which is created by discovering investment destinations related to the New Deal directly by private finance companies. To this end, the company plans to develop the ‘New Deal Index’, which is comprised of New Deal companies and industries, and also introduce linked products such as the Listed Index Fund (ETF).

○ There is no standard for New Deal companies, but “investment is widely accepted”

That day, Vice Premier Hong and President Eun emphasized several times: “In fact, it is to guarantee capital” and “We hope to seek a rate of return slightly higher than the interest rate on government bonds (0.92 ~ 1.54%) “. Investment objectives are said to be widely accepted, such as “project New Deal” and “equity investment and loans in New Deal companies.” Many point out that it is a problem that the government has emphasized the main guarantees and returns in a situation in which the possibility of the New Deal project itself being stranded by regime change or low profitability cannot be ruled out.

In particular, most of the New Deal projects that the government has cited for the investment of funds require a medium and long-term investment. There is an opinion that management will be possible with less than two years remaining in the current regime. There are also doubts about whether the government plan will generate profits, given that a project with good business potential would have been invested in the market. Ha Jun-kyung, professor of economics at Hanyang University, said: “Green and digital industries are also interested in other countries, so it is good to move quickly to concern the market. However, competition should occur naturally, and if the government decides and supports the projects, the market could become rigid. “

There is also controversy over what type of New Deal company the fund invests in. A government official said: “There is still no standard for New Deal companies. Listed companies are better off, but unlisted companies are not easy to classify as New Deal companies. “It is noted that there is a case similar to the case in which investment money was concentrated even if only the name ‘com’ was added to the company name in the last dot-com bubble.

Sejong = Song Chung-hyun [email protected] / Jang Yoon-jung / Sejong = Nam Geon-woo’s reporter