I. Current status and implications of the Abe Administration's economic policies
   Compared to three arrows, the economic policies of the Abe Cabinet aim to simultaneously achieve overcoming deflation, economic growth and establishing fiscal soundness through aggressive quantitative easing and an expansive fiscal policy. Examining the status of the major economic policies by fiscal policy, labor reform and the establishment of a business investment environment, first, one can see that the fiscal policy aims to secure a reliable source of the tax revenue base through expanding business investment with growth-oriented taxation reform and boosting economic growth in the mid- to long-term. The fiscal policy of the Abe administration over the past three years achieved positive results including increasing the growth rate and improving the primary balance, but it is expected to face difficulties in achieving the fiscal soundness target (fiscal turnaround by 2020) going forward. This is because of the excessively optimistic economic outlook (real growth rate at 2.0% and nominal growth rate at 3.0%) assumed by the Japanese government, the lack of a specific blueprint for the reform of the tax expenditure structure and short time-frame for fiscal reform.  
  The Abe administration's labor reform is pursued with a focus on the securing of labor and job creation due to low fertility and population aging, and the improvement of labor productivity as part of the efforts based on the mid- to long-term "JAPAN is BACK" program. However, it also faces challenges in terms of the related legislation for resolving the dual structure of regular and non-regular workers and reforming the working-hours regime, which are the key issues of labor market reform.  Moreover, the Abe administration is pushing for the designation of the National Strategic Special Zone, agreement on TPP and measures to reinvigorate the manufacturing industry to establish a business investment environment to reinforce national competitiveness. The efforts to bring regulatory reform and improve international influence through the TPP agreement and to induce consumption and investment expansion through improving companies' profitability and the employment conditions of households are expected to attain a certain level of achievement.   
   However, the Abe administration's economic policies are highly likely to face difficulties unless reform of the tax expenditure structure for future fiscal soundness, labor reform for resolving the dual structure of the labor market and the improvement of labor productivity and the restructuring of weak areas for industrial competitiveness enhancement are effectively pursued. Economic stimuli without restructuring or demand-expansion policies without improvement in the supply sector are bound to have very limited and temporary effects.


II. The rise of US interest rate and its impact on the South Korean economy
   In December 2015, the FOMC decided that the US base rate would be raised from the previous 0~0.25% to 0.25~0.5%. Although the rate increase was set at a level that reflects market expectation, the uncertainties over monetary policies remain as there are still different views on the pace and level of the interest rate rise going forward. The differentiation among the policies of major countries will be an important issue going forward as Europe and Japan are maintaining their quantitative easing momentum and China is moving to depreciate the Yuan, while the US started to normalize its monetary policy in earnest through the rate hike. If the US continues to raise its base rate, there will be a greater direct and indirect impact on the South Korean financial market, and the uncertainties in the South Korean and emerging capital markets are expected to expand. However, in the event of weak emerging countries becoming unstable, South Korea, which has a high sovereign credit rating, may be differentiated from such emerging markets.


III. Major contents of the tax revision in 2015
  The tax law revision bill proposed by members of the National Assembly and submitted by the government was passed at the plenary session on December 2, 2015 after evaluation by the Strategy and Finance Committee. Before the plenary session, the Tax Subcommittee of the Strategy and Finance Committee proceeded with 11 rounds of evaluation of the proposals by members of National Assembly and the bill submitted by the government from November 10th to 30th, and as a result, nine bills including the Framework Act on National Taxes were passed as the alternatives proposed by the Strategy and Finance Committee, and three bills including the Corporate Tax Act were passed as revised bills proposed in the plenary session.  
  The tax revision in 2015 includes the establishment of grounds for the taxation on income of clergymen, the reinforcement of taxation on company cars, the exclusion of some items including premium cameras, etc., from targets of individual consumption tax and the introduction of a non-taxation system on individual savings account (ISA), etc. As a result of the tax law revisions, the tax revenue budget was decided at 222.9 trillion won, which is 200 billion won less than the original government plan (223.1 trillion won), with the reduction by major tax item as follows: -100 billion won from the Income Tax Law, -28.8 billion won from Value-Added Tax Act and -14.6 billion won from Individual Consumption Tax Law.