Font size: 
The government has announced that it would use 10.5 trillion won (US$10 billion) over a year to help ease the financial burden on some 14 million people suffering from rising oil prices, which have damped domestic demand in the crude import-dependent country.
The package, equal to 5.3 percent of the government's total spending last year, includes income tax rebates and fuel subsidies to low-income individuals and self-employed small business owners.
The government will spend 7.1 trillion won for the tax rebates and 3.4 trillion won for fuel subsidies and enhance the country's overseas resource development competitiveness, according to a statement released on Sunday.
Under the measures, citizens whose yearly wages are less than 36 million won (US$35,000), will receive tax rebates of 60,000 won to 240,000 won depending on their annual salary levels. The government will also compensate half of the rise in diesel prices and rebate the oil tax to bus drivers, truckers, farmers and fishermen for a year from July 1 until June 30, 2009.
The government said around 9.8 million, or 78 percent of the country's workers, and 4 million, or 87 percent of its self-employed people, would be benefited from the aid package.
Prime Minister Han Seung-soo said the package was part of government efforts to help reduce the burden of high fuel costs on consumers and ease inflationary pressure from high oil prices.
"The government has approved this aid plan to ease the pain of the people whose livelihood is being threatened by high fuel costs," Han said. "We have great difficulty as our country is the world's fifth-largest oil consumer while it does not produce a drop of oil," he said.
But the government rebuffed public calls for oil tax cuts, saying it would not help consumers reduce oil consumption. Taxes, including transport tax, driving tax and value-added tax, account for more than 60 percent of the retail cost of gasoline and diesel in South Korea.
Han said the government would consider cutting oil taxes once the price of Dubai, the benchmark for Middle Eastern sour crude, rose past US$170 per barrel. Prices traded at $122.27 on Friday, according to state-run Korea National Oil Corp.
Dubai crude, the benchmark oil for South Korea, which imports nearly 80 percent of its oil needs from the Middle East, surged 78 percent in the past year, posing a huge burden to the country's energy-intensive economy. Rising crude prices have sharply boosted the country's imports, resulting in a widening current account deficit and rising inflation.
The country's consumer prices grew at the fastest pace in seven years in May on higher prices of energy and raw materials. Due to rising energy import costs, the country's economy expanded 0.8 percent in the first quarter from the previous quarter.
Surging inflation has worsened public sentiment hurt by the government's decision to resume imports of U.S. beef despite concerns about mad cow disease, with the popularity of new President Lee Myung-bak plunging to under 20 percent despite his public apology.
Tens of thousands of protesters have been taking to Seoul's main streets almost every day since early May, criticizing Lee over the U.S. beef deal and his handling of other state affairs for the past months since taking office.
The mounting public outcry has caused some of Lee’s top aides, including his chief of staff, to offer to resign. Prime Minister Han and all of his Cabinet ministers are expected to tender their resignations this week.
But opposition parties have stepped up attacks against the ruling camp, describing the US$10 billion spending plan as a move to evade its responsibility, saying it falls short of easing public pain over economic difficulties.
Economists also remain skeptical about the effect of the aid package. "The financial benefit to one individual would be just 20,000 (US$19)," said Song Jae-keun, an economist at the Korea Institute of Finance. "The measure can hardly boost domestic demand," he said.
Disappointed by the government measures, truckers and other unionized workers vowed Monday to press ahead with their plans to stage massive strikes and demand a cut in oil prices. Over 10,000 unionized truckers have begun voting on a strike, raising concerns about possible paralysis in freight shipments.
