Controversy Over 'Effectiveness, Funding, and Regressivity' of High-Efficiency Appliance Subsidy Supplementary Budget Sneaked Into 'COVID-19' Package

On the 10th, Myeongdong in Jung-gu, Seoul is quiet due to the impact of COVID-19. Photo by Moon Honam munonam@

[Asia Economy Reporter Moon Chaeseok] The government has included provisions related to a high-efficiency home appliance rebate program in the supplementary budget bill (supplementary budget) to recover consumer sentiment worsened by the novel coronavirus infection (COVID-19), sparking controversy over its effectiveness. Since all funds are covered by the Power Industry Infrastructure Fund, which is part of the electricity fees paid by the public, it is necessary for as many people as possible to benefit, but there are concerns that those with relatively higher purchasing power may gain more advantages.

According to the Ministry of Trade, Industry and Energy on the 17th, out of the 362 billion KRW supplementary budget for COVID-19, 300 billion KRW is expected to be used for the high-efficiency home appliance rebate program. The National Assembly Budget Office predicted that about 10 items, including TVs, washing machines, and vacuum cleaners, will be added to the existing items such as air conditioners and refrigerators in the program.

Expected items for the high-efficiency home appliances rebate program listed in the "Analysis of the 1st Supplementary Budget Proposal for 2020" report released by the National Assembly Budget Office on the 10th (Data provided by the National Assembly Budget Office)

There are criticisms that the program's effectiveness is low. In the '2020 First Supplementary Budget Analysis' report released on the 10th, the Budget Office stated that the causal relationship between the rebate program and COVID-19 damage is low. The office pointed out, "Power demand management through power efficiency improvement needs to target areas where it is difficult to achieve without government support," and added, "Since it is expected that high-efficiency home appliance purchases will occur in the market even without government support, the urgency and effectiveness of investing power funds from the perspective of power demand management may not be significant."

Resources, refund rates, and limits for high-efficiency home appliances as stated in the "Analysis of the 1st Supplementary Budget Proposal for 2020" report released by the National Assembly Budget Office on the 10th. (Data provided by the National Assembly Budget Office)

There are also concerns about the fact that 100% of the funding is covered by the power fund. According to Article 36 of the Enforcement Decree of the Electric Utility Act, the fund is accumulated by deducting 3.7% from the electricity fees paid by the public. In 2016, the Ministry of Trade, Industry and Energy covered all 100 billion KRW of the total project cost with Korea Electric Power Corporation's (KEPCO) money, and last year, 40% of the 30 billion KRW was covered by KEPCO's money and 60% by the power fund.

The ministry said, "Article 49 of the Electric Utility Act states that the fund can be used for 'power demand management,' so we applied for the supplementary budget necessary for the rebate program." The Budget Office criticized, "The Electric Utility Act does not specify 'boosting consumer vitality' as a purpose," and said, "Promoting the rebate program as a supplementary budget project is somewhat inconsistent with the fund's intended use."

The average refund amount per case for high-efficiency home appliances under the refund system from November to December 2019, as stated in the "Analysis of the 1st Supplementary Budget Proposal for 2020" report released by the National Assembly Budget Office on the 10th. (Data provided by the National Assembly Budget Office)

There is also a view that regressive controversy may arise. The individual support limit was raised to 300,000 KRW, 1.5 times higher than the 200,000 KRW in 2016 and last year. The Budget Office saw that the rebate program support is provided regardless of income level, which could result in those with higher purchasing power gaining more benefits. Last year's average rebate amounts per support case were 150,000 KRW for refrigerators, 170,000 KRW for air conditioners, and 40,000 KRW for electric rice cookers. Individuals had to purchase 2 to 3 items to reach the limit, so rebate benefits could be concentrated on specific individuals.

The Budget Office suggested, "If the rebate program is promoted, it is undesirable for the benefits of the fund, which is raised by the burden of all citizens, to be concentrated on specific individuals," and recommended, "Considering that lowering the individual limit may not significantly change the incentive to purchase home appliances, it is necessary to review measures to adjust the individual limit amount."

This content was produced with the assistance of AI translation services.