[Takryucheongron] Disaster Basic Income, Fiscal Management That Goes Against Income Redistribution

Hong Ki-yong, Professor of Business Administration at Incheon National University (Former President of the Korean Tax Association).

One of the response measures to the novel coronavirus infection (COVID-19) crisis is the concept of 'disaster basic income.' Since all citizens are facing a difficult situation, it is argued that the same amount should be provided to all citizens regardless of the severity of the disaster or income level.

Recently, it is true that the United States announced a plan to spend $1,000 per person (and $500 for children) for all citizens except some income groups. However, this accounts for only a very small portion of the approximately $2 trillion economic stimulus package in the U.S. It is also necessary to consider the fact that the U.S. holds the dollar as the global reserve currency.

In contrast, the proposal in South Korea to provide 1 million won per person, totaling 50 trillion won, is a level difficult to bear within the entire national budget. While countries like the U.S. and Japan focus on saving companies, South Korea is placing significant emphasis on disaster basic income, which is problematic. Since the COVID-19 crisis contains uncertainty about how long it will last in the future, a one-time disaster basic income has its limitations.

The COVID-19 crisis is characterized by blocking economic flow by restricting citizens' outings and suppressing direct contact between people. Production and distribution have been halted. In this situation, even if disaster basic income is paid to all citizens, it is difficult to expect it to contribute to the economy through consumer spending. Also, considering that household debt and utility bills constitute a high proportion in South Korea, there is a high possibility that disaster basic income will be used for purposes other than consumption expenditure.

In fiscal management, income redistribution among citizens should be considered. When collecting taxes, the source of finance, progressive tax rates and other factors reflecting income redistribution are taken into account. However, this disaster basic income does not consider citizens' income levels, which is undesirable as it goes against income redistribution.

There may be political approaches to disaster basic income. Some local government heads have competitively started paying 100,000 won per person to all residents ahead of the central government, even without national consensus. This can lead to indiscriminate waste of finances without considering the local disaster situation or income levels. It seems to place more emphasis on the ideological practice of basic income rather than focusing on overcoming the disaster.

In fiscal management, the priority of financial sources and expenditures must be considered. Most finances come from taxes and government bonds, which are the lifeblood of the people. In the current difficult economic situation where taxes are not properly collected, fiscal expansion must be very cautious. Especially, fiscal efforts should focus on saving companies, which serve as the engine of income sources. It is more important for companies to continuously guarantee employment than for the government to provide several hundred thousand won to citizens as disaster basic income. In the U.S. and Japan, more emphasis is placed on fiscal measures to save companies rather than on the execution of disaster basic income. The U.S. also announced a plan to purchase mortgage-backed securities indefinitely to prevent a collapse of the financial market due to falling housing prices.

Ultimately, disaster support is more effective when it is selective and focused, considering the severity of the disaster and income levels, rather than indiscriminately providing disaster basic income to all citizens. Above all, the resources required for disaster support should first be adjusted by cutting unnecessary government expenditures, and issuing government bonds that become future burdens should be a lower priority. Saving companies, the core of growth engines, should come first, and a blueprint to restore international competitiveness through expanded fiscal and financial support, deregulation, and corporate tax cuts must be presented.

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