[Weekly Review] Emergency Disaster Relief Fund 'Nationwide' Distribution After Many Turns

On the 21st, Myeongdong in Jung-gu, Seoul was quiet due to the impact of the novel coronavirus disease (COVID-19). Photo by Moon Honam munonam@

[Asia Economy Reporter Joo Sang-don] The emergency disaster relief fund, which was promoted to strengthen the safety net for citizens suffering from difficulties due to the novel coronavirus infection (COVID-19), will be provided to all citizens nationwide. About three weeks after the government announced on the 30th of last month that the relief fund would be limited to the bottom 70% income group, the target has been expanded to all citizens nationwide. To encourage voluntary donations from high-net-worth individuals, a tax credit for donations will be applied if the support fund is not claimed or is donated.

According to the National Assembly and the Ministry of Economy and Finance on the 24th, the government shifted the target of the disaster relief fund payment from households in the bottom 70% income bracket to all households nationwide through the second supplementary budget bill finalized on the 16th. The main point is to provide the fund to all households first, then recover some of it through voluntary donations, and offer donors an income deduction benefit of about 15% of the donation amount. The support amount is 400,000 KRW for a single-person household, 600,000 KRW for a two-person household, 800,000 KRW for a three-person household, and 1,000,000 KRW for households of four or more.

The budget required to provide disaster relief funds to all citizens nationwide is about 13 trillion KRW. This is about 3 to 4 trillion KRW more than the 7.6 trillion KRW second supplementary budget bill submitted to the National Assembly on the 16th for the disaster relief fund. In other words, about 3 trillion KRW in additional resources must be raised by issuing deficit bonds.

◆ '40 trillion KRW + α' support for key industries such as aviation, automobile, and shipping = The government has decided to support liquidity and capital expansion of about '40 trillion KRW + α' for key industries that have a significant impact on jobs, exports, and the national economy, including aviation, shipping, automobile, shipbuilding, machinery, power, and telecommunications. However, this support is conditional on employment stability and other requirements.

The government will provide emergency liquidity support through the key industry stabilization fund of more than 40 trillion KRW, announced the day before, to major airlines that had been excluded from previous support, on the condition of self-help efforts. The reduction and deferral of airport facility usage fees will be extended at least until August.

For the automobile industry, burdens related to tariffs and inventory stockpiling will be reduced. Payment deadlines for tariffs and value-added tax (VAT) related to parts imports for the first half of the year will be extended up to 12 months, and collection will be deferred up to 9 months. The purchase of about 8,700 vehicles expected in the public sector this year will be implemented early, and up to 70% of the payment will be made in advance upon contract.

Shipping companies will receive liquidity support totaling 1.25 trillion KRW. In particular, up to 470 billion KRW is expected to be allocated to HMM (formerly Hyundai Merchant Marine), a national deep-sea shipping company.

In the case of refining and shipbuilding, tax payment deferrals and production financing support will be provided. For refining, payment deadlines for fuel taxes (transportation, energy, environmental taxes, and individual consumption tax) and tariffs and VAT on imported items (such as crude oil) will be extended. For shipbuilding, production financing (about 8 trillion KRW in 2020) will continue to be supported, and orders will be supported through the issuance of refund guarantees (RG) for advance payments. The extension of the designation of shipbuilding as a special employment industry will also be considered.

◆ COVID-19 triggered economic shock intensifies... Q1 economic growth rate -1.4% = As the economic shock caused by COVID-19 intensifies, South Korea's economic growth rate for the first quarter of this year fell to -1.4%. This is the lowest growth rate in 11 years and 3 months since the fourth quarter of 2008 (-3.3%) during the global financial crisis.

The large impact was due to private consumption and service sector production suffering shocks comparable to those during the foreign exchange crisis. Private consumption in the first quarter decreased by 6.4% compared to the previous quarter. This decrease is the largest since the first quarter of 1998 (-13.8%). Private consumption, which accounts for about half of GDP, usually does not fluctuate significantly on a quarterly basis. However, in the first quarter, private consumption pulled down the overall real GDP by 3.1 percentage points.

Other components aside from consumption performed relatively well amid the COVID-19 situation. Exports decreased by 2.0%, which was a relatively smaller shock compared to private consumption. Looking at the economy from the production side in the first quarter, the service sector decreased by 2.0%, showing a significant impact. This is the largest decline since the first quarter of 1998 (-6.2%) during the foreign exchange crisis.

◆ Public masks expanded to 3 per person = Starting next week, individuals will be able to purchase 3 public masks per week. Previously, to minimize the mask shortage, the government implemented a 5-day mask purchase system from the 9th of last month, limiting the purchase of public masks to 2 per week based on birth year. This system was established as the mask supply stabilized significantly.

Prime Minister Chung Sye-kyun presided over the Central Disaster and Safety Countermeasure Headquarters (CDSCH) meeting held at the Government Seoul Office on the 24th and stated, "As the 5-day public mask system has been established, the mask supply has stabilized significantly," and "Starting next week, the purchase quantity of public masks will be expanded to 3 per person."

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